Points of View

With high unemployment, how can Michigan’s labor market be tight?

With high unemployment, how can Michigan’s labor market be tight?

Alex Andrews

Over 300,000 jobs were displaced in Michigan as a result of the pandemic, with the number of unemployed nearly doubling over that time (93%). The largest group were laid off in March and April of 2020, but unemployment has continued above average levels even in recent weeks, hitting 7.5 percent in December. With the number of available jobseekers across the state at a record high this year, how is it possible for a growing share of Michigan employers to cite continued talent shortages and difficulty filling open positions — irrespective of education or experience requirements?

Several factors prevent displaced workers from transitioning into new occupations and industries to fill the job vacancies that are prevalent across the state. Some lack the right knowledge and skills for the open positions, others prefer not to change occupations, while others are not looking for work because of child care responsibilities, discouragement about their job prospects, or preference for collecting expanded unemployment insurance benefits over earning wages.

 

Education and skills

The pandemic has only emphasized the necessity of post-secondary education, with a disproportionate impact on jobs with less-educated workforces: 4 in 5 lost jobs in service-providing industries and 3 in 5 lost jobs requiring a high school diploma or below. Due to accelerated trends in remote work, e-commerce, and automation/AI, the volume of low-skill jobs across the nation is beginning to shrink, either being entirely phased out by automation or requiring workers to possess some form of postsecondary education or training in order to interface with these increasingly autonomous, technical components.

Because of the pandemic’s impact on low-wage jobs, McKinsey now estimates that almost all growth in labor demand will occur in high-wage jobs. Going forward, more than half of displaced low-wage workers may need to shift to occupations in higher wage brackets, which require different skills to remain employed. The future success of displaced workers depends predominately on their ability to upskill and retrain to acquire the technical skills necessary to thrive in this increasingly digital labor market.

In Michigan, the Futures for Frontliners program seeks to address this trend through state scholarships for residents without college degrees who worked in essential industries during the state COVID-19 shutdown in spring 2020.

Over 120,000 frontliners have applied for the scholarship and more than 15,000 of those applicants had already enrolled in classes as of January 29, 2021. Many applicants have described the sense of relief to be able to pursue an education without worrying so much about working enough hours or acquiring huge amounts of debt.

 

Individual preferences and expanded UI benefits

Some displaced workers are very flexible about their next job opportunity because they simply cannot afford to go without a paycheck, but others have strong preferences about which jobs they are willing to take. Workers generally become accustomed to working certain hours of the day, and families adjust their schedules accordingly to balance the responsibilities of childcare and other demands on their time. The bartender who normally got off work at 11:00 pm might be resistant to a 1st shift opportunity in another occupation. Additionally, many workers are comfortable in their current occupations, even if the pay is generally low. The retail salesperson may feel good doing a job that she knows how to do well, with co-workers she has known for years. Her preferences for comfort and familiarity will drive her to wait to return to her old job, rather than seek opportunities to transition into a different occupation.

The strong preferences of the unemployed interact with expanded unemployment benefits to alter the behavior of some toward long periods of unemployment. Unemployment takes an emotional and financial toll that only a return to work can reverse, and remaining on unemployment until one’s benefits are exhausted can do lasting damage to a recipient’s employability. The usual benefit structure provides less income for the unemployed than they would earn working. However, the $600 bonus paid out in the early months of the pandemic put more money in many unemployed people’s pockets than they had been earning — essentially disincentivizing a timely return to work. The current $300 bonus and Biden’s proposed $400 weekly bonus similarly erode work incentives, though not as severely as the old bonus.

 

Child care

The lack of affordable, quality child care kept many parents out of the workforce even before the pandemic, a trend which has dramatically accelerated since March with drastic consequences for employers with open positions to fill. Women, especially mothers of young children ages 0 to 5, left the labor force during the pandemic at higher rates than men. School closures and daycare challenges skyrocketed as a result of the pandemic, sharply increasing caregiving needs for the growing volume of children who found themselves in need of daily supervision that used to be provided at school or daycare — responsibilities which have fallen disproportionately on mothers.

Michigan’s Tri-Share Child Care Program is an innovative approach to increase access to high quality, affordable child care for working families. The Tri-Share pilot was launched earlier this year and aims to help employers retain talent and remove one barrier to employment by splitting the cost of childcare between an employer, the employee, and the State of Michigan. The program will initially operate in three regions of the state, including one rural and one urban region, with coordination of services and funding provided by an appointed facilitator hub.

 

A multipronged approach to success

To successfully help displaced workers transition to new jobs and industries, providing employers with the talent they desperately need to recover from the pandemic, Michigan requires a multipronged approach. Primarily, workforce development efforts should provide enough flexibility to guarantee accessible and affordable options for anyone who wishes to upskill or retrain into a new occupation. Even the best adult education programs offer zero benefit to those who cannot access them and adult learners face a variety of barriers to engage in learning, which must be systematically addressed if they are to reach their goals. This includes making programs physically accessible by offering diverse access points — such as community colleges, workplaces, and sites in which parents can bring their children — or using distance learning technology and hybrid courses to facilitate learning and develop digital skills at the learner's own pace. Broadband access remains a significant barrier, so learners should be provided with devices and mobile hotspots to enable learning wherever a participant may be located, effectively mitigating the barriers imposed transportation and conflicting schedules between learning, working, and childcare responsibilities.

Secondly, Michigan's Unemployment Insurance Agency (UIA) should strengthen incen­tives and expectations that recipients of unem­ployment insurance will seek new employment quickly. The system currently relies on the termination of benefits to incentivize claimants to look for work, seldomly requiring them to search for jobs before that. One option to incentivize a quick return to work is to allow workers who get new jobs before their UI benefits expire to receive a portion of their remaining insurance as a lump sum. They would then be ineligible to claim support until they had again worked as many quarters as required for eligibility in Michigan. 

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