Cover page

Table of Contents

Work & Society Series

Title page

Copyright page

Dedication

Tables, Figures, and Boxes

Tables

Figures

Boxes

Abbreviations

Acknowledgments

1: Introduction

Economic, Political Economy and Institutional Explanations

Definitions, Levels, and Types of Unemployment

Evidence for Structural Unemployment

Unemployment, Inequality, and Labor Market Segmentation

Four Causes of Structural Unemployment

Policies to Reduce Structural Unemployment

What Comes Next?

2: Shifting from Manufacturing to Services and Skill Mismatches

The Shift from Manufacturing to Services

Overestimates of the Shift in Services

Channeling Profits Away from Labor

Recent Shifts and Mismatches

Education and Skill Mismatches

Labor Market Intermediaries and Job Placement

Firms and Skill Mismatches

The Magnitude of Skill Mismatches

Conclusion

3: Transnational Corporations Enthralled with Outsourcing and Offshoring

The Rise of Lean Production

Changes in Organizational form due to Lean Production and Offshoring

Examples of Various Lean Firms

Toyota as the Premier Lean Production Corporation Expanding Jobs

Nike as a Donut Corporation from the Beginning

Apple as a Donut Corporation

GE as the Proselytizer

Walmart as an Offshoring Merchandiser

Consequences for Lean Production and Donut Corporations

Conclusion

4: Technological Change and Job Loss

Theories of Technology and Structural Unemployment

Technologies that Increase Structural Unemployment

Assessing the Impact of Technology

Conclusion

5: Global Trade, Shareholder Value, and Financialization as Structural Causes of Unemployment

The Growth of Financialization

Accepting Global Trade and Offshoring

Financialization Becoming Part of the Structural Process

Conclusion

6: Fixing Structural Unemployment

Situating Workers in Labor Markets Undergoing Volatile Structural Changes

Government Policy Responses

Active Labor Market Policies

Training through Vocational Education

Job Creation and Entrepreneurship Programs

Job Placement Programs

Economic Stability Policies Concerning Trade and Taxes

Conclusion

7: Conclusion: Can We Trust Transnational Corporations?

References

Subject Index

Name Index

Work & Society Series

Thomas Janoski, David Luke, and Christopher Oliver, The Causes of Structural Unemployment

Cynthia L. Negrey, Work Time

Title page

Dedication

To the many workers in or previously from Michigan
who have suffered through
structural unemployment for over three decades.
There are reasons for this other than
those that you have generally heard.

Tables, Figures, and Boxes

Tables

1.1 Harmonized unemployment rates and inequality for seven countries, 1991–2013/14

1.2 Inequality, unemployment rates, and the declining middle class, US, 1950–2013

2.1 An organizational typology of labor market intermediaries

4.1 Technological changes, 1950–2013

5.1 Economic cycles and the development of structural financialization, US, 1960–2013

6.1 Public expenditure on ALMPs for seven countries, as % of GDP, 2002–11

6.2 Employment legislation, ALMPs, and financial taxes, US, 1960–2013

Figures

1.1 Unemployment rates, US, January 1950–June 2012

1.2 Beveridge curve (job openings and unemployment rates), US, 2001–13

1.3 Shift in long-term unemployment, US, yearly averages, 1950–2013

1.4 Unemployment rates, US, by race and gender, 1980–2011

1.5 Five types of segmented labor markets

1.6 Four main causes of structural unemployment and inequality

2.1 Number of manufacturing and service jobs, US, 1970–2012

2.2 Trade balance of payments and exports with energy products (petroleum and natural gas) removed, US, 1978–2010

3.1 Inward foreign direct investment as a percentage of world total, 2010–11

6.1 Entrepreneurial outgrowths of five types of segmented labor markets

Boxes

2.1 Employees experiencing mismatch or transition from manufacturing

3.1 Employees experiencing unemployment due to offshoring and outsourcing

4.1 Employees whose employment was threatened by technology

5.1 Experiencing unemployment or exemplifying top wages under financialization

Note: The workers whose cases are presented in the boxes are given their actual names when they have been profiled in articles or books (indicated by a reference at the end of their story). If there is no reference listed, we have disguised the names, locations, and employers of people we have known or interviewed. None of these workers are composites that compound the problems of multiple people.

