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Untapped, Not Unemployed

Mismatch of Skills + Jobs

Congrats, you have a job! But is that job below your skill level?

Why you should care

Because it’s not just the sub-employed who suffer when their potential is left untapped. We all do.

Got a job? Count your blessings. Got one that uses your skills and pays you for them? Wow.

The U.S. employment picture is definitely brightening. An unforeseen surge in jobs gained helped drop the jobless rate to 6.3 percent in April. The Federal Reserve thought we wouldn’t get there until the end of the year.

Yet ignored as always in the monthly report: the continuing plight of the “sub-employed” — the vast population of workers whom the Great Recession demoted to jobs below their education, experience and skill levels. They’re the journeyman carpenters advising do-it-yourselfers in Home Depot, the bank loan processers fielding customer-service calls for Verizon, the restaurant managers frothing lattes at Starbucks.

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When people are not at the top of their earnings capacity, demand for goods and services lags, creating an additional drag on economic growth.

— Peter Philips, labor economics professor, University of Utah

Labor economists agree that today’s sub-employed likely number in the millions. The Bureau of Labor Statistics (BLS) and research economists don’t count them. The Fed tracks “capacity utilization” of American factories each month, but under-utilization of human capital — arguably the nation’s most important resource — is anyone’s guess.

“It unfortunately isn’t something that’s at all straightforward to measure,” says Katharine Abraham, a recent member of the president’s Council of Economic Advisers and head of the BLS under former President Bill Clinton.

Even more unfortunate: The economy’s inability to elevate these overlooked casualties of the financial meltdown affects everyone.

“Sub-employment acts as a drag on the economy,” says Peter Philips, a University of Utah labor economics professor. “Idled skills are a wasted opportunity and run the risk of that human capital depreciating, since human capital can rust just like physical capital.

“Sub-employment also typically means sub-wages,” Philips says. “When people are not at the top of their earnings capacity, demand for goods and services lags, creating an additional drag on economic growth.”

Conservative economists view many of the sub-employed as the lemons of the labor force, knocked down in job stature and income by an efficient-market shakeout. Their liberal counterparts consider most of them a productive force disabled by the failings of a free market.

While they’ve yet to take a census of the sub-employed, economists do have a term for what lands them there: “cyclical downgrading.” It’s akin to thinning of the herd by recession — the permanent loss of high-paying auto, steel and other manufacturing jobs in the 1981–82 downturn; and the premature retirement of countless and often costlier baby boomers in the latest one.

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How big is the problem today? Comparing the current job recovery’s pace with the last steep recession in 1981–82 suggests the ranks of the sub-employed are the largest since the Great Depression.

The U.S. lost 2.8 million jobs in the 1981–82 recession and then gained 14.9 million within five years — more than five times the job loss. In the latest recession, the economy shed 8.7 million and is only just now surpassing that number 4-1/2 years into recovery.

The estimate of the “mal-employed” — recent college grads holding jobs that don’t require a college degree — also hints at the scope of the problem. Northeastern University’s Center for Labor Market Studies put the mal-employment rate last June at 37 percent, up from 28 percent in 2000.

The difference is that college grads may be educated but not yet “skilled,” compared to the sub-employed with years or even decades of experience and training.

We shouldn’t only be counting unemployed people … we should also count the production potential of people who are underplaced.

— Till von Wachter, economics professor, UCLA

University of Chicago economics professor Casey Mulligan says the predicament facing the sub-employed and mal-employed may be a lack of skills to match the needs of an evolving, technology-driven economy. Yet Mulligan agrees that more study is needed.

Economics researchers say the BLS or a university research center could determine monthly sub-employment rates; it’s simply a matter of paying for it.

“These type of surveys are expensive, but you could identify them with screening questions such as ‘Do you feel like you’re using all the skills and training you have in your present job?’” says Liz Hamel, director of public opinion and survey research for the Kaiser Family Foundation, which conducted surveys on various issues facing the unemployed.

The degree to which workers get ‘stuck’ in jobs whose skill requirements are below their skill level, or who are simply a bad match, can be taken as an indicator of the health of the recovery,” says Till von Wachter, a UCLA economics professor.We shouldn’t only be counting unemployed people … we should also count the production potential of people who are underplaced.”

Philips agrees: “Knowing if plants and equipment are being used at full capacity or under-capacity provides a gauge for politicians, policymakers and people in general to assess the need to stimulate the economy. We need a similar measure for human capital.”

Maybe it’s time to create one and start using it.

Chris Pummer is a financial editor and writer who’s worked for CBS.MarketWatch.com, Bloomberg News and several major newspapers.

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