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May 07, 2010

Economics Group

John Silvia, Chief Economist
[email protected] ! 704-374-7034

Employment II: Structural Road Bumps on the Recovery Path
Today’s rise in the unemployment rate, particularly among those not completing high school, emphasizes the structural challenges to the job market. The disconnect continues between economic recovery and jobs. Breakdown in the Link between Growth and Labor In recent weeks we have discussed the labor market and the question of the breakdown of the link between growth and jobs. In our view, there are three factors that have exacerbated this disconnect which has been growing since the 1990 recovery and has been reinforced during the 2001 and the current recovery. First, the U.S. economy has become increasingly integrated into the global economy, and with the ending of a closed economy for the U.S. production, jobs are being allocated globally, not just in the U.S., for any given increase in production. Second, the imperatives of both global competition and a bargain-hunting consumer has led to increasing use of high-tech capital to replace low/semi-skilled workers as routine tasks are increasingly automated. Third, employers are constantly upgrading the demand for educated workers and as such the returns to education continue to rise over time. Therefore, the income gradations by education continue to widen. Structural Unemployment: America’s Skill Mismatches. Increasingly, employers need minds, not just bodies. This has been a major source of economic as well as political unrest as increasingly many workers realize that their skills do not meet the needs of the workplace. In the top graph we can see a breakdown of unemployment by education. The cost of a weak education shows boldly in the high unemployment rate for those with no high school diploma. In today’s data the rise in the unemployment rate to 9.9 percent was driven by the jump in the unemployment rate to 14.7 percent for those without a high school diploma as this group’s measure of the labor force rose. This is the “hidden” unemployment that many have talked about in the past year. Here are the workers who stayed out of the job search and now have reentered as they believe jobs are becoming available. Unfortunately, for many of them the challenge will be daunting as the low/semi-skilled jobs they seek are becoming increasingly scarce. Unemployment: Higher for Longer—Surprise The duration of unemployment actually rose in April to 33.0 weeks and is the highest of any month this year. This suggests that many job seekers are not benefitting from a cyclical recovery because their issues are the structural mismatch in jobs. Permanent Part-Time: America’s New Worker The series “workers employed part-time for economic reasons” has set new highs during this recession/recovery and remains elevated. While temporary help has historically been a leading indicator of jobs in this cycle, the pattern may have changed as temporary jobs never evolve into full-time jobs. This presents another challenge to the American worker.
Unemployment Rate by Education Level
April 2010 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% 1.0% No High School Diploma High School Diploma Some College College Degree 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% 1.0%

Mean Duration Unemployment
34 32 30 28 26 24 22 20 18 16 14 12 10 8 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Apr @ 33.0 Weeks Average Weeks Unemployed 34 32 30 28 26 24 22 20 18 16 14 12 10 8

Employed Part-Time for Economic Reasons
Non-Agricultural Industries, Thousands of Persons 9,500 Part Time Employees: Apr @ 9,049,000 8,500 8,500 9,500

7,500

7,500

6,500

6,500

5,500

5,500

4,500

4,500

3,500

3,500

2,500 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

2,500

Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg John E. Silvia, Ph.D. Mark Vitner Jay Bryson, Ph.D. Scott Anderson, Ph.D. Eugenio Aleman, Ph.D. Sam Bullard Anika Khan Azhar Iqbal Adam G. York Ed Kashmarek Tim Quinlan Kim Whelan Yasmine Kamaruddin Global Head of Research (704) 715-8437 & Economics (212) 214-5070 Chief Economist Senior Economist Global Economist Senior Economist Senior Economist Senior Economist Economist Econometrician Economist Economist Economist Economic Analyst Economic Analyst (704) 374-7034 (704) 383-5635 (704) 383-3518 (612) 667-9281 (612) 667-0168 (704) 383-7372 (704) 715-0575 (704) 383-6805 (704) 715-9660 (612) 667-0479 (704) 374-4407 (704) 715-8457 (704) 374-2992 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

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