Abbreviations

AA Trade Adjustment Assistance job training programs
ABS asset-backed securities; a form of collateral
AIC advanced industrialized country
ALMP active labor market policy
AMTEC Automotive Manufacturing Training and Education Collaborative
ARPANET Advanced Research Projects Agency Network
ARRA American Recovery and Reinvestment Act, which provided funds for job creation
BCG Boston Consulting Group
CAD/CAM computer-aided design/computer-aided manufacturing
CBTC class-biased technological change
CCC Civilian Conservation Corps
CDO collateral-debt obligations; a form of collateral to back an investment
CDS credit default swaps; a form of insurance for financial transactions
CETA Comprehensive Employment and Training Act
CNC computerized numerical control
CT computerized tomography
dot.com The dot.com bubble, when large numbers of web and high tech companies folded
FBTC factor-biased technological change
FDI foreign direct investment
FILM firm internal labor market
FIRE financial, insurance, and real estate
FLA Fair Labor Association
FLM firm labor market
GATT General Agreements on Tariffs and Trade
GDP gross domestic product
HF hedge funds as a new and relatively lightly regulated financial institutions
HMO health maintenance organization
ILO International Labor Office
IMF International Monetary Fund
JPTA Job Partnership and Training Act
LDC less developed country
LMI labor market intermediary
LP-1 lean production one
LP-2 lean production two
LP-3 lean production three
LTCM Long-Term Capital Management
M&A the merger of two corporations, or the acquisition of one by another
MDTA Manpower Development and Training Act
MRI magnetic resonance imaging
NAFTA North American Free Trade Agreement
NAIRU non-accelerating inflation rate of unemployment
NCRC National Career Readiness Certificate
NGO non-governmental organization
NIRB National Infrastructure Reconstruction Bank
NJTC New Jobs Tax Credit program for job creation programs after 2008
NSF National Science Foundation
NTT new trade theory
OECD Organization for Economic Cooperation and Development
OEM original equipment manufacturer
OILM occupational internal labor market
OLM occupational labor market
OPEC Organization of Petroleum Exporting Countries
PWA Public Works Administration
R&D research and development
SEC Securities and Exchange Commission, which governs the stock market and Wall Street
S&L savings and loan
SLAM secondary labor market
SPV special purpose vehicles that transform toxic assets into something mysteriously better
TAA Trade Adjustment Assistance
TANF Temporary Assistance for Needy Families
TARP Troubled Asset Relief Program
TEU twenty-foot equivalent unit
TPS Toyota production system
UAW United Automobile Workers
UEC unemployment compensation adjustment or extensions
USES US Employment Service
VaR value at risk tax
VAT value-added tax
WB World Bank
WIA Workforce Investment Act
WOTC Work Opportunity Tax Credit
WPA Works Progress Administration
WTO World Trade Organization

Acknowledgments

Barry Bluestone and Bennett Harrison (1982) sounded the early warning call on outsourcing, and Ron and Anil Hira (2005) looked at offshoring more closely. But all in all, few scholars concentrate on the recent rise in structural unemployment and the jobless recession with such a wide-angle lens as we do in this book. Part of the reason is that the measure that would seem most helpful – foreign direct investment or FDI – is flawed and too crude to make any definite conclusions about the impact of offshoring. It just mixes up too many different elements of Wall Street and real estate markets. Others, like Thomas Friedman in The World Is Flat (2005), are somewhat celebratory about offshoring, though his more recent book with Michael Mandelbaum is much more sobering and almost a dirge – That Used to Be Us (2011).

The most frequent approach to structural unemployment is through skill mismatch. We cover this first in this book and then go on to the three larger issues mentioned below. In this area of mismatch, some very good works are going beyond blaming the victim. Peter Cappelli's book Why Good People Can't Get Jobs (2012a) takes an important step to reorient the skills mismatch toward employers who want skills but don't want to train employees. Works such as Arne Kalleberg's Good Jobs, Bad Jobs (2011), Harry Holzer and colleagues' Where Are All the Good Jobs Going? (2011), and Paul Osterman and Beth Shulman's Good Jobs America (2001) provide an excellent picture of the lower and middle rungs of the job ladder. We build especially on some of Althauser and Kalleberg's work about segmented labor markets and trace how workers have flowed from higher to lower segments. In sum, we take a more jaundiced view toward skills mismatch than they do, but we also bring it together with the three structural forces of offshoring, technology and financialization.

