Last fall a left-handed pitcher named Cliff Lee signed a $120 million, five-year contract to play for the Philadelphia Phillies. Mr Lee actually turned down more money and more years from other teams in what was this off-season's most frantic bidding war. While professional baseball players are thriving as never before, professional elevator operators are all but extinct. At one time it was inconceivable that visitors to a top-flight hotel, office building, or department store would have to push elevator buttons themselves. A uniformed elevator operator was part of the service that distinguished the first-rate from the third-rate. But that was then
The difference between pitching at the major league level and running an elevator are many and obvious. But, the two occupations have an important underlying commonality. Virtually everything about them is known to both potential employer and potential employee up front. What the duties are, the work-hours and working conditions, what constitutes success, what constitutes failure—all are clear, easy to understand and easy to measure. The common element of the two jobs is how little information about them is hidden.
Most other aspects of human life are bedeviled by hidden information. It's the cause of pointless wars and unhappy marriages. It's the reason stock and bond prices fluctuate. In any market, hidden information makes decision-making more risky. The classic hidden-information markets are horse-trading and used car sales, where sellers have much more information than buyers. This imbalance of knowledge makes it harder to come to a satisfactory agreement even when the seller is being entirely truthful about his horse or car. (How can the buyer really be sure?) But hidden information is a problem even when buyers, sellers, and the transaction process itself are doing their best to be transparent.
Today the problem is particularly severe in American employment market. It's a big reason why unemployment has remained stubbornly high and the average length of time people are out of work continues to increase. Unlike the occupations of pitcher or elevator operator, the qualifications for and expectations of many, if not most, jobs in our post-industrial society resist definition. Jobs with the same title vary significantly from company to company. Job descriptions go on for pages, and even then may not truly get at what the employer wants. Success is qualitative and lacking in standards to measure against. On the other side, resumes and similar documents are exercises in branding and marketing. The would-be employee is promoting him-or herself as a product. While (usually) not lying, she is certainly embellishing her successes and burying any failures. The hiring decision has become fraught with hidden information for both employer and employee.
Dozens, hundreds, or even thousands of people can lose their jobs immediately when a business sends jobs overseas, merges, or fails. But hiring workers is an individual decision, in a process that can often stretch out for months. From an employer's point of view, in-depth diligence and multiple interviews are rational, since the problem of hidden information does not end once a hiring decision is made. Businesses have learned to get more output from fewer workers, but that makes each hiring decision more critical. The cost of hiring the wrong person is very high; at the most senior levels, it can be catastrophic.
But, what's rational at the micro level is far from rational at the macro level, given the high cost to society of massive and prolonged unemployment. The official Bureau of Labor Statistics unemployment rate for February was 8.9% of the civilian labor force, but this significantly understates the problem. The true unemployment rate of 15.9% includes part-time workers who want but cannot find full-time jobs and those who have simply given up hope. When the US economy was functioning well, each of these unfortunate clubs was about 40% smaller. Let's leave percentages and look at the number of unemployed and under-employed people:
Numbers of People per Category
Jobs Needed to Reach Normal
Part-time seeking full-time
Persons not currently in the labor force who want a job
Ten million is a lot of jobs, just to rebound to more normal levels of unemployment. Nor does it tell the whole story because the supply of workers continues to grow. The Congressional Budget Office estimates that, during the next 10 years, the labor force will increase by 15 million people, net after accounting for retirees and other job leavers. The second table shows how many jobs would have to be created each month over two, three and five years to return to normal employment and accommodate new entrants to the labor market:
Jobs Needed to Absorb Those Currently Unemployed
Jobs Needed to Absorb Net New Entrants
Total News Jobs Needed per Month to Achieve Normal Employment
Between February 2010 and February 2011, the total number of net new jobs created in our economy was 1,269,000, an average of less than 100,000 per month. This is insufficient to absorb new entrants to the job market, even without taking more experienced job seekers, but, hidden information hurts new entrants, of whom little is known, even more than people with work histories. The numbers prove it. Between 2000 and 2010, labor force participation for males aged 20-24 dropped from 82.6% to 74.5%. For women, the percentage declined from 73.1% to 68.3%. .
The hand of hidden information in hiring can also be felt in the average length of unemployment. Currently it's an all-time record of 37.1 weeks, more than double what it was as recently as 2007. Filling 10,229,000 jobs at 37 weeks each represents 7,300,000 man-years of unproductive time.
Unfortunately, we have not yet devised a better way to fill jobs than an arduous one-by one process in which hidden information must be fought at every turn. It's an irony of modern life that, as the economy has evolved from agriculture to industry to information, the most crucial information—matching the right worker with the right job—is the most elusive.