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The job numbers are bleak.
Some 13.9 million workers remain unemployed 21 months after the end of the recession, according to the latest estimates from the Bureau of Labor Statistics. Of those, 6.2 million people have been out-of-work for 6 months or more, and 8.4 million toil at part-time jobs. And few economic forecasters believe the nation’s unemployment rate — currently at 9 percent — will drop much below that level in 2011.
Just how broken is the great American jobs machine?
American companies have returned to record profitability, and, as President Obama pointed out in a speech to the U.S. Chamber of Commerce on Monday, they are sitting on $2 trillion in cash on their balance sheets.
Yet many remain extremely skittish about adding workers to the payroll. The economy added only 36,000 jobs in January, well off the 300,000-plus monthly pace that would be needed to absorb the unemployed and new workers entering the workforce. For instance, if the economy adds 321,000 jobs a month — the average monthly rate for the best year of the 1990s — the economy will reach its pre-recession employment level by May 2016, according to calculations by Michael Greenstone and Adam Looney of the Brookings Institution.
So why aren’t American companies doing more hiring, and what, if anything, can Washington do about it?
In his speech to the chamber, the president urged the assembled business leaders to work closely with his administration to strengthen American competitiveness, and he argued that they had a responsibility to do more to help create jobs at home.
(Obama’s olive branch to big business: Will it work?)
“But as we work with you to make America a better place to do business, I’m hoping that all of you are thinking what you can do for America,” the president said. “Ask yourselves what you can do to hire more American workers, what you can do to support the American economy and invest in this nation.”
But is it lack of responsibility or other factors that are getting in the way of stronger job growth?
With poll after poll showing that Americans’ top concern is jobs and the economy, Washington is awash in debate over what the best policies are to revive job growth. Since his State of the Union address, the president has been pressing the case for targeted investments in education, research and infrastructure in a bid to foster the innovation the U.S. needs to create jobs and remain competitive.
But GOP leaders scoff at those plans as a waste of taxpayer dollars and a misguided attempt by the government to pick private sector winners. From Speaker of the House John Boehner on down, Republicans argue that the best thing Uncle Sam can do is lower taxes, cut the deficit and get out of the way of companies trying to build thriving businesses.
The political divide between the administration and Republicans is widely known. Far less understood are the reasons for the crisis in the job market, and exactly why the picture has turned so bleak.
Yes, the past three years have taken an enormous toll. Many of the job losses were concentrated in three industries hammered during the 2007 to 2009 recession – construction, manufacturing, and retailing. Demand remains sluggish, and business managers are cautious about expanding operations too quickly.
But that’s just one reason for the dismal performance. The American economy has been faltering at creating jobs for the past decade, since well before the recession. Take private sector job growth, a key measure of the labor market’s health. The private sector added jobs at a rate of only 0.6 percent during the boom years of the 2000s. That’s a shadow of the 1.8 percent annual rate of private job growth in the ’90s and the 2.0 percent yearly pace of the ’80s, according to the Economic Policy Institute.
So what are the main culprits for sluggish job growth other than the recent recession?
Globalization and technology: At the top of most lists is the powerful interplay between globalization and technological innovation. Intense international competition for markets and profits has driven corporate America to focus intensely on boosting productivity—in other words, doing more with fewer workers.
Nowhere is that clearer than in traditional smokestack America. About 20 percent of private workers were employed in manufacturing, mining and public utilities in 2007. (That’s down from about 40 percent in 1970.) Now, the share of employment has fallen to about 13 percent. Yet companies are so productive that the U.S. remains the world’s largest producer of manufactured goods.
It isn’t only traditional smokestack jobs that have been lost, either. Many service and information workers became an expensive anachronism as technological advances offered new opportunities for slashing costs and improving economies of scale. Think about how many bank tellers and secretaries have been replaced by ATMs and voice mail — and that’s only a start.
Throughout the economy, many administrative, bookkeeping, call center, back office, and similar jobs have been lost to computers and outsourced to India and other emerging markets. A world filled with smart computers, all linked via the Internet, wireless and other high-speed communication networks, has eliminated whole job categories among the white collar crowd. “We are still underestimating the power of the information technology revolution,” says Bruce Yandle, economist at the Mercatus Center at George Mason University. “We’re substituting technology for labor.”
