July 1, 2010 Factory Jobs Return, but Employers Find Skills Shortage By MOTOKO RICH BEDFORD, Ohio — Factory owners have been adding jobs slowly but steadily since the beginning of the year, giving a lift to the fragile economic recovery. And because they laid off so many workers — more than two million since the end of 2007 — manufacturers now have a vast pool of people to choose from. Yet some of these employers complain that they cannot fill their openings. Plenty of people are applying for the jobs. The problem, the companies say, is a mismatch between the kind of skilled workers needed and the ranks of the unemployed. Economists expect that Friday’s government employment report will show that manufacturers continued adding jobs last month, although the overall picture is likely to be bleak. With the government dismissing Census workers, more jobs might have been cut than added in June. And concerns are growing that the recovery could be teetering, with some fresh signs of softer demand this week. A central index of consumer confidence dropped sharply in June, while auto sales declined from the previous month. Pending home sales plunged by 30 percent in May from April as tax credits for home buyers expired. Fretting that global growth is slowing, investors have driven stock indexes in the United States down to their levels of last October, for losses as great as 8 percent for 2010. As unlikely as it would seem against this backdrop, manufacturers who want to expand find that hiring is not always easy. During the recession, domestic manufacturers appear to have accelerated the long-term move toward greater automation, laying off more of their lowest-skilled workers and replacing them with cheaper labor abroad. Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker. Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills. “That’s where you’re seeing the pain point,” said Baiju R. Shah, chief executive of BioEnterprise, a nonprofit group in Cleveland trying to turn the region into a center for medical innovation. “The people that are out of work just don’t match the types of jobs that are here, open and growing.” The increasing emphasis on more advanced skills raises policy questions about how to help low-skilled job seekers who are being turned away at the factory door and increasingly becoming the long-term unemployed. This week, the Senate reconsidered but declined to extend unemployment benefits, after earlier extensions raised the maximum to 99 weeks. The Obama administration has advocated further stimulus measures, which the Senate rejected, and has allocated more money for training. Still, officials say more robust job creation is the real solu ...

1. July 1, 2010
Factory Jobs Return, but Employers Find Skills Shortage
By MOTOKO RICH
BEDFORD, Ohio — Factory owners have been adding jobs
slowly but steadily since the beginning of the year, giving a lift
to the fragile economic recovery. And because they laid off so
many workers — more than two million since the end of 2007
— manufacturers now have a vast pool of people to choose
from.
Yet some of these employers complain that they cannot fill their
openings.
Plenty of people are applying for the jobs. The problem, the
companies say, is a mismatch between the kind of skilled
workers needed and the ranks of the unemployed.
Economists expect that Friday’s government employment report
will show that manufacturers continued adding jobs last month,
although the overall picture is likely to be bleak. With the
government dismissing Census workers, more jobs might have
been cut than added in June.
And concerns are growing that the recovery could be teetering,
with some fresh signs of softer demand this week. A central
index of consumer confidence dropped sharply in June, while
auto sales declined from the previous month.
Pending home sales plunged by 30 percent in May from April as
tax credits for home buyers expired. Fretting that global growth
is slowing, investors have driven stock indexes in the United
States down to their levels of last October, for losses as great as

2. 8 percent for 2010.
As unlikely as it would seem against this backdrop,
manufacturers who want to expand find that hiring is not always
easy. During the recession, domestic manufacturers appear to
have accelerated the long-term move toward greater automation,
laying off more of their lowest-skilled workers and replacing
them with cheaper labor abroad.
Now they are looking to hire people who can operate
sophisticated computerized machinery, follow complex
blueprints and demonstrate higher math proficiency than was
previously required of the typical assembly line worker.
Makers of innovative products like advanced medical devices
and wind turbines are among those growing quickly and looking
to hire, and they too need higher skills.
“That’s where you’re seeing the pain point,” said Baiju R. Shah,
chief executive of BioEnterprise, a nonprofit group in Cleveland
trying to turn the region into a center for medical innovation.
“The people that are out of work just don’t match the types of
jobs that are here, open and growing.”
The increasing emphasis on more advanced skills raises policy
questions about how to help low-skilled job seekers who are
being turned away at the factory door and increasingly
becoming the long-term unemployed. This week, the Senate
reconsidered but declined to extend unemployment benefits,
after earlier extensions raised the maximum to 99 weeks.
The Obama administration has advocated further stimulus
measures, which the Senate rejected, and has allocated more
money for training. Still, officials say more robust job creation
is the real solution.

