Sunday, March 26, 2006

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The trouble with job retraining

Louis Uchitelle has a must-read excerpt from his forthcoming book The Disposable American: Layoffs and Their Consequences in the Business section of the Sunday New York Times. The article covers the fallout of union militancy at a United repair shop in Indianapolis, and what happens when United started outsourcing the work to non-union shops elsewhere in the United States.

Read the whole thing, but here's one section that might give readers some pause:

[J]ob training is central to employment policy. It has been since 1982, when Congress passed the Job Training Partnership Act at the urging of President Ronald Reagan. President Bill Clinton took job training even further, making it available to higher-income workers — including the aircraft mechanics in Indianapolis.

Saying that the country should solve the skills shortage through education and training became part of nearly every politician's stump speech, an innocuous way to address the politics of unemployment without strengthening either the bargaining leverage of workers or the federal government's role in bolstering labor markets.

But training for what? The reality, as the aircraft mechanics discovered, is painfully different from the reigning wisdom. Rather than having a shortage of skills, millions of American workers have more skills than their jobs require. That is particularly true of college-educated people, who make up 30 percent of the population today, up from 10 percent in the 1960's. They often find themselves working in sales or as office administrators, or taking jobs in hotels and restaurants, or becoming carpenters, flight attendants and word processors.

The number of jobs that require a bachelor's degree has indeed been growing, but more slowly than the number of graduates, according to the Labor Department, and that trend is likely to continue through this decade. "The average college graduate is doing very well," said Lawrence F. Katz, a labor economist at Harvard. "But on the margin, college graduates appear to be more vulnerable than in the past."

The Labor Department's Bureau of Labor Statistics offers a rough estimate of the imbalance in the demand for jobs as opposed to the supply. Each month since December 2000, it has surveyed the number of job vacancies across the country and compared it with the number of unemployed job seekers. On average, there were 2.6 job seekers for every job opening over the first 41 months of the survey. That ratio would have been even higher, according to the bureau, if the calculation had included the millions of people who stopped looking for work because they did not believe that they could get decent jobs.

So the demand for jobs is considerably greater than the supply, and the supply is not what the reigning theory says it is. Most of the unfilled jobs pay low wages and require relatively little skill, often less than the jobholder has. From the spring of 2003 to the spring of 2004, for example, more than 55 percent of the hiring was at wages of $13.25 an hour or less: hotel and restaurant workers, health care employees, temporary replacements and the like.

That trend is likely to continue. Seven of the 10 occupations expected to grow the fastest from 2002 through 2012, according to the Labor Department, pay less than $13.25 an hour, on average: retail salesclerks, customer service representatives, food service workers, cashiers, janitors, nurse's aides and hospital orderlies.

As Mark Thoma points out, "the article is more successful at identifying the problems than it is at finding a recipe for solving the displaced worker problem."

posted by Dan on 03.26.06 at 11:15 PM


Martin Wolf: Answer to Asia’s rise is not to retreat - The forces pushing for global wage equalisation through trade are quite weak. Nevertheless, the end result is likely to be employment of unskilled labour almost exclusively in the production of non-tradeable goods and services. But provided controls are maintained on immigration of unskilled labour, that need be no disaster. Other measures are also worth considering. Among them are lowering taxes on low-wage incomes; subsidies to the wages of unskilled workers; and support for education and training.

posted by: post pc on 03.26.06 at 11:15 PM [permalink]

If this is prosperity under globalization, bring on the tariffs and the trade wars.

Or would you free-traders rather just decay as a nation into crime, poverty, broken homes, ill health, and all the education that suits intermittent McJobs and manual labor? That would be quite an accomplishment for your Republican "values".

posted by: camille roy on 03.26.06 at 11:15 PM [permalink]

What I walked away from the article with is how self-destructive the union was. They worked very hard to convince United to close the shop.

"When United and the union finally signed a new contract in March 2002 — 20 months after the old one expired — and the mechanics in Lodge 2294 lifted their ban on overtime, United continued to outsource maintenance, gradually shrinking the operation in Indianapolis. Under the new agreement, the mechanics' combined wages and benefits rose to more than $60 an hour, an increase of roughly $20. While that was the first increase in five years, the new total was double the labor cost of nonunion contractors. It was too big a spread for the mechanics in Indianapolis to overcome — unless they could return to the record turnarounds achieved in the late 1990's. But the old efficiency did not reappear."

What the part of the article on re-training proved was that when you are at the top of the ladder, it is very hard to climb farther. Clearly, when you have highly skilled people it is hard to re-train them for better jobs:

"Earning the old level of pay again was rare. Of the 185 mechanics back at work in the spring of 2004, most earned $14 to $20 an hour as heating and air-conditioning repairmen, auto mechanics, computer maintenance workers, freight train conductors (CSX happened to be hiring) or cross-country tractor-trailer drivers ...

