From my friend Dr. Ed Gordon-----
American Tragedy: People without Jobs –
Jobs without People
by
Edward E. Gordon
I. Explaining the Job Market?
In
2014 the U.S. jobless rate fell to 6.7 percent. Yet the number of people
working also has fallen. Hiring usually increases during a normal economic
recovery. People see more job opportunities and rejoin the labor force.
Private
payrolls hit a new high in March 2014. But according to U.S. Department of
Labor data, an additional 7.2 million jobs need to be added to the economy just
to keep pace with U.S. population growth.
Even
Janet Yellen, the Federal Reserve Chairperson, is confused. She said, “And the
labor market is behaving in some perplexing ways and showing patterns that are
novel.” (April 16, 2014).
Where have all the
workers gone? Extended unemployment
compensation, government disability payouts, and boomer early retirements
account for some worker dropouts. But the percentage of adults remaining in the
U.S. workforce is near a historic low. Too many people appear to be out of the
job hunt. What is the explanation? How important is the so-called skills-job
disconnect? Does it exist or is all this just part of the economic recovery in
a normal business cycle?
Paul
Krugman at the New York Times tells
us there is no support for the claims that inadequate worker skills explain the
persistence of high U.S. unemployment. He believes that America has plenty of
skilled workers. Krugman favors utilizing monetary and fiscal policy to fix
what he sees as cyclical economic problems in the American labor market. Peter
Cappelli at the Wharton Business School generally shares the same viewpoint.
However,
Alan B. Krueger, Judd Cramer, and David Cho of Princeton disagree. They have
documented the rise of an underclass of the long-term unemployed. They will not
be helped by continuing present fiscal and monetary policies.
Economist
Glen Hubbard, Dean of the Columbia Business School and Tyler Cowen also don’t
believe that the current unemployment picture is part of a normal business
cycle. They both claim that too many younger people with “restless
temperaments” or “inadequate schooling and training” are causing structural
changes to the U.S. job market. Also, Gad Levanon, Director of Macroeconomic
Research at the Conference Board, projects that labor shortages will reach
crisis levels over the next 15 years. He believes that high unemployment will persist
due to the dearth of people with the skills employers are seeking and that the
large number of baby boomer retirees will add to the magnitude of labor
shortages.
The
Federal Reserve Beige Book (April 16, 2014) reported that labor markets
continue to tighten. Six of the its 12 districts noted problems in finding
skilled workers including Dallas, New York, Cleveland, Richmond, and Kansas
City. For example, Chicago and Kansas City businesses reported rising
difficulty in filling positions in engineering, information technology,
account, machining, and other technical occupations. North Dakota rated filling
vacant positions the top adverse business problem. Difficulty in filling
healthcare positions across the state was particularly noted.
In
an April 16 speech, Richard Fisher, President of the Federal Reserve Bank of
Dallas, said, “We are seeing a skills mismatch around the country.” He
indicated that American education and current immigration programs “are not
meeting our needs.”
Today,
10.5 million U.S. workers remained unemployed. Others are underemployed –
working part-time jobs while seeking full-time employment (7.4 million). Still
others (2.2 million) are categorized by the U.S. Bureau of Labor Statistics as
“marginally attached to the labor force,” meaning they had sought employment in
the past year but had not looked for work in the prior month. They all add up
to 20.1 million or 12.7 percent of the U.S. workforce.
Part-time
employment is a significant factor in the U.S. labor force. In 2014 the number
of part-time jobs increased by 10 percent. In March 28,500 new part-time jobs
represented 15 percent of all the jobs added in the previous month.
Additionally,
by 2014 over 91 million Americans have dropped out of the labor force. That is
up from 80 million people in 2007, and this decline is spread across all age
groups: younger, ages 15 to 24, -6.5%; prime, ages 25 to 55, -4.6%; and older,
ages 55 to 64, -4.6%. Yet, our latest estimate is the 7.3 million jobs are
vacant. How “novel” can you get! Too many people are without jobs and too many
jobs are without people. This is not your grandfather’s or father’s
unemployment situation. Clearly a broader explanation is needed.
II. 2014 Jobs: A
Socio-Economic Issue
Sydney Harris was
a well-known U.S. syndicated columnist. Once while addressing a group of
professors at the University of Chicago, he was asked, “What single invention
was the most important knowledge breakthrough in the history of the world?”
He could have said
the book, the printing press, the computer, the internet, etc. But instead, he
replied, “the hyphen!” A few people broke out laughing!
Harris
explained how the little hyphen originally used to separate syllables in words
or split a word at the end of a line of type had soared in importance as it now
is employed to blend together previously separate ideas, academic disciplines,
or professional silos.
We
need to address the current jobs situation using a blended socio-economic
perspective. Economics alone cannot explain the present condition of the U.S.
labor market. It is only one component in the much larger interdisciplinary mix
of systemic and structural factors affecting it. Fisher agrees that “we at the
central bank cannot affect structural unemployment.”
III. A New Labor Market Era
In the twentieth
century the United States had an abundance of low-skill, relatively good-paying
jobs that allowed people with a high school education – or even less – to
achieve a middle-class income. But during the past 20 years digital technology
has revolutionized almost every workplace, and consequently many low- and medium-skilled
jobs have vanished.
