As economists are celebrating a strengthening U.S. economy even as a global slowdown appears to be increasing in likelihood, the last seven years have fundamentally changed our understanding of the American economy. One of the lessons that we have learned is that it is possible to have high unemployment and many employers unable to find employees at the same time. Also, we can have immigration (illegal) continuing as people come here looking for work along with millions of native born Americans unable to find it. What explains this? While political partisan have their favorite explanations and scapegoats, I believe that the answer is more structural than political.

The primary factor is that the nature of work itself has changed. In economic models that assume a flexible (and free) labor market, people can move from one job to another and from one industry to another fairly easily. In the pre-industrial and early industrial society, this was true for a lot of jobs. Working on a farm or in a factory was the sort of job that could be taught fairly easily, and to the extent that the jobs were repetitive, a person could master them within a few days or weeks. Loss of a job at the automobile factory could be easily replaced by a job at the soup canning factory. A job milking cows at one farm could be replaced by milking cows at another farm. My grandfather, with no special skills, left his father’s farm in Illinois and worked for various farmers, traveled to Wyoming where he worked as a ranch hand, and then moved on to Seattle where he intended to get a job with the fishing fleet, until the army recruiter caught up with him. His experience was not that atypical for many men.

Today, however, the labor market is much more specialized and movement between jobs is much harder. For example, while a person can learn a job, so much of what makes a person effective is experience in that job. An auto mechanic can be taught how to tighten bolts fairly quickly and learn the basics of how engines work, but troubleshooting what is wrong with an engine can take years as he builds up a reserve of experience to know that when an Audi engine sounds one way, it can mean 1 of 3 things, or that when a small Toyota truck engine sounds another way it can mean 1 of 4 things. Or a worker at ABC Company can spend 10 years learning how to be effective specifically at ABC Company. However, retraining an auto mechanic to be a plumber means that he now has to spend years building up a new reserve of experience dealing with plumbing problems. Or the worker at ABC Company may find that his skills are very ABC Company-specific and don’t translate well to a similar position at XYZ Company. Thanks to the internet, companies can now look to hire people with exactly the skill set they are looking for, rather than people who have kind-a, sort-a, similar skill sets who can theoretically be trained into the job that the employer really wants done. What this does to the labor market is that many people who lose their job have a very difficult time finding a similar job. The result is that you end up with a group of discouraged people who drop out of the labor force, or they are forced to take other jobs at reduced pay, or they are forced to start their career over completely in another industry (at reduced pay).

Going forward, while government and social institutions will pretend that they can fix this problem (and consume large volumes of taxpayer cash for doing so), they really can’t. A specialized labor force has delivered high quality customer service and has produced an iphone world where many things are delivered when you want, in the quantity you want, and with the quality you expect. While the system has been disruptive on a personal and social level, is not, along with the internet, going anywhere anytime soon. Consequently, we can expect a mismatched labor market to be with us for a long time to come.