High unemployment in the U.S. stubbornly lingers -- bad news for the politicians running for reelection as midterm elections are fast approaching. And panicky policymakers seem to be leaning even harder on the usual job-creation tools, like forcing down interest rates, despite this strategy's sketchy track record in boosting employment so far.
In a move that set the pace for the week's trading, Fed chief Ben Bernanke's declared that the Federal Reserve stood ready to provide further assistance if the economy slows much more. Credit markets saw that statement as opening the door for further quantitative easing, and Treasurys rallied as a result.
But while the policymakers in the spotlight cling to orthodox levers in an effort to boost employment, another stream of thought seems to be picking up momentum behind the scenes. Rather than use the blunt instrument of further interest rate cuts to boost overall demand, a growing chorus is now pointing to the mismatch between worker skills and a remarkably strong roster of job openings across the country.
Worth Paying Attention To
Minneapolis Fed President Narayana Kocherlakota was among the first to note the discrepancy. Based on job listings, unemployment would tumble to 6.5% -- if workers had the right skills, Kocherlakota has calculated.
Bernanke's every utterance gets analyzed for what it might mean about the direction of interest rates and has a major impact on markets, of course. But in the shadows, Kocherlakota's work seems to be resonating with a highly influential cast and could eventually be much more consequential for investors than the billing it currently gets.
Kocherlakota detailed his findings in the middle of August. And high-profile New York Times columnist David Brooks picked up on the thread in an article earlier this month. Along with a stalled housing market that depresses labor mobility, one of the big problems facing the country is that "we have too many mortgage brokers and not enough mechanics," Brooks noted.
Indeed, some companies in the manufacturing sector have complained that a shortage of skilled workers is a key reason they're unable to boost sales.
Now, no less a heavyweight when it comes to economic policy than former President Bill Clinton seems to be throwing his weight behind the position. Known for presiding over one of the biggest sustained economic expansions in U.S. history -- one that was robust enough to turn government deficits to surpluses -- Clinton endorsed the idea in an interview this week that an emphasis on retraining could help jump-start employment.
"Buried in that unemployment rate was the stunning finding that for the first time since World War II," Clinton said about a recent unemployment report, "we are coming out of a recession where posted job openings -- that is, they'll hire us tomorrow, you and me -- posted job openings are going up twice as fast as job hires."
He added: "I think the quickest thing you could do is to accelerate the transfer of discretionary training money to states or to the local labor department that would go direct to employers, so that people, while they're drawing unemployment, can get trained and move and fill those jobs."
With interest rates already at rock-bottom levels, it's hard to see how further Fed monetary easing can have a dramatic impact. And while boosting demand may be marginally helpful for creating jobs, focusing more resources on helping workers retrain for positions already listed seems like a far better route.
Reequiping the Workforce
A shift toward a more effective policy would have major consequences for the financial markets as well. Gains in employment would help bolster real domestic demand and could propel stocks. Yields on U.S. government bonds, which slid this week on anticipation of further policy manipulation, could also bounce back.
Looking for practical ways to reequip the workforce should play a much bigger role than the current fixation on interest rates allows. And as bigger names start pounding the table on the issue, it may finally start to happen.