We thank Jonathan Skerrett for asking us to give voice to a number of Americans suffering from structural unemployment, and for giving us feedback on the book throughout its development. We would also like to thank Lane Kenworthy from the University of Arizona for his input at the early stages of this project and coming to give one of the keynote talks at the University of Kentucky “Rising Inequalities Conference.” The ideas for this project were in a paper in the National Science Foundation (NSF) report on “Rebuilding the Mosaic” by Thomas Janoski and Christopher Oliver. It was one of the 252 white papers in the NSF report, SBE 2020: Future Research in the Social, Behavioral and Economic Sciences (http://www.nsf.gov/pubs/2012/nsf11086/nsf11086pdf; webcast http://www.nsf.gov/news/news_summ.jsp?cntn_id=122464&org=NSF&from=news). Parts of this project were presented from 2011 to 2012 by Thomas Janoski at the University of Kentucky Sociology Colloquium, and by Thomas Janoski and David Luke at the organizations section of the American Sociological Association in Denver, the European Sociological Association conference on economic sociology in Moscow, and the Tennessee Employment Relations Association (TERRA) conference on the auto industry. We would like to thank Patricia Thornton at Duke University, Eric Richmond of the Federal Research Bank of Cleveland, William Canak of TERRA and Middle Tennessee State University, Darina Lepadatu of Kennesaw State University, Bruce Carruthers at Northwestern University, and Gerald Davis at the University of Michigan for their valuable comments. We especially thank three anonymous reviewers who provided especially helpful comments. Finally, we thank Patricia E. White and Jan Stets of the NSF for their help on “The Maturing of Lean Production” grant (NSF-ARRA 0940807) that provided the needed resources to do much of this project.

1

Introduction

To somewhat alter a phrase from Karl Marx and Friedrich Engels, “A specter is haunting advanced industrial countries and it is structural unemployment.” In Europe, Spain and Greece are facing unemployment rates over 25 percent. The decline in jobs that comes and goes with the economic ups and downs of the business cycle – cyclical unemployment – is being supplanted by more permanent and disrupting unemployment that threatens the working and middle classes. A 2012 Pew survey of 1,297 Americans says that in the preceding fifteen years, the middle class had “shrunk in size, fallen backward in income and wealth, and shed some – but by no means all – of its characteristic faith in the future” (Pew, 2012:1). Michael Gibbs says that the American “middle class is on the verge of extinction” (2010:B8). The economic recovery after 2001 was unusually weak in providing employment, and since 2004, observers have been increasingly talking about “jobless recoveries”− when an economy experiences growth in GDP while employment stagnates. While the stock market has recovered from the “great recession” of 2008, employment has not. This collapse was considered to be cyclical by many, but much of this landslide of unemployment is clearly structural. The recovery of profits and corporate performance has not resurrected the job market.

Structural unemployment and futile job searches are common, and the most recent generation of young job seekers is being called “the Recession Generation” or “Generation R.” There are two versions of Generation R: underworked 20-somethings cannot get their first job and live at home, and overworked 20-somethings hang on to their jobs but have to do twice as much work because employers have cut their workforce to the bone (Schott, 2010; Godofsky et al., 2010; Newman, 1999, 2012). In response to these jobless recoveries, this book explains the four causes of structural unemployment and rising inequality, and then proposes policies to alleviate joblessness.

In our view, the four causes of structural unemployment and downward mobility are diverse and not commonly put together in the same breath. First, the most discussed features of unemployment come from “skill mismatches” caused by the shift from manufacturing to service jobs. Blue-collar skills are a poor fit with white-collar or service jobs. But there is more going on here than a simple need for retraining. Second, corporate offshoring in search of lower wages has moved large numbers of jobs to China, India, and other countries, and this has decimated manufacturing and some white-collar jobs. Offshoring requires massive amounts of direct foreign investment and a consulting industry that backs it up. It is especially caused by two corporate forms of lean production. Third, technology in the form of containerships, computers, and automation has replaced many jobs. The web has devastated jobs in newspapers, magazines, the postal service, and travel agencies. The internet also aids offshoring because it allows people to do information-intensive jobs from anywhere in the world. Automation and robotics reduce jobs on assembly lines throughout the world, and create only a few more jobs in designing and maintaining equipment. And although information technology also leads to new jobs, it does not produce enough jobs in the short term to balance the losses. Fourth, instability in global finance creates pressures for offshoring and makes recessions more frequent and longer. This intensifies the previous three factors by causing downturns that become structural as they increase the duration of unemployment. In sum, new jobs emerge in less-developed countries (LDCs), but these four forces destroy jobs in advanced industrialized countries with an instantaneous, worldwide system of communication.

