Sunday, May 6, 2012
The Jobs Conundrum
As I showed in a recent post, the rate of adult employment in the US is substantially below where it was in 2000. The employment rate has been flat at the same depressed level for the past three years; jobs have been created, but the rate of job growth has been matched by the rate of population growth. During the same three year period the gross domestic product of the US has recovered and is now higher than it was before the recession started. Corporate profits have been extremely strong and the S&P 500 stock index has doubled from its trough in March 2009.
The economy has been able to grow while the employment rate has been flat due to the increase in productivity.
The recession accelerated an underlying trend. With advances in technology, companies can do more and produce more with fewer people. When the recession hit, companies laid people off. As profits returned, companies opted to invest in technology to replace many lower skilled employees. The economic outlook was, and remains, uncertain and hiring employees entails committing to ongoing labor costs which continue to escalate, even in the absence of wage growth, due to the growing cost of health insurance. Unlike human beings, capital equipment can just be shut off if demand drops; human beings still need to be paid at least until such time as they are laid off. Conversely, if demand grows, the acquired technology will increase productivity. Either way, investing in technology is a better bet than just hiring low skill employees.
While there is a continuing lack of unskilled or semi-skilled jobs, there are millions of job openings for skilled employees. Individuals with technological skills – engineers, computer scientists, etc. have many jobs to choose from.
Many jobs will never come back. Computers have eliminated the need for armies of clerical workers and typists. Manufacturing is becoming more and more automated. There is a future for manufacturing in the US but it is going to be a high-tech manufacturing activity which will require tech-savvy personnel.
The sad result is that a whole generation of low skill employees may not be able to rejoin the workforce - at least at compensation levels close to what they once earned. Many of these individuals, perhaps older ones, have in fact given up looking for work and account for the recent decreases in the unemployment rate.
The skills needed for the workplace are going to be changing even more rapidly in the future as technology evolves. The old model for education, where almost all formal education is targeted to individuals under the age of 23, is going to need to change. The skills one has when one finishes high school or college are not going to be sufficient even five years later. We have to rethink and restructure education so that it is a longitudinal process that continues over one’s lifetime.
We also need to rethink college education. At the college I attended, we were told that college education should not prepare one for a career. College was just a place to learn how to think (in a camp-like environment). While I am a strong proponent of broad education, few families will be able to afford to provide each child with a $250,000 experience that explicitly does not teach any specific job skills.