CHART OF THE DAY: On the Labor Force Participation Rate

Lately whenever we get a new jobs report that shows the official unemployment rate continuing on its slow but steady decline (currently at 7%), we also have to consider the Labor Force Participation Rate, that is, the percentage of the working-age population that is either employed or is actively looking for work, and thus considered to be officially unemployed.

As seen in the below chart, the Labor Force Participation Rate has declined to levels not seen in about 35 years or so, to about 63%. 

Or said differently, the percent of people that are classified as actually being in the labor force, (either working or actively seeking work), has sunk to a level not seen since the late 1970s.

Every time these figures are reported and repeated, there seems to be quite a bit of speculation around the causes of this decline. Just why are there relatively fewer participants in the labor force?

Is it simply a matter of demographics as retirements of the first wave of baby boomers (now in their mid-to-late 60s) start to accelerate?

Or are younger workers simply dropping out of the labor force due to the frustration of not being able to find work, either due to a simple lack of openings or having repeatedly failed to secure work in what is still an extremely competitive job market?

The underlying reasons for this drop in participation do matter I think, as they can be used to more effectively create policies and programs to address them, (if that is needed), as well as for HR and talent pros that might need to understand these trends and include them as an input into their workforce planning process.

Shigeru Fujita from the Federal Reserve Bank of Philadelphia recently published a research paper on the topic, titled On the Causes of Declines in the Labor Force Participation Rate, that attempts to break down the causes of these declines, and for anyone interested in the topic is well worth a read.

In a nutshell, the paper concludes that about 65% of the decline in the Labor Force Participation Rate since year 2000, (roughly when the decline began), and 2013 are due to retirements and disabilities, both suggestive of the 'demographics' side of the declining labor force equation. Note that the 'retirement' portion of the decline only commences in about 2010, when the oldest boomers would be about 65 years old.

Additionally, the paper also concludes that while there was a significant jump between 2007 and 2011 of 'discouraged' workers leaving the labor force, i.e. people that wanted to work, but simple gave up trying to find work, that all the declines seen in participation since 2012 are due to increased retirements and not increases in discouraged workers. These conclusions suggest that the lower labor force participation rate is really the new normal, at least for the short term.

I know I am probably boring you to tears at this point, but I find this data, and the reasons driving the changes, really interesting. If you're organization is having a hard time finding the people you need for your opportunities, or has plans to grow or expand in any substantial way in the near future, then these macro labor force trends are worth considering.

Once folks leave the labor force, it is really hard to get them to come back, whether they have retired, or have simply given up.

Have a great week!

ECON 101: Comparative Advantage: Or, why it still can be ok to be worse at everything

I was talking with a friend recently, the kind of person who is just good (and often really darn good), at just about everything. Successful in their career, well-respected in their industry, good-looking, model family life, knows how to cook/fix/find just about anything.... you get the idea.

We probably all have a friend or colleague that fits that description, maybe even going back to childhood perhaps where the memory of our high school nemesis that was just a little better than us at sports and in class and with the ladies (or guys), always just ticked us off to no end.

No matter what the activity or subject or context, this person was just better.  At everything. And it can easily be pretty annoying.David Ricardo - 'He amassed a considerable personal fortune'

Until you recall (or learn for the first time as in the case of the high school me), the Law of Comparative Advantage. Let's do a quick ECON 101 review:

In economics, comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.

The idea of comparative advantage has been first mentioned in Adam Smith's Book The Wealth of Nations: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage." But the law of comparative advantages has been formulated by David Ricardo who investigated in detail advantages and alternative or relative opportunity in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal. In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce.

Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other. 

This Business Insider piece from the weekend spurred me to think about Comparative Advantage (and what can happen when really powerful and attractive companies like Google are powerful enough to essentially ignore the 'law' in many respects), a look at some of the worst aspects for working for such a desirable employer.

Among the chief complaints raised about life at Google was that their hiring standards are so high and that fact, combined with seemingly everyone wanting to work for them, that many, many sort of mundane positions are staffed with over qualified, exceptional, and often wasted talents. 

Here is an example of how that plays out:

There are students from top 10 colleges who are providing tech support for Google's ads products, or manually taking down flagged content from YouTube, or writing basic code to A|B test the color of a button on a site."

Adam Smith's law of Comparative Advantage, if Google cared about such things, would probably tell them that it was relatively inefficient for them to try to be the best at everything, that more or less, they should focus on those elements where their advantage in the market (for talent in this case), was the greatest compared to their competition, and let the wanna-bees fight it out over the rest.

But I don't really care about Google, I care about you, (I am a giver that way). We both know what it's like having to deal with that person who is just better at everything than we are.

It is tiring.

It is frustrating.

And often, we will simply give up and move on to something else when we really should have stuck with what we loved.

Everything is comparative. If you get a job at Google you are probably going to feel dumb much more often than you are accustomed to feeling.

Note: I had a recent piece over on Fistful of Talent that looks at this topic a little more as well. 

Have a great week!