Economic, Political Economy and Institutional Explanations

There are some differences between the way we use the term “structural unemployment” and the way economists generally use it. We take a macro-sociological approach based on a critical view of political economy. The strength of the economic approach is the creation of a tightly linked theory with a narrow focus on a limited number of variables. In a sense, most economic analyses of unemployment are generally limited to job vacancies, inflation, and economic growth, sometimes adding investment (especially when they move to explaining growth rather than jobs) (Daly et al., 2012; Acemoglu, 2009). The results seem to be tightly focused on mismatch – the first of our four explanations. While this explanation has some validity, sole reliance on it often leads to “blaming the victim” – it's the unemployed workers' fault that they have not retrained or chosen a better occupation. As a result, this approach has little to say about outsourcing, offshoring, ancillary technologies, and the detrimental effects of financialization on unemployment.1

Our wider view of structural unemployment builds on some of the mismatch analysis, but focuses more on the conflict between denationalized transnational corporations and employees in advanced industrialized countries (AICs). This is partially a class-conflict approach using elite or neo-Marxist theory with offshore-based profit taking, and an institutional or Weberian analysis of multination states struggling to maintain control of corporations and protect their citizens in a global economic environment. As one can see, the economic results of the last few decades have favored transnational corporations, with their high profits, and the upper classes getting a historically high proportion of income and especially wealth (Goldstein, 2012). Former middle-class citizens have suffered greater unemployment and then a downward shift to lower-paid jobs. In some ways a new social contract is in the initial stages of being forged, with the powerful transnational corporations having the upper hand at this point. This is why explanations that do not use a wider lens − focusing on financialization, the declining middle class, growing inequality, and transnational corporations − are quite myopic. We will discuss economic studies that we believe show that a structural shift has occurred, but our explanations will be much broader than most of these analyses. For instance, in the aftermath of the recession of 2008, Daly et al. say that “a better understanding of the determinants of job creation in the aftermath of recession is crucial” (2012:24). Thus, our intent is to explain unemployment with three additional arguments involving a panorama of American workers in a new and complex division of labor.

In the next sections we discuss (1) the definitions, levels, and types of unemployment, with a focus on structural unemployment, including the Beveridge and Phillips curves, the duration of unemployment, and the stigma involved in current increases in the duration of unemployment; (2) the impact of unemployment on inequality, which starts with unemployment and leads to decreasing one's expectations of work to the lower-level segments of the labor market; and (3) the four factors that cause structural unemployment – the shift to service jobs and skill mismatches, outsourcing and offshoring, new technologies, and structural financialization – which is the main focus of this book; and we end with (4) our governmental policy recommendations to alleviate structural unemployment.

Definitions, Levels, and Types of Unemployment

Unemployment is generally defined as the number of persons who are ready and willing to work who cannot find a job. The unemployment rate consists of those persons who are unemployed divided by the total labor force, which includes the unemployed. It is important to note that if a person is not ready and willing to work, which means that they are not actively searching for a job, then that person is considered to be out of the labor force and is therefore neither employed nor unemployed. These “discouraged workers” are removed from the unemployment figures and the overall labor force. People can leave the labor force by routes including retiring early, going on disability, working in the underground or illegal economy, or simply living upon the contributions of others (e.g., family, friends, or the government).

There are two methods for collecting unemployment figures. One method uses a sample survey of the population to find out the number of unemployed and those who are working. The other method relies on the administrative records of the employment service or other agency that gives out unemployment compensation payments and often gives job search advice. The survey research method of collecting the data is generally considered to be the most accurate way to determine unemployment rates because the administrative record method can miss people who do not want to receive unemployment compensation (Davis et al., 2010). Often those people who anticipate only a short stay on unemployment fall into this category, although there are a few people who are ideologically opposed to the idea of government and will refuse their unemployment compensation payments and use their retirement or other savings to tide them over during various bouts of unemployment.

The OECD has devised a method to standardize or harmonize these two diverse methods of collecting unemployment data so that countries can be easily compared. Section (a) of table 1.1 shows some of these harmonized rates for a number of countries, and figure 1.1 graphs the US unemployment rate from 1950 to 2012. Clearly, the unemployment rate has increased since 2000. Figure 1.1 shows US unemployment rates going back to 1950 and up to 2012. The latest figures there match the previous post-World War II peak figures during the oil crises of 1973–4 and 1980–2, when a clear structural factor – OPEC raising the price of oil – increased unemployment. This brought about a massive government effort to support training and create jobs through the Comprehensive Employment and Training Act. Since then OPEC has largely disintegrated as a unified force raising gas prices (Carollo, 2011), but new structural forces involving global trade and offshoring have taken OPEC's place from 2000 to the present.