3. But a number of manufacturers say that even if demand surges,
they will never bring back many of the lower-skilled jobs, and
that training is not yet delivering the skilled employees they
need.
Here in this suburb of Cleveland, supervisors at Ben Venue
Laboratories, a contract drug maker for pharmaceutical
companies, have reviewed 3,600 job applications this year and
found only 47 people to hire at $13 to $15 an hour, or about
$31,000 a year.
The going rate for entry-level manufacturing workers in the
area, according to Cleveland State University, is $10 to $12 an
hour, but more skilled workers earn $15 to $20 an hour.
All candidates at Ben Venue must pass a basic skills test
showing they can read and understand math at a ninth-grade
level. A significant portion of recent applicants failed, and the
company has been disappointed by the quality of graduates from
local training programs. It is now struggling to fill 100
positions.
“You would think in tough economic times that you would have
your pick of people,” said Thomas J. Murphy, chief executive of
Ben Venue.
How many more people would be hired if manufacturers could
find qualified candidates is hard to say. Since January, they
have added 126,000 jobs, or about 6 percent of those slashed
during the recession. The number may understate activity
somewhat, as many factories have turned to temporary workers.
Christina D. Romer, chairwoman of the Council of Economic
Advisers, said the skills shortages reported by employers stem
largely from a long-term structural shift in manufacturing,
which should not be confused with the recent downturn. “I do

4. think that manufacturing can come back to what it was before
the recession,” she said.
Automakers, for example, have been ramping up and mainly
filling slots with people laid off a year or two ago.
Manufacturers who profess to being shorthanded say they have
retooled the way they make products, calling for higher-skilled
employees. “It’s not just what is being made,” said David
Autor, an economist at the Massachusetts Institute of
Technology, “but to the degree that you make it at all, you make
it differently.”
In a survey last year of 779 industrial companies by the
National Association of Manufacturers, the Manufacturing
Institute and Deloitte, the accounting and consulting firm, 32
percent of companies reported “moderate to serious” skills
shortages. Sixty-three percent of life science companies, and 45
percent of energy firms cited such shortages.
In the Cleveland area, historically a center of metalworking and
rubber production, more than 40,000 manufacturing workers
lost their jobs in the recession, a 21 percent decline, according
to an analysis of employment data by Cleveland State
University. Since the beginning of the year, the region has
added 4,500 positions.
Employers say they are looking for aptitude as much as specific
skills. “We are trying to find people with the right mindset and
intelligence,” said Mr. Murphy.
Ben Venue has recruited about half its new factory hires from
outside the pool of former manufacturing workers. Zachary
Flyer, a 32-year-old Army veteran, had been laid off from a law
firm filing room when he applied at the drug maker last
summer.

5. He spent four months this year learning how to operate a 400-
square-foot freeze dryer that helps preserve vials of medicine.
Monitoring vacuum pressure and temperatures on a color-coded
computer screen with flashing numbers, Mr. Flyer said last
month that he preferred his new work to the law firm, where he
had spent seven years.
“I like jobs that are more hands-on, as opposed to watching
paperwork all day,” he said.
Local leaders worry that the skills shortage now will be
exacerbated once baby boomers start retiring. In Ohio, officials
project that about 30 percent of the state’s manufacturing
workers will be eligible for retirement by 2016.
“The new worker of tomorrow is in about sixth grade,” said
John Gajewski, executive director of the advanced
manufacturing, engineering and apprenticeship program at
Cuyahoga Community College in downtown Cleveland. “And
they need training to move into manufacturing.”
At Astro Manufacturing and Design, a maker of parts and
devices for the aerospace, medical and military industries, Rich
Peterson, vice president for business development, recently
gave a tour to a group of eighth graders.
He showed off surgical simulators and torpedo parts, saying he
wanted them to see the “cool” things the company makes. By
the end of the tour, more than a third of the students said they
might consider working at a place like Astro, which is based in
Eastlake and has five plants in the Cleveland area.
For now, the company urgently needs six machinists to run what
are known as computer numerical control — or CNC —
machines. An outside recruiter has reviewed 50 résumés in the

6. last month and come up empty.
The jobs, which would pay $18 to $23 an hour, require
considerable technical skill. On an afternoon last month,
Christopher Debruycker, 34, was running such a machine, the
size and shape of a camper van parked on the factory floor.
Mr. Debruycker, who has been an operator for 15 years, had
programmed the machine to carve an intricate part for a flight
simulator out of a block of aluminum, and he monitored its
progress on a control pad with an array of buttons.
“We need 10 more people like him,” Mr. Peterson said.
David Maxwell contributed reporting.
Decoding 'Natural' Rate of Unemployment
By Neil Shah
September 7, 2012
Wall Street Journal Online
Unemployment, the seemingly intractable knot in the U.S.
recovery, is a normal part of even the healthiest economy.
Some measure of joblessness is inevitable when workers move
freely among jobs, and employers expand and shrink their work
forces as business ebbs and flows.
Before the recession of 2007-2009, many economists believed
the nation's "natural" rate of unemployment was 5%. Three
years into the recovery, the nonpartisan Congressional Budget
Office says this rate has risen to 6%. A survey of economists by
the Federal Reserve Bank of Philadelphia recently pegged the
rate at 6%. And Fed officials say their forecast for "longer run"
unemployment—a proxy for natural unemployment—is between
5.2% and 6%.
Why the rise? America's more than five million long-term
unemployed, those jobless for 27 weeks or more, may struggle

