Employment Faces Grim Decade

By Kevin Brekke

Today is the celestial start of summer, when the solstice occurs at 12:16 EDT, but it will likely pass with little notice or fanfare. Prior to the age of mechanized farming and corporate agribusiness and the migration of populations from outhouses to townhouses, life was largely dictated by the seasons. Ignoring them meant hunger and hardship… or worse. The metaphors of sowing and reaping, of advance planning, of understanding that everything has its right place, have long been exalted in poetry and alliterative song – the timeless classic Turn, Turn, Turn by the Byrds comes to mind.

Yet the lessons foretold and consequences forewarned are as equally true in the practical sense as they are aesthetically. A report from the McKinsey Global Institute brings home this hard reality. The title of the report, An Economy That Works: Job Creation and America’s Future, is misleading and belies its message, which is that the U.S. lacks sufficient workers with the right education and training to meet the skill profiles of the jobs that will likely be created over the next decade.

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The U.S. has sown its primary and secondary education system with curricula that are overweight on the social sciences and underweight in science, technology, engineering, and math – the so-called STEM fields. And today’s unemployed are reaping the consequences.

The challenge ahead might be summed up using a popular joke format:

Q: How many social scientists does it take to change a light bulb?

A: None. STEM graduates have developed a hundred-year light bulb. When it burns out it won’t need replacing, as it will be obsolete.

That is the predicament in which too many of today’s unemployed find themselves: They are obsolete. The headwind facing today’s unemployed in their search for work is formidable. It’s a sobering thought.

Here’s a sampling of the statistics presented in the report about the jobs picture in 2011:

  • 20% of the men in the population are not working today, up from 7% in 1970.
  • The workforce in 2020 will contain an estimated shortage of 1.5 million college graduates.
  • 40% of the companies planning to hire have had openings for 6 months due to lack of qualified applicants.
  • The rate of new business creation has dropped 23% since 2007.
  • The number of U.S. jobs has declined by 7 million since December 2007.

The hurdles that must be overcome include adapting the structure of the U.S. education system to better meet the shifting needs of the marketplace. This will be a herculean task, because by extension the report implies that many of the departments in today’s universities are themselves obsolete. Any cuts or reapportionments in a college curriculum mean teacher layoffs. And the unions will resist this change with ferocity.

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The report discusses other areas of concern that I will leave to the reader to pursue via the above link. The report opens with an executive summary that makes for quick reading and conveys the major points.

I want to focus on one of the report’s central themes: that it will probably take a decade or longer for unemployment to return to pre-recession levels. To understand how this might be achieved, the paper looks at three possible scenarios for job recovery, as shown in this chart that I re-created from the report:

To fully grasp the height of the employment bar that must be overcome, here are the monthly net new jobs needed over the next 120 months to satisfy each scenario:

Low Scenario: 77,000

Middle Scenario: 145,000

High Scenario: 187,000

The low-job-growth scenario is fundamentally the continuation of the anemic job creation trend in place since 2000 – meaning that more of the same will condemn the U.S. labor market to high rates of unemployment for at least the next ten years.

Supporting this employment bar and lending credence to the low-job-growth scenario is the expanding time lag between GDP recovery and employment recovery to pre-recession levels. Again, I have re-created a chart from the report that says it all:

The chart shows that all postwar recessions were characterized by a quick snap back to pre-recession levels of GDP and employment – until the 1990 recession. That year, the boomerang effect took more than double the six-month average of the previous seven recession episodes. In 2001, the return time was more than doubled again. This exponential growth trend in lag time does not bode well for hopes of job growth accelerating anytime soon.

In the current "jobless recovery," it has been six months since GDP returned to pre-recession levels while employment has not. This intermission will be extraordinarily lengthy unless serious changes are undertaken.

The report candidly – and accurately in my opinion – concludes that the U.S. labor market will not return to full employment (defined as a 5% unemployment rate) by following a "business as usual" course. In conjunction with reforms to the U.S. education system to ensure that the workforce has the needed skills to succeed, progress in other areas must happen. Among them, the report cites changes in business regulation that promote innovation and new company creation, as well as the removal of impediments to investment and job creation. To all that we respond, "Hear, hear!"

As I wrote this afternoon, I took a break to gaze out the window at the armillary sundial in the yard. Although a weathered, verdigris patina has replaced the shine of the once-new copper arrow and orbital rings, it still functions if properly positioned. And that is the lesson here. Many economic and social changes lie ahead for the U.S. economy that will have a direct impact on just about all aspects of American habits, investments, and careers. Being prepared means making the right adjustments now to get positioned for the course corrections ahead, and to survive and prosper. That is our mission here at Casey Research.