Table 1.1: Harmonized unemployment rates and inequality for seven countries, 1991–2013/14

c1-tbl-0001.jpg

Figure 1.1 Unemployment rates, US, January 1950–June 2012
Source: BLS/CPS (2013).

c1-fig-0001

There are three types of unemployment: frictional, cyclical, and structural. Frictional unemployment is short-term in the sense that employers and workers more or less cannot find each other in weeks or months. It presumes that there are no other barriers to employment other than the right employees getting to the job openings that already exist in firms. This is often addressed through the relationship of vacancy rates in firms and unemployment outside of them. Improving information in the economy through better job placement information is often seen as a solution to this problem.

Cyclical unemployment refers to jobs not being available because the economy is in a cyclical downturn that occurs with the generally expected business cycle. This is short-term unemployment of one to two years. Some say that as worker wage rates decline, employers will be more able to hire workers and more interested in doing so. This neo-classical economic theory ran into trouble during the great depression when the jobs took an inordinately long period of time to reappear. It was also accompanied by currency deflation, which exacerbated the problem. With employers engaging in repeated cuts to save money, the economy hit a downward spiral with more and more unemployment. In this sense, cyclical unemployment can become structural. Nonetheless, the post-World War II economy went through a number of business cycles that were somewhat temporary, and unemployment compensation generally tided workers over until the economic cycle reversed and jobs became more available. But in the last recession, this support has not lasted as long as the drought of jobs.

Evidence for Structural Unemployment

When Baily and Lawrence (2004) ask “what happened to the great US job machine?” they are not talking about a short-term blip. Structural unemployment indicates that there is something long-term and even permanent about the nature of unemployment. Jobs are not going to reappear, or they are not going to reappear for the specific unemployed people who are seeking them. Consequently, the duration of unemployment is long-term and workers cannot simply endure until the passing of temporary frictions or the recovery from the business cycle. This does not necessarily mean that unemployment lasts for decades, but it does mean that workers are unemployed and then enter into a process of accepting lower-level jobs, going on disability, or becoming homeless. Structural unemployment indicates that there is something else going on that alters the structure of the labor market, and that is what this book is about – the more enduring changes in the economy that make unemployment and declining social mobility a longer-term problem. And as part of these structures related to unemployment and labor markets, we will use an approach that indicates that there are different types of forces that structure economies through segmented labor markets that influence one's search for employment.

It is often difficult to differentiate between structural and cyclical unemployment. When unemployment first appears it is often labeled cyclical or due to a downturn in business, and when it hangs around, then the term structural unemployment may be used. There is no “label” that comes with unemployment so that one can differentiate these terms. If you ask someone who has lost their job if they are cyclically or structurally unemployed, they will just react with a puzzled look. Much debate goes on about this issue, but we point to five types of evidence that indicate that unemployment is structural: (1) long-term increases in unemployment for more than ten years, (2) the slowdown in the speed that jobs are filled, (3) the lengthening of the time spent in unemployment, (4) the declining participation rate in terms of people actually working, and (5) the increasing financial instability that makes cyclical crises more frequent than in the past.

First, economist J. Bradford DeLong, among others, argues that if unemployment “stays elevated for two or three more years” it “converts cyclical unemployment into structural unemployment” (2010a:1). While this does not pinpoint the actual structures of unemployment, persistently high and climbing unemployment rates above 5 percent over an extended period of time clearly lead to structural unemployment. If we look at Figure 1.1, we can see that from a trough in January 1970 to a peak in January of 1983 (13 years) unemployment rose to over 10 percent. Similarly, from the trough in January of 2000 to a near peak of January of 2013 (another 13-year period), unemployment rose to 10 percent. Each period clearly entailed structural unemployment, using DeLong's definition.

Second, the Beveridge curve measures the relationship of job openings to unemployment over time. Generally, one would expect that the more the job openings or vacancies, the lower the unemployment rate. Hence, the curve with vacancies on the vertical axis and unemployment on the horizontal axis should show a downward slope. Figure 1.2 shows a Beveridge curve from 2001 to 2013. Generally, the curve is relatively straight, but for the most recent period it has shifted to a more sluggish relationship between job vacancies and unemployment. In other words, the jobs are there but people are still unemployed. This shift to more joblessness for the most recent points suggests that the curve has moved to a higher level where unemployment persists even though there are more job openings. This is direct evidence of structural unemployment.