7. for years to find positions as their skills and attractiveness to
employers erode. The recession also heightened a mismatch
between employers' needs and job seekers' skills, which is
considered a "structural," or longer-term, problem rather than a
"cyclical" one. In addition, more-generous unemployment
insurance means people can take longer to look for positions.
But the official unemployment rate, which clocked in for
August at 8.1%, remains much higher than the "natural" rate of
6%. That suggests much of America's unemployment is a result
of skimpy demand for goods and services—and workers—rather
than structural changes that have led to more joblessness. The
CBO estimates structural issues have raised the unemployment
rate about one percentage point since the start of the recession
in December 2007 and that most of the increase since then is
from weak demand for workers.
There are different ways to measure the natural rate of
unemployment. The CBO tracks the "nonaccelerating inflation
rate of unemployment," or NAIRU—the rate below which
employers have to pay more to attract qualified workers. Since
1949, one version of this rate, now at 5.4%, has remained
between 5% and 6.3%. By contrast, San Francisco Fed
researchers Justin Weidner and John C. Williams have analyzed
four factors—the availability of jobs, perceptions of how hard it
is to land a job, people quitting jobs and businesses reporting
"hard to fill" vacancies. They say the natural unemployment rate
is 6.7%, though much of that bump up is temporary.
Gauging the natural rate of unemployment isn't just an academic
exercise. The extent to which America's unemployment is
structural is important for Fed officials deciding whether to take
more action to spur the economy. If the rise in America's
unemployment rate isn't "natural," the Fed, which is mandated
by Congress to maximize employment and preserve price
stability, may feel justified taking more steps to push down
long-term interest rates. That tends to spur spending and
investment and—hopefully—hiring. But if today's 8.1% rate
reflects fundamental changes in the labor market, more Fed

8. action may not be very effective. Worse, it could fuel unwanted
inflation.
The problem is pinpointing where normal unemployment ends
and abnormal joblessness begins, since the natural rate can't be
measured directly. Structural factors can offset one another.
Some employers are loath to hire from the ranks of the long-
term unemployed. The effect of such a structural change is
somewhat countered by another—the aging of the U.S.
population, which shrinks the labor force and tends to push
down the unemployment rate. Officially, the unemployment rate
is the share of the labor force working or seeking work.
Policy Paper 1
Economists study the relationships between variables. For
example, economists might study the relationship between
education and income, between investment and exchange rates,
or between prices and quantities sold. Macroeconomists are
concerned with the relationships between macroeconomic
indicators like unemployment, inflation, growth, and the supply
or money. Because of their knowledge of these relationships,
economists are often asked to provide policy recommendations.
For example, should the Federal government raise taxes? If so,
on whom?
This assignment provides you with an opportunity to provide
your own policy prescriptions. There are two major objectives
of this assignment. First, you will demonstrate knowledge of
the relationship between inflation and unemployment through
use of the Phillips curve. Second, you will provide policy
recommendations, in light of this relationship, on how to
achieve low long-term unemployment in the US. This is a long-
run paper. Therefore, I am looking for evidence that you
understand the relationship between government policies and
long-run unemployment. If you find yourself thinking about a
short-run benefit, you may be off track. In this case, I

9. recommend talking with me.
Part 1: Economic Concepts. This section covers the
relationship between unemployment and inflation through use of
the short-run and long-run Phillips curves. You may type or
write your answers to questions in this section. However,
please note that it must be stapled to your essay in part 2.
a. Copy and paste the following link into your browser:
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtab
l20121212.pdf
What are the Federal Open Market Committee’s “Longer-run”
projections for unemployment? Please choose the “central
tendency” numbers.
b. How can you argue that long-run unemployment projections
are the same thing as the natural rate of unemployment/NAIRU?
I’m looking for a 3-4 sentence answer here.
c. According to the Federal Reserve, when is the earliest
possible year we could reach the natural rate of
unemployment/NAIRU?
d. According to the Wall Street Journal article (that you read
before the first midterm), what are three reasons for the increase
in the natural rate of unemployment? You may note that the
previous estimate was around 5%.
e. Read the NY Times NAIRU article posted on blackboard and
answer the following two questions
i. According to the New York Times article, why are lots of
manufacturers unable to find adequate workers?
ii. According to the New York Times article, what are examples
of skills that manufacturers now require more than they used to?
f. Draw a short-run Phillips Curve where a 2% rate of inflation
is associated with the NAIRU (you may choose any within the
range given in the Federal Open Market Committee’s
projections).