Only 15 of the re-employed mechanics had regained their United wage level or exceeded it, and 8 of those 15 did so by becoming aircraft mechanics again. Several of the mechanics, stifling reluctance and resentment, had left Indianapolis to work for the companies that United and other airlines were using to do heavy aircraft maintenance. They were mostly younger mechanics with relatively little seniority when United laid them off and were still low on the wage scale, earning $19 or $20 an hour, which is what the outsourcing contractors also paid them. For the contractors, however, $19 or $20 an hour was top pay."

Of course, United went bankrupt overpaying its employees. Another point is labor mobility. The one specific case the author mentioned was a fellow who had come to Indianapolis from San Francisco.

If you want to draw conclusions on retraining programs, I think you would need a broader spectrum of workers.

posted by: Robert Schwartz on 03.26.06 at 11:15 PM [permalink]

Uchitelle seems rather sympathetic to the workers, who, it must be remembered, got themselves into the position in which they find themselves by going into a unionized work force.

Are we to fell sympathy or pity for these workers?

posted by: Dave on 03.26.06 at 11:15 PM [permalink]

Mark and Dan are right that "the article is more successful at identifying the problems than it is at finding a recipe for solving the displaced worker problem."

However, I'm not sure what implications they draw from it. My own view, based on admittedly very limited reading in this area, is that the flaw is not at all unique to this article. In fact, no one has a very good solution to this problem, which is why hostility to displacement continues to simmer. These people are not stupid. They know that if their jobs disappear they will do worse, and many of them much worse.

It is certainly possible to question the strategies pursued by the local union at this plant or another, or the management strategies at this plant or another. What matters are aggregates, and what happens to the people who have to face the labor market after layoffs. And the results reported by this article are dismal indeed.

I will be interested to see the reviews of this book from economists who study job displacement to see whether their findings agree with these.

posted by: TedL on 03.26.06 at 11:15 PM [permalink]

I think if anyone did a little bit more looking at the "job training" boondoggles we'd be even more agitated. Here in my hometown's community college you can sample the liberal arts pontifications of our tenured Ward Churchill-types immediately, but there is a two and a half year waiting list to enter the nursing program.

posted by: wks on 03.26.06 at 11:15 PM [permalink]

I think it is almost *inevitable* that relatively few highly paid workers who lose their jobs in mass layoffs will find other jobs at comparable wages -- simply because mass layoffs occur when there groups of workers who are no longer economically competitive. Beyond that, these workers aren't just 'trained' they are trained in the specialized work of jetliner maintainance. Some of those skill translate to other industries, but most don't, and that is typical of senior people with highly-specialized skills.

But retraining is different than training. What of the mismatch between those with degrees and jobs 'requiring' degrees? When we set aside degrees that are 'vocational' (business, engineering, science) there are very few jobs that really *require* liberal arts degrees in literature, art history, philosophy, etc. There are many employers who hire these grads, but only for the signalling value of the degree rather than of any particular applicable knowledge or skills.

posted by: Slocum on 03.26.06 at 11:15 PM [permalink]

What is the "problem" here? They were sabotaging their employer for two years over what seem like insignificant slights. They misjudged their bargaining leverage. The fact that few of them returned to the $30 an hour is testament to the fact they were overpaid in the first place. If this was a story about white collar workers who got laid off from $50,000 jobs there would be no story because office workers do not serve as picturesque (if that is the right word) an object of sympathy for the NYT.

posted by: smally on 03.26.06 at 11:15 PM [permalink]

This seems like the key nugget:

"The militants in his local fanned those fires, arguing that the mechanics, because of their unique skills, were special people, essential to airline safety, and that United should be forced to recognize their value."

posted by: smally on 03.26.06 at 11:15 PM [permalink]

The article or none of the comments seem to identify that in some ways this is a special situation. The real change here was deregulation and its unforeseen consequences.
Under regulation airline employees -- including mechanics -- were able to profit from artificially high fares. When that disappeared the ability of airline mechanics to sustain high wages was damaged and it seems that no one in the union was willing to recognize that and adjust to it as other airline employees have been forced to do.

posted by: spencer on 03.26.06 at 11:15 PM [permalink]

I guess it's a question of point of view, Paul, Dave, Slocum.

You could have a reasonable debate about what happened at this plant before the layoffs, and each side would have some points to make.