Figure 1.2 Beveridge curve (job openings and unemployment rates), US, 2001–13
Source: Bureau of Labor Statistics, US Department of Labor.

c1-fig-0002

Economists sometimes see this as evidence that the natural rate of unemployment has increased. However, we find “the natural rate of unemployment” a highly loaded concept. One could ask a similar question about “the natural rate of profits” and then accuse CEOs, investment bankers, stockbrokers, and others of increasing not only inequality but inflation. While this is rarely if ever done, it points to the pejorative use of “natural” in these situations. Surely one can be concerned about inflation, but many different countries (e.g., Sweden and Germany) have had very low rates of inflation and high wage levels with low unemployment at different points in history. If Sweden were the example in the 1960s and 1970s, we might declare an unemployment rate of 2.0 percent to be a natural rate when certain policy options are used.2

The Beveridge curve tends to be connected to inflation through a form of the natural rate of unemployment or NAIRU (non-accelerating inflation rate of unemployment) and the Phillips curve, which plots the inflation and unemployment rates. This generally shows that as unemployment goes down, inflation will increase. In other words, in helping people get jobs, the overall level of prices will increase and even set off an inflationary spiral (Phelps, 1994). Conservative and monetarist economists are fond of the NAIRU and privilege concerns about inflation since it most often favors the wealthy who invest to create jobs. But recent analysis now sees the Phillips curve as too simplistic. Nonetheless, economists and some policy makers still debate what the natural rate might be. In the modern offshoring period, the Phillips curve is partially reversed in that unemployment or underemployment increases while prices for many goods produced in China and India may go down. In any event, we find the shift in the Beveridge curve, which may be due to many different types of institutional changes, to be solid evidence of structural unemployment (or simple blockages in people not getting the jobs that are actually available).

Third, a more direct measure of the structural nature of unemployment is the long-term unemployment rate. Taking over 27 weeks of unemployment as the measure of long-term unemployment, we can see that the duration of unemployment has generally gone up (Rothstein, 2012; Tasci and Lindner, 2010). From figure 1.3 we can see a structural shift. From 1975 to 2002 the first estimated regression line shows a small increase (i.e., slope) in the percentage of unemployment that is long-term (i.e., over 27 weeks). The second estimated regression line from 2005 to 2010 shows a much larger increase (a greater slope) in what looks like a major increase in the people ready and willing to work who have been left without jobs for more than 27 weeks. While some may argue that this is due to unemployment compensation, to have an effect starting in 2005 means that something must be entirely new about these payments that was not present in the 1970s, 1980s, or 1990s. Instead, we will argue that structural factors connected to offshoring, new technologies, and financialization have created this new and hazardous era of structural unemployment. In particular, the unusually slow recovery of employment after the quick recovery of stock prices is a structurally bad omen.

Figure 1.3 Shift in long-term unemployment, US, yearly averages, 1950–2013
Source: BLS/CPS (2013).

c1-fig-0003

Fourth, a further form of structural unemployment has to do with race and ethnicity. In the US, African-American and Hispanic unemployment rates are consistently higher than white rates. In figure 1.4, we can see that African-American unemployment is more than 6 percent greater than Hispanic and about 10 percent greater than white unemployment rates. These differences get a bit smaller as we move into the 1990s, but in the “great recession” we go back to big structural differences from 2008 to 2011. Rates for black and white women are sometimes a bit lower, but they are much larger for Hispanic women. And one consequence is that African-Americans file for bankruptcy twice as much as whites, which creates a generational effect on wealth accumulation (Cohen and Lawless, 2012:181). This is a huge structural difference in unemployment that is not inherently due to free market behavior and is most often attributed to various forms of direct and indirect discrimination. Much of this structural unemployment has to do with the cultural matching that employers use as shorthand to get at skills and motivation (Rivera, 2012; Moss and Tilly, 2001; Turco, 2010). Employers in suburbs and small businesses, even when skill requirements are lower, are less likely to hire black men than in central cities and larger firms. This is driven by employer's poor perceptions of the motivation and performance of African-American and also Latino workers. African-American women are also negatively impacted by employee perceptions of skill; however, black men have a rougher road to employment (Moss and Tilly, 2001). In general, sociology gives employment discrimination and the structural unemployment it generates a great deal of attention.

