| BUSINESSWEEK ONLINE : APRIL 26, 1999 ISSUE | ||||||||
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| ECONOMIC TRENDS
Solving a Labor-Market Puzzle How high tech sinks some workers By most measures, the U.S. labor market is turning in its best performance in decades. The jobless rate, at 4.2%, has hit a 29-year low, while the percentage of the population with jobs has reached an all-time high. And last year, the share of workers experiencing any period of unemployment was the smallest in at least 40 years. Yet one indicator seems out of step with the parade of good news. The average spell of unemployment, which has been falling as it always does during a recovery, still remains unusually high. In a recent study, New York University economists William J. Baumol and Edward N. Wolff argue that this development is directly related to the changing nature of the U.S. economy over the past two decades. While still fluctuating with the business cycle, average jobless spells in the U.S., they note, have actually been growing longer since the 1970s (chart). An analysis by Robert G. Valletta of the Federal Reserve Bank of San Francisco linking the various causes of unemployment to average jobless spells throws light on the issue. He finds no impact from shifts in either temporary layoffs, voluntary quits, or new entrants to the labor force. Instead, it is an upward trend in permanent layoffs since the late 1970s that is the main culprit behind more extended jobless spells. But that's only half the story. As Baumol and Wolff see it, the rising incidence of permanent job loss--which is most visible in the continuing wave of downsizing that first surfaced in the 1980s--is related to the speedup in technological change. In an innovative economy, they argue, there is an accelerated pace of opening and closing of business units, which gives rise to periodic bouts of firing and hiring as new advanced plants replace old, backward ones. At the same time, changing technology tends to raise skill requirements. And because training and retraining costs are high, employers tend to shun poorly educated workers and especially older workers--who may be set in their ways and who are closer to retirement. The upshot is protracted periods of joblessness for such workers. Although this argument isn't new, Wolff and Baumol buttress it with an econometric model relating duration of unemployment to such variables as productivity, R&D outlays, and spending on computers per employee. They report that all are positively associated with lengthening jobless spells, but it is the rise in computer outlays that seems to have had the most impact--particularly on older workers. In short, today's technologically charged economy appears to be leaving many workers by the wayside--a situation that Baumol and Wolff think will require government action in the years ahead, when slowing labor-force growth and a rising elderly population will tend to brake the economic engine. BY GENE KORETZ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS CHART: Jobless Spells Have Been Growing Longer INTERACT E-Mail to Business Week Online | |||