10. g. Draw the long-run Phillips Curve associated with the new
NAIRU. Label this LRPC.
h. Suppose the Federal Reserve does not realize the NAIRU has
increased and continues to use expansionary policy after the
economy has completely recovered (the unemployment rate is
equal to the new NAIRU). What will happen to inflation (in the
short-run)? Draw the new point on your graph and label it point
A
i. What will the new rate of inflation do to expected inflation?
Make sure you explicitly answer this. What will this do to the
graph? Draw this change on your graph, labeling the change “I”
j. What will the unemployment rate eventually return to? Draw
a point on your graph to represent this. Label this point B.
k. Using your graph, show what will happen to the economy as
long as the Federal Reserve continues to use expansionary
policy to try to obtain a 5% rate of unemployment. You may go
through two or so cycles in order to do so.
Part 2: Policy Proposal
For this section, you will write an essay answering the
following question: “What three policies should the US
government pass to promote PERMENANTELY low
unemployment?” The essay will contain the following
information
There are two main parts to the essay.
a. First, you must draw insights through your work on the
economic concepts above to describe why expansionary policy
will not reduce US unemployment in the long-run. You must
refer to the phillips curve (and specifically the answers to your
questions above) in order to do so.
b. Given the context described above, you will write your policy
proposal. In this part of the paper, you will propose and justify
three policies that WILL promote low long-run unemployment
in the US. You must be specific about what each policy entails.
For example, you can’t simply say that the US government

11. should invest in green technology. If you choose this sort of a
policy, you will need to specify exactly what technology the US
should invest in and why. You must also explicitly justify why
the policy will promote low long-term unemployment. For
example, you may argue that a policy will reduce frictional
unemployment by better matching workers with jobs.
The paper will be at least five paragraphs long
Paragraph 1 will contain part a
Paragraphs 2-4 will describe your three policies
Paragraph 5 will conclude
There is no page requirement for the essay. However, I would
be concerned if it’s less than two pages (double-spaced) or more
than 5.
Grading Criteria/Expectations
1. You do not need any sources for the paper. I am grading this
on your knowledge of course materials, so you may certainly
earn an A without using external sources.
2. However, you may use sources if you don’t know much about
a topic. If you use a source, you MUST cite it using an MLA or
APA format. If I suspect you are plagiarizing, I will submit an
honor code violation.
3. If you’re excited about a policy and believe you may make
TWO arguments, you may choose to substitute one of your three
policies for an argument. That is, you may have two policies
instead of three, but one of the policies should have two
separate arguments.
4. You must justify that your policy will cause LONG-TERM
changes in the labor market. Justify this as clearly as possible.
If you are unsure about the difference between long-term

12. changes and expansionary policy, ask me!
5. Your policy must be realistic. In other words, you can’t say
that we should invade Mexico. If you’re not sure whether your
policy is realistic (or are very excited about an unconventional
policy), ask me.
6. Your policy might have unexpected benefits. For example,
you might argue that there are also moral or political reasons to
enact your policy. These benefits will be helpful to include, but
are not a substitute for explaining why the policy will
permanently change the natural rate of unemployment.
7. Your policy might also help stimulate the economy. For
example, government spending on something might also help
get the US out of our current recessionary gap. Keep in mind
that stimulating the economy is very different from changing
the natural rate of unemployment. Any argument that a policy
will stimulate the economy will not count for credit. You might
choose to mention these things (to strengthen your case), but
you absolutely do not have to.
8. If English is your second language, you may need to put in
extra work. I recommend signing up for an appointment with
me (see the instructions below). However, because I have
limited time available, I will focus more on your arguments than
your writing during our appointment. If you are concerned
about your writing, I strongly recommend seeing the writing
center. This means that you must start your essay early.
Grading Rubric
1. Did the student correctly draw on the short-run and long-run
Phillips curves to set up the appropriate context for his/her
proposals?
highly competent competent
emerging
not competent
2. Did the student make three clear, specific policy

13. recommendations?
highly competent competent
emerging
not competent
3. Did the student convincingly argue that each policy will have
long-run implications in the labor market?
highly competent competent
emerging
not competent
4. If there are additional benefits to a policy, did the student
adequately distinguish these from the long-run benefits?
highly competent competent
emerging
not competent
N/A
5. Did the essay proceed in a clear and logical manner that
follows a clear thesis statement?
highly competent competent
emerging
not competent
6. Do the sentences enable smooth reading of the student’s
ideas?
highly competent competent
emerging
not competent
7. Did the student take the time to edit the paper? If there are
obvious spelling or grammatical errors, you will lose points
here.
highly competent competent
emerging
not competent