But so far I haven't heard any challenge to the article's account of what happened afterward, and what happens to laid off workers more generally. Think about this: the goal for the retraining program was to put about half the laid off workers into jobs that would give them a pay cut of not more than 10%. Even this modest goal proved to be out of reach, in a program that's supposed to be one of the best. Similar retraining programs fail even more dramatically all over the country.

I have two reactions. First, these programs are almost certainly a waste of money, which could be better spent in other ways. Second, whatever fault lies with the militants at this particular shop, the problem is far more general. As Dan, or any other neoclassical economist can tell you, there really are losers from trade.

I've never heard a great solution to the problem, though I'm starting to warm to wage insurance.

posted by: TedL on 03.26.06 at 11:15 PM [permalink]

I don't trust any article referring to workers as having "demand" for jobs and companies as "supply"ing them to get anything economic correct.

There is no market for jobs. There is a market for labor; companies demand labor and workers with the right skills supply it. People who keep this in mind have a slightly better change of making sure they have skills that companies will demand. People who think they are entitled to a job are likely to price themselves out of the labor market, as these United employees did.

posted by: DK on 03.26.06 at 11:15 PM [permalink]

The one skill that arguably would help in retraining would be to retrain people as entrepreneurs. If you can work on a business plan and learn how to create jobs, you've got something there. Unfortunately, entrepreneur training is not very easy and it's a very high risk endeavor.

posted by: TM Lutas on 03.26.06 at 11:15 PM [permalink]

I've become a believer in TedL's position that wage insurance may be the right approach.

It strikes me that in many of these situations the workers invested themselves in a blue collar career under one set of economic circumstances (pre-NAFTA/globalization/deregulation or whatever) and then the government goes and changes the rules on them ... opening borders, ending trade restrictions, deregulating air fares ... and these workers find themselves out of a job because of a policy change.

When the rules change, it becomes a case, if indirect, of government picking winners and losers. The workers in these industries were picked to lose ... and all they get in exchange is the sort of bogus retraining programs described in the article. Seems like government has an obligation to make those workers whole ... and that requires a lot more than 26 weeks of unemployment benefits and a tuition grant to the local community college.

posted by: aidian on 03.26.06 at 11:15 PM [permalink]

I read the excerpt and my conclusion was not so much that retraining is completely worthless, but rather, we should be careful about how much of it government should pay for. I mean, when you think about it, it's pretty untenable for anybody to simply sit on their butt if they get downsized out of a job. Lots of times, some manner of retraining is probably a good idea. But because lots of times it's probably not necessary, it's questionable if a huge government retraining program survives cost/benefit analysis.

What I think is needed is some kind of income replacement insurance for older displaced workers. Not everybody is going to train to become a graphic designer and move to Seattle. The 58 year old displaced boilermaker from Grand Rapids sure as hell ain't. I think we could set up some kind of (largely) self-financed insurance scheme for worker of a certain age who are facing long term unemployment but are too young to collect SS. We could put strict conditions on it. You have to join (or buy your policy) by, say, age 35, and you can't collect any benefits until you've been paying premiums for at least, say 18 years (or whatever). The government could contribute a modest sum to make up for what the market can't provide on its own (I imagine there might be moral hazard problems, for starters). It wouldn't be enough to retire on, but that's just the point. The problem for people who lose their jobs at an advanced age isn't that they cannot find work. Their problem is that they can't find work that pays enough. So, the insurance would kick in, say, 12 months (or whatever) after their unemployment insurance is exhausted, and would provide a modest supplement to make up some of the gap between what they're earning now at Wal-Mart, and what they used to make at the factory. After (say) six years go by and they're eligible to collect Social Security, the policy runs out.

posted by: Harry on 03.26.06 at 11:15 PM [permalink]

The central problem is that there aren't enough high-paying jobs, or enough non-low-paying jobs. This is a problem for people who need money, of course, not a problem for the economy.

People who luck into high-paying jobs (by getting the opportunity to develop those particular skills etc, by being in the right place at the right time) can't expect to be that lucky a second time. If there's a government program to teach skills, that's a sure sign that there will be an abundance of people with those skills and that people in that particular field will be in large supply.

Government jobs programs, if they work, are not particularly a bounty for the people they train. They are a subsidy for the industries they supply workers to. Take a specialty that has a labor shortage, train a glut of people to do that work, and that industry becomes more globally competitive because a bottleneck has been removed. Of course that's tough for the employees who got paid high for being at the bottleneck. But if the jobs programs work, they can be retrained to widen some other bottleneck.