The magnitude of
the resulting socio-economic imbalance is rapidly increasing. On one side, due
to advancing technology good-paying jobs now require a quality general liberal
arts education plus specialized post-secondary career preparation. On the other
side, the antiquated U.S. education-to-employment system is not changing fast
enough to provide people with the education and skills required for this new
jobs era. A substantial segment of American society is woefully uninformed
about the wide range of in-demand careers in modern workplaces and their educational
and skill requirements.
An
increasing proportion of mid-level jobs will require some type of post-secondary
education. This includes two- or four-year degrees, certificates, or
apprenticeships. Today’s employers across all business sectors increasingly
expect applicants to have specialized career training plus good math, reading,
and communication skills. They are seeking employees who have advanced thinking
skills that enable them to employ technology to develop and deliver innovative
products and services.
Many
people who are seeking jobs or who have dropped out of the labor market lack
these qualifications. The result is a growing pool of low- and middle-skill
workers pursuing a decreasing number of low-skill, low-paying jobs.
Also
a major demographic shift is under way. Everyday 10,000 baby boomers are
retiring; 70 million will retire between 2010 and 2020. Employers are struggling to find workers with
the level of technical skills equivalent to those of the retiring boomers, as
too many members of the Millennial generation are more “button savvy” than tech
savvy.
The United States
and the world are locked into a structural labor-market race between advanced
technology on one side and demographics and education on the other. Today too
few Americans are prepared to run in this race of skill-based technical change.
We
now have reached an employment tipping-point. The broad deterioration of the
U.S. job market can no longer be explained as part of the business cycle or
shored up by maintaining the current failing education-to-employment
system. The talent shambles is set to
worsen.
Many
still fail to grasp that technology has outpaced our society’s capability to
provide a suitably educated workforce.
These talent problems are structural.
They also are systemic. We are in a new labor-market that requires broad
social and cultural adjustments.
Society
has been in denial. Instead of the needed systemic overhaul, many leaders in
business, government, and education still think they can make the old system
well again. As Matt Ridley, author of The
Rational Optimist (2011) says, “We all think that we know certain things to
be true beyond doubt, but these things often then turn out to be false, and
until we unlearn them, they get in the way of new understanding.”
IV. Seeking Broader Solutions –
RETAINs
With
these factors in mind, it seems incredible that controversy still rages over
the reality of a growing skills-jobs mismatch. However, as Martin Wolf, a Financial Times columnist has stated,
“Technology itself does not dictate outcomes – institutions do. If the ones we
have do not give the results we want, we must change them.”
There
are signs that the momentum for change is building. A March 2014 Bank of
America/Merrill Lynch survey of fund managers showed near record support for
increasing capital spending, while returning cash to shareholders or buying
back stock sharply declined in popularity. In April the Wall Street Journal reported that J.P. Morgan Chase, Citigroup,
Bank of America, and Wells Fargo “are boosting their lending for businesses to
increase spending on workers.
Changing
U.S. accounting standards to allow publicly traded business to capitalize
training, development, education, internships and apprenticeships could provide
a significant incentive to increase human capital investment. By allowing such
expenditures to be depreciated over time, as is allowed for investments in
building and equipment, training and education could be moved from a cost to an
investment on business balance sheets. Privately held business could be given
tax credits to encourage them to invest in upgrading the skills of their
workers.
Recent
Deloitte and CareerBuilder surveys indicate that an increasing percent of
businesses plan to increase investments in their human capital development by
ramping up training to fill vacant jobs. Employers are beginning to build up
their in-house training and development capabilities. The Center for Regional
Economic Competitiveness reported that in 2014 more states intend to increase
spending by 14 percent on worker training and education programs.
In
April the Federal Reserve reported that businesses in Chicago region are
exhibiting increasing willingness to train workers for vacant positions though
in-house programs, tuition reimbursement, or forming partnerships with local
high school career academies or community/technical colleges.
Beginning
in the 1990s there has been a gradual acceleration of regional cross-sector,
public-private, non-profit intermediaries to rebuild the antiquated
education-to-employment pipeline. In Future
Jobs: Solving the Employment and Skills Crisis, I coined the term RETAINs
(Regional Talent Innovation Networks) to describe the key elements of these diverse
collaborations for talent/workforce development and growth. Over 1,000 RETAINs
now exist across America.
Our society needs
to accept the fact that a new U.S. job era has arrived. The availability of
better educated talented people with up-to-date career skills now largely
determines where businesses will locate in the United States or anywhere in the
world. Those communities that break down the cultural structural barriers
between businesses, education, and community groups, and that collaborate to
renew their talent creation and economic systems will attract new businesses
and retain current ones. Those that don’t will wither and die.
As
the number of vacant jobs continues to grow to over 7 million, businesses and
local communities are finding that the pain of trying to maintain current labor
supply practices is becoming greater than taking steps to rebuild regional
education-to-employment systems. The task before the United States and other
developed nations is to recognize a socio-economic revolution has produced this
new job era. We need to accelerate the pace of our response by creating more
RETAINs. They offer interdisciplinary solutions that rebuild regional service
delivery systems that are developing the education and skills of a larger
proportion of students and workers. High school dropouts rarely become
presidents of Boeing. RETAINs will help us meet the new career opportunities of
a 21st-century high-tech world economy rather than just continue to debate these
issues.
Edward E. Gordon is the author of Future Jobs: Solving the Employment and Skills Crisis. He is the
president of Imperial Consulting Corporation in Chicago. He may be contacted at
www.imperialcorp.com
