Thursday, March 12, 2009

Sometimes an Education is Unsettling

My area of study, back when I thought a PhD would look nice following my name, was Labor Market Theory, particularly "Dual Labor Market" theory. There were basically two faculty/student "teams" studying the subject. Our team looked at the structural aspects, while the other looked at the sociological side.

To explain a bit. Dual Labor Market refers to a phenomenon in which there is a "Primary" and a "Secondary" Labor Market. Jobs turnover in the Primary market tends to be relatively stable, and earnings are strongly predicted by education level, years of experience, seniority on a job, etc. All those classic factors that instinctively pop into mind.

The Secondary market, on the other hand is characterized by high job turnover and very low earnings. The only statistically significant predictors of earnings are the prevailing minimum wage and hours worked. A PhD working in the secondary market will earn the same as a high school drop out. A person with 10 years on the job will not earn significantly more than the one hired yesterday.

While I was not seriously involved in the sociological side of the subject, several findings remain with me to this day. One was that if an individual works in secondary market jobs for more than two years, the odds of escaping that workforce diminish dramatically. Education, skill, training, and all the typical remedies for low earning do not work, unless it is retraining. For example, consider a graduate engineer with 10 years professional experience, who has to take a secondary market job(s) for a couple of years, perhaps due to a layoff. After about two years in secondary market employment, he suffers a high probability of remaining there. His probability of returning to primary market employment increased somewhat if he took, for example, a trade school course in auto mechanics and changed career fields, even if there were engineering jobs around. A career change was more promising than if he tried to return to engineering, even if he did more studies in engineering! In short, the Secondary Labor Market is the "Roach Motel" of employment.

As I said, my area of concentration was the structural side of the issue, so my insights into the sociology were limited. Thus, I can only offer the glimpse above. While this was back in the late 70's, early 80's, I can't help thinking about it today.

The good news is that if the above holds true, the laid off geniuses who brought this mess upon us might very well be flipping burgers for years to come! The bad news is that if middle class jobs stay off the radar for too long a period of time, many fine people may be trapped in their new found mess.

Another piece of bad news is that if people cannot readily return to a field where they have gained useful experience, that field loses the experience which they had gained. Sort of a brain drain.

Al

8 comments:

wourm said...

Al,

I don't see the Secondary Labor Market being that much of a roach motel. Look at the mindset of the people who've just lost their Primary Market job. I think the majority of them got there by either being better than their competition or by making their bosses think so. Either way it takes some amount of thinking, some creativity and innovation. These are people who made it out of the Secondary Market once, I see most of them finding a way out again.

Toward the late eighties and early nineties, there was a cultural movement to give up the rat race. I recall seeing a commercial about a stock broker who gave up his job and moved out to the 'country' to open up a bed and breakfast. There were a few movies with similar plots. I think we'll see a resurgence of that attitude as time goes on.
If you think about it, a lot of the small business tax breaks were created during that period as an incentive to build small businesses. This was also as a lot of the corporate giants of technology were disintegrating. Unisys, Sperry, Commodore and Grumman are a few that I can think of in my area. The push at the time was to make up for the lost tech jobs with small business ventures.

As yet I haven't seen a large scale nudge from government towards building small businesses. So far just a few sound bites during the election. In any case there are still a few tax breaks still in place for small businesses.

I can imagine a few Primary Market types giving up on it. Those who didn't like having to think on the job, those who weren't in it long enough to reap the rewards. But I think once you've tasted that wine, you'll find a way to sip it again.

seydlitz89 said...

Excellent post. Thinking . . .

Aviator47 said...

Wourm

What the research found pertained to those who enter into and spend time in Secondary Market jobs. We did not look at the entire population of displaced Primary Market workers. Just those who entered the Secondary Market.

The sociology team's look at the exit rate from the Secondary Market of displaced former Primary Market workers simply found that there was a point at which "escape" from Secondary Market employment became statistically less probable, and that point was at about the two year mark. They had not found predictors of "who" would enter the Secondary Market, just that there was a population that was displaced from the Primary into the Secondary, or were qualified for the Primary but ended up in the Secondary. People who were successful in finding Primary Market jobs tended to do so before the two year mark. Since the numbers were significant, they were beginning to investigate the "whys" of this phenomenon - at the time I finished my work and moved on.