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5 Comments
  1. Anonymous says

    Hmmm… This report is short on details. From other sources it can be seen that manufacturing has fallen massively, while Services and the FIRE sectors have sopped up those losses. So the deeper question that arises is, “what particular skills are going to be required in the future?”
    Bill Gross opined that Math and Physics are going to be needed (my two favourite subjects BTW even though I study economics), but failed to specify HOW those were to be applied in the future.
    Or is that the issue in and of itself; the general knowledge of higher math and science are lacking in society?

    1. Anonymous says

      Education (training) needs to be done by corporations.Books and advanced education at schools is a waste of money and time. Every corporation has their own computer system, job functions
      and etc. Honestly, I graduated from Georgia Tech and never needed any of the advanced learning
      theories, and systems taught for any job  (career) that  I was fortunate enough to get. Corporations
      just need people smart enough and trainable. You have to play the game to get promoted and
      work endless hours and bleed the company blood (we only reward victories) to become a CEO.

  2. Anonymous says

    Hmmm… This report is short on details. From other sources it can be seen that manufacturing has fallen massively, while Services and the FIRE sectors have sopped up those losses. So the deeper question that arises is, “what particular skills are going to be required in the future?”
    Bill Gross opined that Math and Physics are going to be needed (my two favourite subjects BTW even though I study economics), but failed to specify HOW those were to be applied in the future.
    Or is that the issue in and of itself; the general knowledge of higher math and science are lacking in society?

    1. Anonymous says

      Education (training) needs to be done by corporations.Books and advanced education at schools is a waste of money and time. Every corporation has their own computer system, job functions
      and etc. Honestly, I graduated from Georgia Tech and never needed any of the advanced learning
      theories, and systems taught for any job  (career) that  I was fortunate enough to get. Corporations
      just need people smart enough and trainable. You have to play the game to get promoted and
      work endless hours and bleed the company blood (we only reward victories) to become a CEO.

  3. Sabaj_49 says

    Structural deficiency is simple – CORPORATES FAILURE TO RE-TRAIN HUMAN RESOURCES

    I was a programmer for 20 years and plain got tired of having to constantly retrain myself without corporate help.  To that degree, corporations continually laid off obsolete workers to hire, for cheaper wages, new college trained people. 

    I’m plenty smart and contracted for 10 years and today NO LONGER CARE – BTW I have degree in MATH and Computer Science – to bad I can’t teach as they want me to go back to school for 40 credit hours

    Nope, will continue to seek HIGH COMPENSATION through occasional sales
    If I fail then I will feel ENTITLED just like rest of sheeple

  4. Sabaj_49 says

    Structural deficiency is simple – CORPORATES FAILURE TO RE-TRAIN HUMAN RESOURCES

    I was a programmer for 20 years and plain got tired of having to constantly retrain myself without corporate help.  To that degree, corporations continually laid off obsolete workers to hire, for cheaper wages, new college trained people. 

    I’m plenty smart and contracted for 10 years and today NO LONGER CARE – BTW I have degree in MATH and Computer Science – to bad I can’t teach as they want me to go back to school for 40 credit hours

    Nope, will continue to seek HIGH COMPENSATION through occasional sales
    If I fail then I will feel ENTITLED just like rest of sheeple

  5. Ed_W_sw_eng says

    I agree with Sabaj_49.  Corporations used to take skilled, educated people and train them for a specific job.  Now they want someone who already has the specific experience or (the appearance of) training for that job.  I believe that this is due to a change in corporate management focus about 2 decades ago, whereby they began focusing solely on maximum profit in order to keep their stock price as high as possible.  Previously, the focus appeared to be on “sufficient” profit balanced with other considerations…perhaps to grow the company, perhaps to produce a high quality product that would maintain and improve the company’s reputation.

    1. Anonymous says

      Also the costs and burden of training falls on someone else. There could be a simple solution and that is have a training tax on all employees and companeis who do not provide ongoing training will be unable to claim the costs back. 

  6. Ed_W_sw_eng says

    I agree with Sabaj_49.  Corporations used to take skilled, educated people and train them for a specific job.  Now they want someone who already has the specific experience or (the appearance of) training for that job.  I believe that this is due to a change in corporate management focus about 2 decades ago, whereby they began focusing solely on maximum profit in order to keep their stock price as high as possible.  Previously, the focus appeared to be on “sufficient” profit balanced with other considerations…perhaps to grow the company, perhaps to produce a high quality product that would maintain and improve the company’s reputation.

    1. Anonymous says

      Also the costs and burden of training falls on someone else. There could be a simple solution and that is have a training tax on all employees and companeis who do not provide ongoing training will be unable to claim the costs back. 

Comments are closed.

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