Figure 1.4 Unemployment rates, US, by race and gender, 1980–2011
Source: Bureau of Labor Statistics.

c1-fig-0004

Finally, another form of structural unemployment does not appear in the unemployment rate. To be unemployed, one must be able, willing, and ready to work. People who are not so and who do not have jobs are not included. Some of these workers may be spouses who stay home to take care of children. Others may be retired or disabled. In the face of unemployment some workers may decide to retire early. Others who may be younger may collect unemployment compensation for a year or two, but then if they cannot find work, they face major difficulties in getting food, shelter, and money. According to Bureau of Labor statistics, the overall participation rate of the US workforce has been steadily going down from 69.5 percent in April 2000 to 63.4 percent in May 2013. Further, from 2000 to 2012, the number of workers claiming disability has doubled from 1 per 100 to 2 per 100 (BLS/CPS, 2013). Comparing employment ratios to those in other countries, Germany has 7.7 percent and Sweden 8.7 percent more of its labor force at work than the US (see (b) in table 1.1).

A troubling study by National Public Radio of one Alabama county in 2013 showed that one in four people in the county were on disability, and that for laid-off workers with no schooling beyond high school, there were no comparable jobs that they could do (Joffe-Walt, 2013). Part of the problem was that many workers had medical conditions that prevented physical labor, but a desk job was not in the realm of possibility. The doctor who certified these people as disabled said he signed the statement of disability because there was just no way that these people would ever find a job in his county. As a result, much of the doubling of US disability rates masks the true rate of structural unemployment.3

A further problem is the stigma that often accompanies dispiriting unemployment (Goffman, 1963; Letkemann, 2002).4 It is especially harmful when the unemployed internalize this stigma and confirm themselves as unemployable. In a comparative analysis, Ofer Sharone shows that US workers view the job search based on interpersonal chemistry and emotion work rather than on the competition between workers with specific skills. The American approach stresses the self-advertisement and the almost intimate chemistry of the interview. This plays into the American bias toward individuals to make the job interview “a bit like going to the prom” (Sharone, 2013:1442; Uchitelle, 2006; Schlozman and Verba, 1979). This Goffmanian presentation or marketing of the self is somewhat distinctive of the US, where job placement institutions are less prominent (Janoski, 1990). But the flipside of this, which Sharone implies, is that these presentations say “I am not a grumbler, grouser, or collective organizer of an oppositional culture” (whether based on race, gender, or union sympathies). In other words, “I am on the employer's side.” And when not getting the job, American workers blame themselves for not having presented themselves effectively, while Israelis and most Europeans take a more collective view.

In the recent recession, the refusal by some employers to hire the unemployed, including advertising that the unemployed need not apply, is being considered by some legislators as a form of discrimination. The chances of this becoming law are probably small, but the idea of the stigma of being unemployed is an important concept. Governments have to be concerned not only with trying to create jobs and investor confidence, but also with the mental health, well-being, and confidence of the unemployed. Otherwise, governments and employers become complicit in creating disabled citizens who drop out of the labor market when they have significant skills and abilities to offer. This rationale of avoiding stigma is often an unstated basis of many programs to help the unemployed.

Unemployment, Inequality, and Labor Market Segmentation

The panorama of unemployment in AICs is more complex than one would expect. While there has been increasing financial and political pressure on the welfare state with various debt crises, the financial stability of the welfare state in most AICs is still relatively assured (Brady et al., 2007). Deindustrialization has increased over time with declining manufacturing, and globalization has definitely increased income inequality, with declining wages and rising profits for many corporations. Job stability has decreased for men, but there is some evidence that it has increased for women (Hollister, 2011; Farber, 2008) mainly due to the anti-discrimination policies of government, the diversity policies of corporations, and the increasing acceptance of female employment working its way through multiple generations of women of diverse ages (i.e., younger female cohorts who expect to work replacing retiring cohorts of women who have worked much less). The loss of manufacturing has increased balance of trade deficits as it has become increasingly difficult to export global services as much as manufactured goods.