My ruminations are whether a protracted economic slump will hold more people in Secondary Markets jobs for more time. If so, then I ponder the sociological impact found in the studies.

FDChief said...

Al:

My question would be along these lines but a bit larger in scope. That is, are we beginning to see the emergence of an industrial/commercial economy that provides a much smaller number of Primary Market jobs?

ISTM that almost all economic trands over the past twenty years have led to increasing productivity at the expense of employment through the use of electronic and automated systems, outsourcing and offshoring of everything from clerical to technical jobs and severly narrowed opportunities outside service work for those without advanced educations or at least advanced educational skills.

The opportunity for those with a degree is closing down to permanent employment in the service sector: burger flippers, nursing home ass-wipers, rental car counter jockeys. And even for the upper end professional workers, it seems that we're having problems. Many fewer native-born engineers, lots more people with visas taking the jobs in the structural and architectural firms.

We've heard about the "jobless recoveries" of the Reagan, Clinton and Bush years. Could we be heading towards a more jobless economy?

Pluto said...

Good post, Al.

I've had several brushes with what you call the Secondary Labor Market. They were all grim experiences that motivated me to work very hard to get back into the Primary Labor Market.

The thoughts you and FDC put forth make a lot of sense except for two things that are supposed to counteract the trends you describe.

1. Unemployed and underemployed people are supposed to pull themselves up by starting small businesses and finding new markets to sell themselves and their services.

The key word there is "supposed." I've played the small business game four times in my career.

Twice things just about broke even, once I came out ahead and was able to sell my share at a profit (after changing just about everything about the business but the name), and the last time I lost big and could have lost quite a bit more.

I still like talking with small business owners and find them to be some of the most interesting people in the world (no room for self-delusion when you're that close to the edge) but mostly I admire their bravery, they are gambling big time and they know it. That sort of courage is not common and I don't think it ever has been.

2. The more effective counter to your concern about the shrinking need for a workforce is that the workforce is going to start shrinking with increasing speed after 2011 as the leading edge of the boomers start retiring.

The weakness with that suggestion is the concern that the older boomers may not be able to afford since the stock market went into the tank so badly.

As you'll have already noted from my statement of my concerns, I'm not entirely convinced that these options will completely counteract the problems that you describe. They should at least mitigate some of the worst of the problem though.

Aviator47 said...

My greatest concern is that the US labor market is going to be seriously "disrupted" over the next year. Thinks of the failing auto industry, airlines and financial sectors, for starters. With a slow recovery, and certain sectors of the economy taking on diminished roles, it's going to have a long term impact on the middle class on down.

We haven't seen anything this profound since the 30's, and climbing out of the current mess into a new labor market distribution isn't going to be easy.

wourm said...

Times are a little different today. In the 30's you had a factory job or you didn't have anything at all. Today, people know too much. There's a thousand ways for any one person to make a living. The creative, the innovative will survive, and maybe that's a good thing.

Pluto said...

Al -
I think your comments, as usual, are right on the money.

Wourm makes an excellent point about the creative and driven thriving in the environment you describe but the question is how much creativity and drive be required to survive in the coming job market.

Based on my personal experiences, I wouldn't be surprised if 90%+ of the unemployed lacked sufficient creativity and drive to make it.

Running a start-up business is HARD. It requires absolute dedication, a clear perception of the local business environment, connections, sufficient start-up cash (frequently the biggest hurdle), and a business plan that is close enough to accurate to keep you in business until you are established. Those are only a few of the reasons that 80% of the businesses fail in the first five years.

I fear that all of the above factors will raise the bar so high that people who can't survive in the pressure-cooker environment of a small business would be essentially unemployable.

The only ray of light I can offer is that the coming job market is most certainly not written in stone and there are likely to be a large number of factors we are overlooking and it is reasonable to assume that some, perhaps most, will be positive.

If nothing else, the federal government can hire most of them (I'm just kidding, honest!).