Notes On: Labor Markets after the Great Recession: Unemployment and Policy for Indiana

By Hicks, Michael J. | Labor Law Journal, Summer 2013 | Go to article overview

Notes On: Labor Markets after the Great Recession: Unemployment and Policy for Indiana


Hicks, Michael J., Labor Law Journal


Executive Summary

This study examines the labor markets of the United States during post-recessionary periods with particular emphasis on Indiana's experience after the Great Recession.

We report that the wage gap between workers at different levels of educational attainment has continued to widen, favoring more educational attainment. This study finds that the share of tradable jobs (primarily manufacturing) has shrunk over the past two decades, while non-tradable (service sector) jobs have steadily grown in Indiana. This observation connects to the wage gap because higher skilled workers have migrated to the service sector, where compensation and wages are more closely tied to education and skills.

During the Great Recession, the unemployment rate gap between workers of different educational levels widened. In the aftermath of the recession, the gap between workers with a college degree and others has remained at more than twice the pre-recession level, while other unemployment rate gaps have largely returned to trend. So, a lack of education and skills not only reduces wage growth, it also leads to much higher levels of unemployment (or longer, more frequent periods of unemployment for lower skilled workers).

This study finds that the shift from production-oriented to service-oriented jobs is not a smooth process. Rather, occupational shifts happen in short bursts, during a recession, and have been especially prevalent in this recession. Interpreting this finding from other research suggests that this is closely linked to technological change occurring at a more rapid pace during a recession. The implication of this finding is that a large number of workers with 'skills mismatch' are most likely part of the national labor force.

This study recalculates the Beveridge Curve, which links job openings with unemployment. We find that this relationship suggests a much higher level of skills mismatch in the national economy today.

In estimating employment changes in Indiana on a number of factors, we find that the housing bubble and manufacturing intensity played no real role in changes in employment. Levels of educational attainment (college experience) dominated the statistical model of employment growth from 2007 through 2011 in Indiana's counties. Further, we estimate that between 130,00 and 150,000 Hoosier workers suffer skills mismatch, which leaves them unable to find employment.

We conclude with a review of human capital policy in Indiana, in which we find:

* Focus on college attendance and completion is a necessary but not sufficient element of state policy. A stronger focus on development of market-oriented skills is needed (for post-secondary students).

* New developments at the K-12 level should boost overall educational attainment, but a full evaluation of these changes as well as their capacity to affect the aggregate economy will take time to fully mature.

* Workforce Investment Act training efforts are widely dispersed and subject to multi-agency budgetary constraints at the federal level. This weakens their efficiency.

* Indiana's human capital challenges cannot be remedied by education alone. We train enough college graduates, but too many of them do not find communities in Indiana that meet their needs and interests, resulting in out-migration of an important source of talent.

* There are important private sector initiatives that offer models of engagement.

Introduction

In the wake of the Great Recession, many Indiana policy makers and advocacy groups have focused their attention more narrowly on human capital development. This has manifested itself in such steps as the adoption of extremely aspirational educational attainment goals by the Higher Education Commission and the adoption of an early childhood education agenda by both the Republican and Democratic caucuses in the General Assembly. This reinforced focus on human capital will be welcomed by economists, who are aware of a long history of empirical research that has linked levels of education to the ability of regions to grow. …

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