This result is complex but two things are clear. First, declining manufacturing results first in unemployment and then in the unemployed taking lower-paid jobs in place of their previous middle-class jobs. It also decreases demand in AIC economies, since those with previously high incomes now have much less money to spend. The result is both higher inequality in the US and lower economic growth (Dwyer and Wright, 2011; Wright and Dwyer, 2003). The Gini index in the US after taxes are taken out and social security payments are made is much higher than other industrialized countries (see (c.)in table 1.1) (World Bank, 2013). Sweden at .259 and Germany at .295 are much lower than the US figure of .378. Income inequality in the US before government action has grown from moderate equality at .350 in the 1950s to the highest rate of inequality among AICs at .420 in the first decade of the new millennium (see table 1.2). This shows that the middle class has been hollowed out and much of the decline is due to their being unemployed and then sliding down in terms of labor market segments.5

Table 1.2: Inequality, unemployment rates, and the declining middle class, US, 1950–2013

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Second, although offshoring may result in higher profits for AIC corporations, these profits go to highly paid managers and the owners of stocks and bonds (Goldstein, 2012). Corporations have no obligation to invest in AICs, so many of them send jobs overseas to cut wage-related costs. As a result, higher corporate profits exacerbate structural unemployment and inequality within the AICs despite creating more jobs in LDCs. This greatly contributes to balance of trade deficits and sovereign debt crises. From a global economic perspective, the world may be more efficient, but from the perspective of employees in AICs, there are fewer jobs, lower income, greater inequality, and a greater possibility of crisis and decline (Friedman and Mandelbaum, 2011). This leads one to ask if the AICs will be headed toward a long-term surge in structural unemployment. In the next few paragraphs we look at where unemployment occurs in segmented labor markets.

We refer to structural unemployment as a “process” over time rather than a “state” at any one moment. This means that we regard structural unemployment as a shift from employment in a middle- or upper-class job into unemployment with a consequent readjustment of aspirations to move to a lower-paid segment of the labor market. Thus, structural unemployment at this point in time reflects a “hollowing out” of the middle class whereby inequality is increased and the average worker loses the capacity to maintain their previous standard of living. We use segmented labor market theory and dynamics to illustrate the unemployment and downward mobility process. While this model is a simplification of a complex economy, segmented labor markets make a large portion of these shifts much clearer.

One useful approach to map these movements in segmented labor markets is by use of a two-by-two classification of (1) labor market control by firms (corporations) or occupations (professions or craft unions), and (2) whether or not the labor market has internal labor markets with promotion possibilities or little chance of upward movement. There are five segments, according to Robert Althauser and Arne Kalleberg (1981):

1. FILMs or firm internal labor markets are represented by high-level management training programs with managers on the path toward being a CEO;
2. OILMs or occupational internal labor markets represent professionals like doctors and lawyers who have medical or bar associations that control much of their work;
3. FLMs or firm labor markets include many mid-level and moderately well-paid jobs such as white-collar or clerical jobs;
4. OLMs or occupational labor markets consist of the semi-professions like teaching and nursing but also the skilled trades with strong craft unions; and
5. SLAMs or secondary labor markets have the worst jobs with low pay, few benefits, and little job security.

In figure 1.5, we map the movements between segments that are due to unemployment. A few top managers might move to unemployment and then into middle-range jobs, perhaps as management consultants (FILM to FLM), and a few professionals may be out of work and then drift downward (OILM to OLM). But the biggest movement is from mid-range white-collar jobs into poorly paid jobs (FLM to SLAM), and semi-professional and craft work to these same secondary labor markets (OLM to SLAM). This downward trend drains the middle class since they are the most threatened segments of the job market. The straight arrows indicate falling into unemployment and then moving to a lower level. The curved arrows do the same, but for simplicity we omit the path to unemployment. This current downward mobility contrasts with the upward mobility of the 1950s and 1960s. It is important to note that in the “process of downward movement,” unemployment serves as a period of “aspirational readjustment” during which employees give up the wage levels of their previous jobs to accept lower pay among the only jobs that are available. This is the neo-liberal “cooling-the-mark-out” period that ends with employees from Ford or IBM taking jobs at Walmart or McDonalds (Goffman, 1952). The process of structural unemployment is slow and painful, and by the end of the unemployment period, these workers are drained not only of motivation but also of anger as they can think mainly of survival at their new and lower level of existence. But beyond downward aspirations, long-term unemployment increasingly leads to diminished confidence, deteriorating skills, mental depression, family conflict, and damaged marriages. Clearly, the unemployed should be looked at as perishable human beings who need re-employment in the short term to maintain their confidence and avoid stigma.

Figure 1.5 Five types of segmented labor markets
Arrows show workers going from one labor market segment to unemployment and then to a lower labor market segment. Curved arrows assume the path to unemployment to keep the figure readable.

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