Bad Tidings for the Jobless

By Charles P. Alexander

The road back to a low unemployment rate will be long and difficult

Just as hopes were beginning to build that an economic recovery was finally at hand, last week's news from the Labor Department came as a profound shock. The unemployment rate vaulted from 10.4% in October to 10.8% in November, its highest level since 1941. Some 12 million Americans are now facing a grim holiday season with no paychecks. Joblessness in the battered Midwest is reaching Depression levels: 17.2% in Michigan and 14.2% in Ohio. Congressional Democrats, who heard the bad tidings in testimony from Janet Norwood, commissioner of labor statistics, immediately attacked the White House. Representative Augustus Hawkins of California denounced the Administration's economic policy as "a shabby betrayal of public trust." Aboard Air Force One en route to Colombia on his Latin American tour, President Reagan conceded that "the unemployment report represents a continuing tragedy. This news makes it important that we press forward in our efforts to create a solid, sustained recovery."

Most economists were surprised by the sharp jump in joblessness. Says George Perry, a senior fellow at the Brookings Institution in Washington, D.C.: "All claims that the recession is ending now ring rather hollow." Perry fears that unemployment may go on rising into the spring and top 11%.

Bad as the news was for the short-run outlook, it was almost matched for bleakness by long-run prognostications made last week by the chairman of the President's Council of Economic Advisers. A somber Martin Feldstein told a breakfast gathering of reporters at the Washington Press Club that the unemployment rate may take five or six years to drop to the 6% to 7% level that prevailed during the early months of 1980.

Trying to downplay the White House's responsibility for such a dismal prospect, Feldstein and Treasury Secretary Donald Regan have argued repeatedly in recent weeks that the U.S. is plagued by a high rate of "structural unemployment," which cannot be cured by the Government's traditional pump-priming tactics of boosting spending or expanding the money supply. The term structural unemployment is a fuzzy concept that has been bandied about by economists for years, but has no clear-cut definition. Generally speaking, it refers to people out of work not as a result of a recession, but because their skills do not match the available jobs. There is no way to identify or count such workers with any precision. Nonetheless, many economists, including Feldstein, estimate the structural unemployment rate at about 6% or 7%. The figure seems puzzlingly high to laymen, who recall that when the Humphrey-Hawkins Full Employment and Balanced Growth Act was passed in 1978, an unemployment rate of 4% was considered the highest acceptable limit.

Even in a perfect economy, some members of the labor force would turn out to be unemployed whenever the statistics were collected--people shifting from one job to another or changing careers, for example, and people just coming into the labor force and beginning to look for work. Economists call this phenomenon "frictional" unemployment, and some, including Feldstein, are counting it as part of structural unemployment when they use a rate as high as 6% or 7%. According to some rough calculations, about half of that is probably frictional.

The other half, involving perhaps 3 million people, reflects a much more serious problem in the labor market: the mismatch between workers' skills and the skills needed by employers. Growing numbers of young people, particularly from minority groups, are joining the work force with such poor educational backgrounds that they are ill prepared for most jobs. The unemployment rate among black teen-agers has reached 50.1%. Foreign competition has cost hundreds of thousands of workers their jobs in such declining industries as autos, steel and textiles. In the auto business alone, 255,000 employees, or 23% of the blue-collar work force, are on indefinite layoff. Company and union officials concede that most of these workers will not be recalled, even if the economy recovers. Says David Herlick of Woodhaven, Mich., a Ford worker who was laid off 15 months ago: "There's no light at the end of the tunnel. There's just a big iron gate."

More ominous, new forms of automation Like computerized robots are eliminating blue-collar jobs at a swift pace. The Congressional Budget Office estimates that by the end of the decade, advances in microelectronic technology could cause 3 million jobs to disappear, a total that represents 15% of the manufacturing work force. At the same tune, of course, millions of new positions will be created for those who can work with the electronic gadgetry. The problem is that most assembly-line workers, particularly the older and less educated ones, will find it tough to learn sophisticated skills Like computer programming.