The obligatory 'Commencement Address' post

It seems that May for the last few years that one or two 'famous person college commencement addresses' gets significant attention from the press, blogosphere, and social media. The reasons that any one of these generally similar and forgettable speeches seems to catch on in the zeitgeist are sometimes different though - it could be that the speech-maker is so famous and powerful that the speech itself begets coverage, or it could be, and I think this is more  interesting, is that it allows said famous person to share his/her thoughts in forum and manner in which we are no accustomed.

I think that reason, largely, was why the commencement address given at Bard College by Federal Reserve Chair Ben Bernanke got so much play over the last few days.

We are used to, and expect, economists like Bernanke to focus on the nuts and bolts of economic policy. Interest rates and inflation. Money supply and surpluses and deficits. The kinds of eyeballs are glazing over topics many of us have last thought about in Economics 101 and then spent years trying to forget. The brain only has so much room for stuff, and did you hear a new season of Arrested Development is getting made?

But what made Bernanke's speech interesting was I think two things - that is wasn't really, primarily what we are used to hearing from him; and secondly, that the essence and importance of the entire message is relevant not just for 21 year-old new grads about to return to Mom and Dad's house, but for all professionals that need to come to terms with how work, workplaces, and careers are changing - mainly driven by technological advances.

Here's Bernanke's money quote:

"During your working lives, you will have to reinvent yourselves many times. Success and satisfaction will not come from mastering a fixed body of knowledge but from constant adaptation and creativity in a rapidly changing world. Engaging with and applying new technologies will be a crucial part of that adaptation."

 I'd suggest that his advice - about adaptation, creativity, and mastering, (or at least coming to terms with), the changing nature of human-technology relationships in the workplace (and in society), are crucial not only for people just starting out in their careers, but perhaps more acutely, for mid-career professionals as well. 

Change, especially change to the definitions, organization, and execution of work and industry impacts the people caught up in the middle much more that the new grad that often is still on outside looking in.

A new grad might spend the next year or three on the sofa at home coming to terms with the fact that the shiny, expensive degree they went $86,000 in debt to obtain doesn't really matter to many employers, or that the all-knowing market and its career-selection process seems to equate their skills, experience, and degree with 'barista'. That kind of stinks, but it isn't, at least not yet, a fatal outcome. When you are that young you still have time to react, to pivot, to try out a Plan B or C even. 

At least until Mom and Dad kick you out, you lousy freeloader.

But if you are say, 44, been working for two decades, have a house, mortgage, big SUV, kids that need new iPhones - well getting caught up unprepared for the kinds of dramatic shifts we are seeing and will continue to see in the workplace is a much more serious matter.

While it seems like the game is more and more getting rigged to the detriment of the new college grads at least they have something that the mid-career pro doesn't - lots and lots of time. And also, often, the luxury of being able to make a mistake or two.

Bernanke's address really isn't that remarkable on it's own. But instead of giving it to the class of 2013, it should be read at all the 20 and 25 year class reunions coming up. Those folks need the advice more.

Have a great week! 

Is it a skills gap or a bias against the long-term unemployed?

I'd like to call your attention to what is essentially more wood for the fire of the seemingly endless 'Skills gap' debate - a summary of some recent research by two Northeastern University academics, William Dickens and Rand Ghayad, titled 'It's not a skills mismatch: Disaggregate evidence on the US-unemployment-vacancy relationship' posted this past weekend on the Vox site.  

You should take a few minutes to read the piece from Dickens and Ghayad - it provides an interesting and somewhat alternative method of examining the alleged skills gap problem - the scenario that so many corporations, government agencies, and educational institutions seem to take as truth. Namely that one significant reason (perhaps the most important reason) for persistently high unemployment, even after the official recession was over, is that a fundamental 'skills gap' is preventing organizations from filling many of the millions of current vacancies that exist in the USA.US Beveridge Curve 2004 - 2010

Dickens and Ghayad analyze the behavior of the so-called 'Beveridge Curve', the relationship between unemployment and job vacancies that is an indicator of the efficiency of the labor market. As you'd expect, the Beveridge Curve suggests that as the vacancy rate increases, the corresponding unemployment rate decreases (in an efficient labor market), as more people find work in an environment of increased opportunity.

But in the months following the end of the recession, the data points that connect the level of job vacancies and the reported unemployment rate continue to lie outside of the range of expectations suggested by the Beveridge Curve, implying some kind of inefficiency in the labor market. The most common explanation for this discrepancy is the 'skills gap', simply that the nature of work is changing so rapidly, that the skills and experience that employers demand simply can't be met efficiently by what skills and experience that the unemployed job seekers present.

Dickens and Ghayad take the Beveridge Curve data a bit further however, by examining how the relationship between increased job vacancies correlates to the unemployment rate for multiple stages of unemployment, from the short term, (less than 5 weeks), to the long-term, (more than 26 weeks). The results of this analysis are startling. Essentially the researchers found that only at the longest unemployment durations, does the Beverdige Curve 'jump' or shift.  At the shorter and medium term unemployment periods the data shows consistency with the historical trends, i.e. as job vacancies increase, unemployment rates decrease.

