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Economy

An Economy that works- Job creation and America’s future

Now that the immediate crisis regarding the debt ceiling has passed, politicians are focused on one thing: Jobs.  As expected, there is legitimate disagreement on what can be done to improve the nation’s unemployment rate.  Reducing burdensome regulation, offering tax incentives to job creators, creating an infrastructure bank, and simplifying the corporate tax code have all been suggested by our leader All have their benefits and drawbacks, cheerleaders and detractors.

It would behoove our current elected officials and the public at large to understand the structural drivers behind the current labor market malaise.  Earlier this summer, the McKinsey Global Institute put forth a comprehensive and well documented report that explains the various forces impacting the United States labor market and future job creation.  Titled “An economy that works: Job creation and America’s future”, it is a sobering assessment that should be read by anyone who seriously seeks to understand the current state of job creation in the U.S. and what can be done about it.

 

Regarding job creation and recent recessions – I was particularly struck by the record of job creation from 2000 through 2007.  Yes, that does include the 2001 recession, but every decade since the Great Depression contained at least one recession.

The United States has been experiencing increasingly lengthy “jobless recoveries” from recessions in the past two decades.

Layoffs today are more likely than in the past to be permanent, and many new jobs created in recovers emerge in different industries and occupations from where jobs were lost.

Between 2000 and 2007, the United States posted a weaker record of job creation that during any decade since the Great Depression…  1.2 million of those jobs were in sectors directly fueled by the credit bubble.

 

Turning to the issue of how many jobs we need to generate and in what sectors we can expect growth:

The United States will need to create a total of 21 million new jobs in this decade to put unemployed Americans back to work and to employ its growing population.

Six sectors illustrate the potential for job growth this decade: health care, business services, leisure and hospitality, construction, manufacturing, and retail.

 

The authors identify an education and skills mismatch between the jobs of the future and the United States workforce.  Simply put, not enough citizens will attend college, and too few of those that do will not enroll in the so-called STEM (Science, Technology, Engineering, Math) majors.

Under current trends, the United States will not have enough workers with the right education and training to fill the skill profiles of the jobs likely to be created.

A growing source of potential matching problems among workers with postsecondary education is the fields of study they choose.  Many are not obtaining the skills that will be in most demand.

 

In closing, the authors conclude that policy makers and the business community must act to facilitate job creation.  What worked in the past will not work moving forward.  They identify four broad dimensions must be addressed – skill, share, spark, speed.

Job creation must become a national priority, not a by-product of other policy decisions.

Skill: Develop the workforce of tomorrow

Share: Harness globalization to create more US jobs

Spark: Grow emerging industries and new businesses and reignite innovation

Speed: Clear the path for investing and hiring

Waiting for the US job market to correct itself and depending on the solutions of the past will not hasten the return to full employment or set the stage for sustained job creation in the years to come.

The current pattern of jobless recoveries has evolved over two decades, and reversing this trend will not be easy.  It will take time to address the long-term challenges to US employment, and it will require major efforts in education, regulation, and even diplomacy.

 

The full report can be found here.  I highly recommend giving it a read (at least the Executive Summary) to gain complete context on our current unemployment situation and what can be done about it.

As Peter Drucker warned, “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”

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