Greenspan: Labor Market 'Very Distorted' By Skills Imbalance

Friday, 07 Feb 2014 11:16 AM

By Dan Weil

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The U.S. labor market has been thrown out of whack by a skills imbalance between those looking for work and the jobs that are available, says former Federal Reserve Chairman Alan Greenspan.

"There is a very considerable number of people who are on the disabled list, just the number of people who no longer can find work," he told CNBC before the release of January's job report Friday. "This is a very distorted labor market, one I've never seen before in this context."

And it's all about skills. "One of the things that we are missing in this particular work structure is a very large imbalance between skills," Greenspan explained. He thinks the United States should allow in more immigrant workers to fill high-skill positions.

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That would not only help companies in need of workers, but it would also help reduce income inequality, he noted. "If you brought in a lot of people, especially in these high-skilled levels, they would compete with all the people that have been guests on your program, myself included, and would bring our wage levels down."

Greenspan has an interesting take on the economy's tepid recovery.

"First, you have to look at the gross domestic product and ask . . . where is the shortfall?" he said, explaining that he looks at GDP in terms of the durability of the goods and services being produced. "Software is three to five years. Corporate structures, maybe 30, 40 years. Haircuts, one month," he argued.

"What the data show is that almost all of the shortfall occurs in assets with duration of more than 20 years." Residential and non-residential construction are particularly notable examples, Greenspan stated.

So what gives with this long-term phenomenon? It's an issue of corporate confidence. "In the corporate sector, what we have been seeing for the last number of quarters is [a decline in] the ratio of capital investment to corporate cash flow, which measures the extent to which corporate managers are willing to take their liquid cash flow and put it into illiquid long-term investments."

Companies will only do that if they have confidence about the future, he noted. "So what I see in the corporate sector is very clearly an issue of a major shortfall in what some people call confidence."

Despite last year's torrid rise, the stock market is undervalued for the long term, Greenspan contended.

One reason why is the record premium of the 30-year Treasury bond over the five-year Treasury note, he explained. "That is a measure of a degree of very long-term lack of confidence. There's where the problem is. That's what's got to be solved."

As for the January jobs report, the economy added 113,000 jobs, less than expected. "It's another disappointment, but it's not anything disastrous,” Julia Coronado, chief economist for North America at BNP Paribas, told Bloomberg.

"We're still in muddle-along territory rather than take-off mode. There isn't the kind of momentum in hiring."

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