If you are planning a career, one obvious conclusion is that you should carefully pick work that can be expected to stay a bottleneck for your entire working lifespan. But a better conclusion is that you should somehow arrange not to be an employee.

posted by: J Thomas on 03.26.06 at 11:15 PM [permalink]

When the rules change, it becomes a case, if indirect, of government picking winners and losers. The workers in these industries were picked to lose ... and all they get in exchange is the sort of bogus retraining programs described in the article. Seems like government has an obligation to make those workers whole ... and that requires a lot more than 26 weeks of unemployment benefits and a tuition grant to the local community college.

It would seem a bit more sensible to say that the government picked them to win in the past, providing an unfair advantage to them at the cost to their consumers. When the government finally decided to remove the artificial barriers, they got their flow of unjust riches removed. If there is anyone who needs to be made whole in the scenario, it is presumably the pre-deregulation consumers, not the post-deregulation workers. The workers had no property rights in the government's regulations, nor indeed in their jobs. If they didn't see their past windfall for what it was, I'm not really sure how that's anyone's problem but their own.

posted by: Dave on 03.26.06 at 11:15 PM [permalink]

Pciking an extreme example (airline mechanics)is not the best way to illustrate the problem. And the company likely fanned the flames as cheaper services (in and out of country) were all set to take over the work.

On the larger issues, many of us have recognized these problems for years, and now suddenly the economists and journalists are catching up - a decade too late at least.

posted by: save_the_rustbelt on 03.26.06 at 11:15 PM [permalink]

Over here in the UK the government has tried training programs to get young college graduates into IT and other highly skilled occupations. I've spoken with some of the grads of these programs & the results are extremely unimpressive.

Training programs and classes in general are unsatisfactory almost everywhere. In my opinion there is not a single adult education class in the IT field worth taking in the entire London area. You cannot get bleeding-edge training (or anything close) around here. They are still offering classes on versions of software which are a decade or more old!

Professional training is mostly very little better. I spend a week a year at a professional conference learning from experts, and I would trust these same experts to deliver decent training in my office. Even so what you mostly get from the conference is information about which way to direct your self-training efforts rather than solid skills. There simply isn't enough timne to do it right in 4 hours!

The big training firms deliver a lot of empty training calories for the most part.

Worthwhile training in IT is (almost by definition) self-training. Buy a book, sit down at your PC and work you're way through it.

IT moves so fast that most of the best stuff is either in books or even just on the internet. Formal training simply can't keep up with the pace of change.

I can't generalize to other professions such as accountancy or the mechanical trades except to express the opinion that the way to prosper long term is to specialize.

Learn something which few people in your area know and keep expanding your skill base, making it both wider and deeper.

posted by: Don S on 03.26.06 at 11:15 PM [permalink]

Getting back to the problem of the mechanics, I don't really see a largescale solution. Any government-funded training program will tend to produce a glut of whatever they are training for in the local labor market, which just pushes the problem further down the road.

It might make more sense to see whether another employer with needs for these skills can be induced to place an operation into the area. With a subsidy if necessary.

Another way might be to get these people into jobs clubs and the like so that they can get employment ideas from people who aren't airplane mechanics. Or they could pay them to relocate to different places in order to get them into different markets where they might be more in demand.

posted by: Don S on 03.26.06 at 11:15 PM [permalink]

J Thomas writes:

"If you are planning a career, one obvious conclusion is that you should carefully pick work that can be expected to stay a bottleneck for your entire working lifespan. But a better conclusion is that you should somehow arrange not to be an employee."

I assume/hope that that's ruefully tongue in cheek - a modern update of Marie Antoinette: "The peasants say they are out of bread? Then let them eat cake."

Unless, of course, you think a viable 21st Century capitalism can arise in which more than a fraction of us are self-employed.

posted by: TedL on 03.26.06 at 11:15 PM [permalink]

TedL, other things equal, globalisation means the US would wind up with a third world income structure. Most people who work for a living will be near the bottom of the pyramid. We don't have a pyramidal income structure now, but we're gradually heading that way.

Obviously, most employees can't be at bottlenecks that put them in high demand, so most employees won't get the big bucks. Planning your career with the intention that you'll be ready to fill a bottleneck that will be there when you graduate and that will persist, is hard. But it will work for a few people, and a few more will luck into jobs that are in high demand.

Similarly, it's hard to arrange to be successfully self-employed or independently wealthy. But if you can pull it off, you individually are likely to do better that way than you would as an employee. It will only work for a few people who try -- as opposed to people who are born independently wealthy or people who inherit private companies. And it takes aptitude and skill etc. But if you're in school now and you don't want a third-world lifestyle 20 years from now, these look to me like the approaches to try. They won't work for very many people because most of us are going to be near the bottom of the heap. Cheap employees.

posted by: J Thomas on 03.26.06 at 11:15 PM [permalink]

Fair enough, as a point about personal survival strategies. I do share your view that we are headed in that direction and it'll take a lot of will and creativity to escape.

