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[Music]
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When did unemployment rates of 9 and a
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half or 10% in the United States become
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as they seem to have become acceptable?
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Uh well, I think after they stayed there
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for a little while. It's kind of
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remarkable how we get used to these
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things. In the Great Depression, you
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know, people got used to much higher
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rates of unemployment. 1981 recession,
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uh, 8% became sort of the new normal
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then for a while. 1990s, the economy
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roared along and, you know, 4% became
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the new normal. So, I think you can get
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used to these things reasonably quickly.
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I think what's maybe a little different
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now in terms of whether this is really
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acceptable
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depends entirely on who you ask. But I
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think one of the things going on now is
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there's a much sharper divide uh in
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terms of what we think might be done
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about it. So there's a a larger group of
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uh more vocal folks now who think that
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there is nothing to be done about the
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current unemployment rate that we just
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have to wait for the economy to work
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itself out and that there's particularly
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nothing the government could or should
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or ought to do. And I think that
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contributes uh maybe more and faster to
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this idea that it's normal and
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acceptable.
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Is there something different about who's
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being affected this time? It's always
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been workers in the lower paying
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income brackets who were affected the
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most. Um, but there's some statistics I
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think that show that that that slant is
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is even stronger this time and um do do
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you agree with that and what's the cause
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of that and if so what could be done
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about it? I think if we roll back the
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clock um after World War II, layoffs
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were concentrated almost entirely on
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younger workers uh and almost completely
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on production workers. So if you had a
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white collar job, you never lost your
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job because of ups and downs in the
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economy. And if you had a production
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job, you were in a unionized operation
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or you're in one that copied the union
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practices, the least senior people got
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laid off first. So that began to change
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in 1981. we started to see many more
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white collar layoffs and also
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increasingly layoffs of more experienced
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workers.
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Uh I'd say what's different this time
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around is that you know between 1981 and
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now we had a pretty uh moderate economic
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environment. Recessions that we had were
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pretty modest and pretty mild. So I
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think what's going on now is uh the same
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sort of thing that went on in 1981. Uh
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and that is lots of white collar workers
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getting hit and particularly older
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workers with more seniority getting hit.
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I think in part because they're more
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expensive. Uh in part because and I'm
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not sure this is right a lot of
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employers think that younger workers
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would be better value uh in terms of you
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know replacements. So I think what's a
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little different now is it looks like uh
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men are being hit more uh and that's
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because uh the service jobs uh are
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disproportionately women and employ
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women and those jobs have been a little
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less hit than the manufacturing
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production sort of jobs which are
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disproportionately men. I think that's
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the big change. Uh, I'd say otherwise
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this recession just looks a little more
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like 1981 and not like the milder
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recessions we had in between when
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layoffs were not such a big deal. The
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period of time that people are being out
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of work for has increased quite a bit.
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Um, long-term unemployed now account for
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46% of total unemployed, which is up
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from 28% just a year ago. So, the longer
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these folks are out, the rustier their
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skills become, the more difficult it
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becomes to wedge themselves back into
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the workforce, especially if they're
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older. Um, what are the implications of
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of that kind of dynamic, which I don't
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think we've seen before. Uh, well, I
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think again this is uh what you see in
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deeper recessions and and I think it's
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uh particularly a consequence of
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structural changes. you know, if this
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was just an old-fashioned
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inventory-driven recession where the
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economy wears down its inventories and
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then comes back up, um it wouldn't be
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such a big deal, wouldn't hit so many
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people, wouldn't hit so deeply, people
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wouldn't be laid off so long. Uh I think
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what we're starting to see now, you
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know, with maybe a more global economy
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is that certain sectors go down and stay
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down. The jobs go overseas, the business
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goes uh to competitors elsewhere,
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especially in manufacturing. So those
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jobs never come back. Uh and that's a
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trend that's been underway since about
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1981.