While most economists agree that structural unemployment is something to be very concerned about, many believe that the Administration is trying to use the concept as a smokescreen to cover its failed policies. "How do you measure structural unemployment?" asks Sar Levitan, an economics professor at George Washington University. "You pull a figure out of the air. Those who talk about it are playing with numbers to build up a justification for unemployment." Says Barry Bosworth, an economist who was director of the Council on Wage and Price Stability under President Carter: "We have an enormous number of jobless people who are fully employable. They were employed just a year or two ago. But now, in the midst of a recession, all the talk is about structural unemployment. The immediate problem is that there are not enough total jobs."

Responding to such criticism, Senate Republicans introduced a White House-endorsed bill last week to create new jobs through a 50 increase in the federal gasoline tax. The added tax would generate, over the next five years, revenues of $27.5 billion for repairing highways, bridges and urban mass-transit systems, thus spawning an estimated 320,000 jobs. On top of that plan, House Democrats began drafting a $5 billion proposal for putting people to work renovating veterans' hospitals, low-income housing projects and other public facilities.

Skeptical economists argue that neither scheme will have much immediate impact on unemployment. They point out that public works projects launched during past recessions took so long to gear up that they had no real effect until the economy was already well into recovery. Moreover, contends Bruce Bartlett, deputy director of the Congressional Joint Economic Committee, up to 75% of the construction jobs will go to skilled workers and therefore will hardly make a dent in structural unemployment.

One of President Reagan's primary prescriptions for hard-core joblessness is his enterprise-zone bill, which would authorize tax breaks for businesses that create new jobs in depressed urban and rural areas. Urging Congress to pass the legislation during its lameduck session, the President said last week that the law "would provide a new lifeline to people who live in our inner cities."

Another idea under consideration at the White House is to make the minimum wage lower for teen-agers than it is for older workers. The wage floor is now set at $3.35 per hour, and many economists are convinced that this level discourages companies from hiring and training young, inexperienced job seekers. Says Peter Aranson, an economics professor at Emory University: "The one piece of legislation that has done the most to hold down employment among young blacks is the minimum wage law." Any Administration initiative to establish a two-tier minimum wage, however, would be anathema to organized labor and face rough going in Congress.

Labor specialists doubt that tinkering with the tax laws and the minimum wage will be enough to solve the dilemma of structural unemployment. New training programs will be needed, they say, to help inexperienced and displaced workers learn marketable skills. So far efforts along these Lines by the Federal Government have been woefully inadequate and mismanaged. The programs created by the Comprehensive Employment and Training Act of 1973 to help the disadvantaged have been costly ($55 billion spent) and riddled with waste. Now Congress has replaced CETA with a Government-business training program run by state Governors with the help of private industry councils in cities and towns across the U.S. In these organizations, local business executives, aided by labor leaders and city officials, will supervise training and job placement for the unemployed.

The Government has no comprehensive strategy for retraining workers displaced by foreign competition or changing technology.

Instead, an irrational patchwork of 23 programs has grown up over the past two decades to help such diverse groups as unemployed railroad workers or lumberjacks in the redwood forests of California.

Some states are moving to fill the void. Massachusetts, for example, last year set up the Bay State Skills Corp. and endowed it with $8 million to establish training programs. Already 3,400 people are learning such skills as computer programming and electromechanical drafting to qualify for jobs with 185 companies, including Honeywell and General Ship & Engine Works.

Labor unions are also actively pushing retraining. In September the United Auto Workers announced a $10 million joint venture with General Motors and the state of California to turn 8,400 laid-off GM employees into aerospace-equipment assemblers and data processing-machine repairers.

Though promising, the training now under way offers help to only a fraction of the structurally unemployed. The programs will have to be greatly expanded and improved through the combined efforts of industry, labor, governments and educational institutions. Giving today's workers the skills for tomorrow's jobs will be a formidable economic challenge for the 1980s.

--By Charles P. Alexander. Reported by Gisela Bolte/Washington and Paul A. Witteman/Detroit

With reporting by Gisela Bolte/Washington and Paul A. Witteman/Detroit

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