Education: There’s one other factor economists highlight: The education system has failed many young adults, especially in the K-12 years in inner-city and rural America. . Most new jobs require some sort of college education these days. The modern workplace is a hostile environment for anyone with only a high school diploma, let alone a high school dropout. In 1980, college graduates earned roughly 40% more than their peers who held only a high school degree; today, that “wage premium” has grown to 84 percent.
Business may have the “Help Wanted” sign out, but the workers applying don’t have the right credentials. The troubling nexus between a lack of educational achievement and a high unemployment rate is especially concentrated among men. “To the degree that there is a structural problem, it’s concentrated at the bottom third of the male labor force,” says Stephen Rose, Research Professor at the Georgetown University Center on Education and the Workforce.
Of course, America’s education problem has been building over time. The growth in high school graduation rates has slowed since the 1970s. It now appears that America’s four-year high school graduation rate hovers around 69 percent, according to the Alliance for Excellent Education. Some minority groups do much worse: a mere 56 percent for Hispanics and 54 percent for African Americans. “There is certainly some structural unemployment in the economy,” says Barry Bluestone, dean of the School of Public Policy and Urban Affairs at Northeastern University. “But we can’t explain a 9 percent unemployment rate with structure. ”
Given those problems, what more can the government do to spur new job creation? The Obama Administration is pushing hard for more infrastructure projects, which typically draw support across party lines. (The AFL-CIO and the Chamber of Commerce put out a joint press release on Jan. 26 praising the president’s call for infrastructure investment.) But that traditional response may not hold when Tea Party conservatives are rebelling against fiscal spending and business-as-usual on Capitol Hill.
Considering the current state of politics in Washington today, any job creation policies ultimately seem to rest on one of the following four pillars:
Pillar 1: Economic growth – Robust economic growth creates jobs. The slow pace of growth as the Great Recession has ended is the single most important factor behind today’s high unemployment rate. Strong growth also would encourage businesses to invest the nearly $2 trillion in savings they have on their books; that, in turn would lead to more hiring, which will hike demand, and so on in a virtuous cycle. But the economy hasn’t reached that tipping point yet. “There isn’t enough oomph in the economy to get people back to work fast,” says Northeastern’s Bluestone.
Pillar 2: Tax policy – The federal, state, and local government policy for prodding business to hire is to avoid tax hikes, and to cut taxes where possible. That principle was at the core of the package of compromises Obama reached with congressional Republicans during December’s lame duck session. The deal, among other things, extended the Bush era tax cuts and reduced the payroll tax. From September 2010 to the end of 2011, businesses can also fully write off the cost of new equipment, a move designed to get them to speed up investing. The administration also would like to permanently eliminate capital gains taxes on some kind of small business investments held for more than 5 years.
Pillar 3: Education – Job growth in the future will be in the parts of the economy that require at least some college education, such as health care. Even manufacturing jobs require higher degrees. For instance, in 1973 only 12 percent of workers in manufacturing had any college experience. That figure has swelled to more than 36 percent, according to data collected by the Georgetown University Center on Education and the Workforce. Similarly, some three decades ago two-thirds of workers in fishing, farming, and mining were high-school dropouts. Now at least a third has some college education. The sense is too few school-age kids are being prepared for the new world of work. Right now, most states and local governments are reducing, not hiking spending. “That will change when the recovery gets stronger,” Rose says.
No. 4: Clusters – Think Silicon Valley. Clusters represent a region’s leading innovative businesses supported by a network of producers, suppliers, investors, universities and related business. Colorado has a 1,500 company clean-tech cluster. The Twin Cities is home to the medical device industry cluster. Research shows that strong clusters tend to generate jobs. Perhaps more important, experience shows that clusters tend to attract bipartisan government support at the local level, says Lee Munnich, director of the State and Local Policy Program at the Humphrey Institute of Public Affairs. Ideology is less important on the local level when it comes to backing leading industries.
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