I used to take some comfort (back when I was in school) with the observation that the experience of other countries suggests that increasing polarization is not inevitable. In particular, it was often reported that other countries even more exposed to globalization had seen inequality increase only modestly, owing to social welfare policies, labor laws and labor unions. Canada, e.g., had a larger share of its GNP in trade, and while there had been some increase in inequality the effects were far milder there. The same was true of many European countries and, I think, Japan.

Sadly, since leaving school a few years back I haven't kept up with the literature and now seem only to hear gloom-and-doom anecdotes about the crumbling of European economies. I also think technological change, much more than trade, is going to accelerate the problem. Sad if true.

At least, I hope we will be able to set up decent national health care and pension systems so that if people could not be rich at least they would not need to suffer gross indignities and/or have their plans to develop educational/occupational capital held hostage to immediate needs for insurance.

It also strikes me as possible that if things get bad enough, you will see a very nasty politics of redistribution get started.

In the meantime, I have found a bottleneck to occupy - I'm a lawyer.

posted by: TedL on 03.26.06 at 11:15 PM [permalink]

Until there are major retirement numbers among the baby boomers, working people in the country on a whole are screwed.

After that the shoe may be ont he other foot, which is why the hue and cry for more immigrants.

posted by: save_the_rustbelt on 03.26.06 at 11:15 PM [permalink]

So I guess the bottom line is that Marx was right. For wage employees, the rate of wages falls to the cost of Reproduction? I guess you guys are hoping that the other predictions don't pan out!

posted by: RobbL on 03.26.06 at 11:15 PM [permalink]

In terms of the larger problems facing our (and the world) economy, the notion bandied about here that the unions precipitated the failure is just laughable. In fact this analysis shows the poverty of free market ideas at the present moment. Obviously union representation has declined very sharply, it's only I think 8% in private sector employment.

The problem is in the context: the US economy is losing high wage jobs to low wage locales. If unions can effectively brake this loss, we are all the better for it. If they can't, and this article shows why it may be impossible for unions alone, that not only are the workers on the path of decline, the economy as a whole is also.

posted by: camille roy on 03.26.06 at 11:15 PM [permalink]

Slocum writes: "simply because mass layoffs occur when there groups of workers who are no longer economically competitive. "

Of course, because CEO's are geniuses touched by god. Right.

More often, mass layoffs occur because the management was incompetent, corrupt, or slow to react to the market.

posted by: Jon H on 03.26.06 at 11:15 PM [permalink]

More often, mass layoffs occur because the management was incompetent, corrupt, or slow to react to the market and should have been cutting back on the workforce a little at a time.

posted by: triticale on 03.26.06 at 11:15 PM [permalink]

Or would you free-traders rather just decay as a nation into crime, poverty, broken homes, ill health, and all the education that suits intermittent McJobs and manual labor? That would be quite an accomplishment for your Republican "values".

It is easy to argue that most of these, especially the broken homes engineered by LBJ's Great Society, are accomplishments of the Democrats. In any case, I like working intermittantly. I make $25 per hour for a few months, and then collect unemployment until the next non-exportable job in my specialized skillset comes along. With that and what my wee wifey earns as a nursing aid working eight days every two weeks we are living quite comfortably, thanh you.

posted by: triticale on 03.26.06 at 11:15 PM [permalink]

If salaries are any indication we have a great shortage of management talent.

So we have an industrial policy: governent retraining of workers for different work when what we need is a post industrial policy: retraining for management.

As a country we also need to be more inventive. America does best with the new.

posted by: M. Simon on 03.26.06 at 11:15 PM [permalink]

M Simon, management has to be a bottleneck because it's rare for one successful company to have two managements.

And there's the problem that when you work in management they're trusting you not to screw them over. This isn't the way people usually define management, but here's one that kind of works -- when it's so hard to tell whether you're actually doing your job that it costs more than the job is worth to check on you, then you're in management. So managers have to be paid a lot to bribe them not to intentionally mess up. There is no shortage of trained managers -- we have quite a surplus of them -- but that just means a bigger pool of applicants to choose from. It isn't hard to find people who're technically qualified for the jobs. It's hard to find people you can trust.

So no, salaries aren't much indication. And training a bunch of workers for management only results in a larger pool of people with management training who can't find jobs.

It might make sense to train a lot of people in starting their own businesses, if only there were sales waiting for small businesses.

posted by: J Thomas on 03.26.06 at 11:15 PM [permalink]

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