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And you know the consequence of that is
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really horrific, right? In the sense
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that uh um it's hard for people to
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retrain uh later in life. It's hard to
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get the skills to retrain. You're
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competing uh with people who are 22 and
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don't need a lot of money and sometimes
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are looking for jobs simply to get um
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experience. you you see an incredible
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explosion now in internships and
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voluntary internships where people
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basically work for nothing. Um often
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this is actually against the law. It
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violates the Fair Labor Standards Act to
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hire people or to have people do
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productive work and not pay them. But
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this is pretty widespread and people are
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doing that just to get experience. And
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if you're somebody, let's say, who's
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been a production worker all your life
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and you're trying to be retrained for a
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service job, um, let's assume the jobs
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actually were there, you're competing
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against people who are, you know, much
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younger and don't need as much money,
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uh, who are perhaps better plugged into
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career management services and things.
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It's it's really quite difficult. Um and
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that you know doesn't even account for
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the fact that people who have been out
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of school for 20 years or so to go back
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to school and to learn a completely
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different skill set is can be quite a
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difficult thing to do. So this is quite
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devastating. You know some of these
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folks who lost their jobs now frankly
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will never get their jobs back. Uh when
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I say that they will certainly not get
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their current job back. They're unlikely
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to get any job that's related to the one
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that they were laid off from back. Uh
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and so the step down is quite
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extraordinary. You know, if you were
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like an investment banker or something,
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you know, and you think about what's the
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next best use of your skills if you
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can't get employed in that arena
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anymore,
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you know, it's not completely obvious
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what the next step down is for you. Uh
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and for a lot of those folks, it's it's
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way down. Just to back up a little bit,
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we were talking about policy differences
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and whether the government should do
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anything or we just wait for the economy
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to spontaneously recover. Um, is there
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any way to square that circle? Are there
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any kind of policy decisions that might
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be acceptable to both sides? Uh, perhaps
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it's tax credits for hiring people. Um,
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maybe you have some other suggestions.
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Uh well I I think the you know the
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dynamic at the moment is the rise of a
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kind of you know anti-government uh um
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dimension to the politics. Certainly
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this has always been part of American
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policy debates uh but it seems to be
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stronger now. And they these arguments
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basically say that uh you know deficit
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spending doesn't work. Uh they basically
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say that uh government spending per se
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won't stimulate the economy. Uh and some
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of these positions are frankly just you
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know as the extent to which we know
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about these things simply wrong. You
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know for example the idea that um uh
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extending unemployment benefits is bad
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for the economy. Uh some of the
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arguments are these folks you know if
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you give them unemployment insurance
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they won't take jobs. Well there's
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certainly something to that but the
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problem right now is there are no jobs
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to be had. you know, so it's not like
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you're preventing these people from
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getting um paid employment. Um and in
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terms of stimulating the economy, uh
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that's a great way to stimulate the
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economy because those folks spend
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virtually every penny that they get in
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unemployment benefits. But you know, the
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there are folks who have influence on
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the political spectrum who just don't uh
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accept that position, don't even believe
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that stimulating the economy is a useful
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thing uh to do. So there's not a lot of
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middle ground there. I think you know
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the idea of uh demand uh le expansions
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that is give employers more benefits
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more tax credits that sort of thing to
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to hire.
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Uh I think the the problem with that it
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sounds good to the uh pro business
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community but when you start thinking
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about it carefully it's quite a
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difficult thing to pull off. Uh how do
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you know for example that a new hire uh
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has really come about because of the tax
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uh policy you know the tax changes are
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we just getting people who would have
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been hired anyway who are claiming the
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tax uh credits uh it's very difficult to
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police that sort of thing the
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possibilities for fraud are actually
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much bigger than they are I think for uh
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unemployment insurance so I think part
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of the problem with things which are
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politically acceptable uh particularly
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to the sort of anti-government view is
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that the, you know, more of
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evidence-based view finds most of those
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things unpalatable and that they don't
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actually work very well. Um, so there's
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almost no common ground between uh what
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the sort of progovernment folks would
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find acceptable and what the
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anti-government folks would find
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unacceptable. you know, in terms of
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cutting more taxes is always popular
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with the anti-government folks, but um
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at the moment uh the budget deficit
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lobbies uh find that unpalatable. So
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there's just not a lot of common ground.