Said more simply - as the economy continues to recover, and more job vacancies get created, the expected reduction in the unemployment rate implied by the Beveridge Curve has held except for the long-term unemployed cohort, defined as being unemployed for greater than 26 weeks. For this group of unemployed workers, and this group only, job vacancy increases have not resulted in the expected and historical level of unemployment reduction. The authors contend then, that a fundamental 'skills gap' problem can't be the cause of aggregate high unemployment, otherwise we would see this effect across the entire range of unemployment durations, not just the longer term. From the Vox piece:

 It is possible that the long-term unemployed are increasingly made up of workers whose skills are not suited to available jobs. However, if this were the case why wouldn’t we see some outward shift in the short-term relationship as well? Furthermore, the fact that the vacancy-unemployment relationship has shifted in all industries when only the workers who were previously employed in those industries are considered calls the mismatch hypothesis into question as well.

 Another possibility is that the long-term unemployed in this recession may be searching less intensively, either because jobs are much harder to find or because of the availability of unprecedented amounts and durations of unemployment benefits.

This seems like a more likely explanation, though if a drop in search intensity is due only to difficulty finding jobs it again raises the question of why we wouldn’t see that at shorter durations as well.

It is interesting and challenging data for sure, but it has some pretty important implications if the author's conclusions are correct. Mainly, that the recovery is passing right by the long-term unemployed. Whether it is job search fatigue and discouragement, or a more troubling employer bias against these people, either way, if this recovery is effectively creating a large and growing class of unemployable (for myriad and hard-to-determine reasons), then even as the total unemployment rate seems to stabilize, the problems we face as a country and an economy will persist.

What do you think - does this 'skills gap' really only exist, (if at all), once someone has been out of work for quite a long time? 

What do these 'Big Trends' mean for HR?

I admit it, I am a total mark for Business Insider. 

A superb mix of business, tech, culture, politics, economics, sports, celebrity gossip - all delivered with bludgeon-like ridiculous volume probably running upwards of 100 posts each day.

Recently BI ran one of their guaranteed to generate a ton of page views slideshows that actually drove me to click through all (70!) distinct pages. Titled 'The US 20: Twenty Big Trends That Will Dominate America's Future', it was just the right blend of data, speculation, hype, and occasional insight that makes BI a go-to site. 

The entire slideshow is worth a read click-through, but in case you are one of the 'I hate internet slideshow' types, I will spare you all the clicks and page loads and give you just 5 of the 20 Big Trends from the BI piece, the ones that might have the most direct impact to you as a HR, Talent, of HR Technology pro.

Trend #2 - America is Aging - Key Statistic: The median working age in America is 42.1, up from 35.4 in 1986.

This one is sort of a easy selection, I've blogged about it before here, but is bears repeating as the population ages the impacts on hiring, retention, work practices, learning, training, and just about everything else that happens at work will be impacted.

Trend #5 - The Epic Rise of Student Loan Debt - Key Statistic: Student loan debt recently topped $1 Trillion, making it the largest category of consumer debt other than mortgages in the United States.

Impact on the workplace? More younger workers stressed over their personal finances, more willingness to jump ship for a few more $$ somewhere else, and more likelihood of younger workers taking second jobs and taking work on the side.  

Trend #13 - The U.S. Manufacturer Roars Back - Key Statistic, (really more of an observation), increased productivity combined with cheaper sources of domestic energy could continue to spur sustained growth in U.S. manufacturing.

The State of manufacturing in America is constantly in flux, but we are starting to see more and more pieces about the return or renaissance of American manufacturing. A recent piece in Foreign Policy offers additional compelling reasons for the renewed strength in domestic manufacturing like robotics, artificial intelligence, and 3-D printing. No matter the root causes, if more organizations see benefits in re-shoring manufacturing, talent professionals will be under considerable pressure to find, attract, recruit, develop, and retain the kind of employees and leaders needed to make it happen.

Trend #17 - American Cities as Economic Juggernauts - Key Statistic - Urban areas account for 84% of US GDP

National growth will continue to be driven by cities, both large and medium-size. It makes sense that talent will chase after said growth and opportunity. If you are a talent pro in an organization not in or near one of these urban centers it could get even harder to lure the people you need from the areas or higher growth to your sleepy little town.

Trend #18 - Immigrants Driving Product Innovation - Key Statistic - News Corp, (and others), investing heavily in new properties aimed at the growing Hispanic market

If your organization is among the many that will seek growth and market share from an increasingly diverse set of customers then does your staffing, development, and leadership models adequately reflect the markets you are competing in? Do you have the right people that can understand and effectively service these markets?

Ok, enough of these 'Big Trends', I think you get the idea. Organizations, and certainly the people inside organizations directly responsible for shaping their workforces, (that's you), have to be aware of the environment in which they operate. Economics, demographics, heck even politics - these things do matter, even if they seem kind of far off, or only the concerns of global mega-companies.

What do you think, what are some of the big-picture trends impacting the work you do as an HR and Talent pro?