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So it sounds like gridlock if it wasn't
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so uh tight of a standoff. um what kind
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of policies might work in a way that
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maybe didn't you know run the deficit up
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so much that they become uh
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self-defeating?
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Well, you know, I I think at the at the
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moment the the sense uh about why the
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economy is is not doing better uh is
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something that uh you know we don't have
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a great answer to because we don't have
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a lot of experience with situations like
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this. You know, the prevailing view was
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that after 1981, we had sort of figured
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out how to manage recessions better. Uh
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there's a push back on that argument
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now. And the push back is uh to suggest
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that what really changed was not that we
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got better at managing the economy. What
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really changed was that companies
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internally got better at managing their
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inventories. uh and the idea of an
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inventory
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recession, you know, where companies
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just build up these stocks of
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inventories, they got too much sitting
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around, they don't buy anymore, and then
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the economy goes down. That idea more or
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less went away because these just in
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time inventory systems mean you don't
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build up piles of inventory. So, um I'd
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say the first issue is we don't have a
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good sense of what's going on uh right
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now with respect to, you know, how to
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improve the economy. I think there is a
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sense that you know from uh historical
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research that um things like
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unemployment insurance payments uh do
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help they stimulate the economy. Uh I
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think the problem right now I mean
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certainly my read of the problem is that
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the problem is still in the financial
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sector and it has to do with uh banks uh
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and their willingness to make loans.
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interest rates are at, you know, record
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low levels, but people who are looking
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for a house, for example, find it
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extraordinarily difficult to get a
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mortgage. If you get one, you can get it
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at a great rate. Um, but the banks are
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so uh concerned about defaults now um
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that it's very difficult to qualify for
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a mortgage. So, credit is tight as the
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problem despite the fact that monetary
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policy has made interest rates quite
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low. uh and we don't actually know how
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to solve that problem without getting
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deep into the manipulation of the banks
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themselves. Uh and that probably goes
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beyond
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um what even the progovernment folks
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would see as acceptable at the moment or
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at least know how to traverse it. So
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it's it's a bit of uncharted water, you
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know, how to make the banks loan or even
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encourage the banks to loan. Pretty
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tricky undertaking right now. a little
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closer to home. Um, how was this
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environment affecting MBA graduates such
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as those from Wharton? Well, I'd say,
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you know, for our students, uh, it has,
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uh, not been as bad, frankly, for two
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reasons. One is a historical reason, and
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that, uh, because they're seen as being
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some ways the top of the pool. Uh, when
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jobs are available, our folks would
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would be the ones to get them. and uh
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people having a tougher time are the
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people further down the the pecking
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order. Uh but I think that the companies
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that traditionally hire our students,
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the investment banks and the consulting
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firms especially who hire big waves of
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MBAs every year, um they made some
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strategic decisions a few years ago um
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to make sure that they didn't get stuck
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with a demographic imbalance. So in the
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2001 recession for example a lot of
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companies consulting firms stopped
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hiring and then they discovered three
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years later that they had no employees
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with three years of experience and their
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business model is that the third years
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teach the first years what to do and
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then the fifth years teach the third
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years what to do and they discovered
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they had no third year people anymore.
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They didn't hire two years before. So, I
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think the the bad news is they decided
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to lay off more people uh in the
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downturn than they probably needed to uh
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in order to make sure that they could
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come back even in the downturn and hire
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uh some people to be firstear associates
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um to smooth out their demographics. So,
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I'd say this is in some ways has been a
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redistribution of the burden from the
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new hires uh to the more experienced
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workers. You see this in law firms to
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some extent too. The people who were in
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the worst shape often were people with
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three to five years experience suddenly
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got laid off. Um some of the better
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students from the better schools uh
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graduating found it easier to get jobs.
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Thanks very much for chatting with us
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today. My pleasure.
