Implications of Slow Job Growth

Where's the jobs? That is the question being asked in most economic and economic development circles. The answer is that netting job gains and job losses produces an unfavorable overall picture of employment growth. Everyone is pleased to see the economy growing again, but we need to prime the job pump to put a full bloom on this rose.

Today’s labor market weakness should not be taken lightly. For one thing, it has already begun to erode consumer confidence. According to the Conference Board, its measure of consumer attitudes fell sharply in July, mainly because people have become increasingly worried about their jobs (or the lack of them). Obviously, if this continues, it will cause people to cut their spending, which could seriously damage the fledgling economic recovery. It has political implications as well.

Workers have many strikes against them at this time, when it comes to job creation. For one thing the investment boom of the 1990s, combined with rapid advances in technology, especially the growth of the Internet and the ubiquity of computers, has led to a surge in efficiency. Productivity, or output per labor hour worked, is growing much faster than it usually does in an economic recovery—partly because of last year’s rise, which contained the biggest 12-month jump in productivity in about 40 years!

Combine faster-than-average productivity growth with slower-than-average economic growth, and you have a situation where most firms can accommodate the same or increased demand for their products or services with the same or fewer workers. That’s why employment is falling at a time when it should be rising, and why unemployment is rising at a time when it should be falling.

Blue-collar workers, those usually engaged in manufacturing, have long felt the brunt of improvements in productivity, but the technological advances of the past decade or so are now affecting the white-collar cadre as well. Such white-collar jobs as call centers long ago migrated to low-cost areas—first within the U.S., then to other countries where labor costs are well below those stateside. However, the growth of the Internet has enabled companies to send abroad such skilled jobs as writing computer code and software-application maintenance, medical diagnostics, research analysis and treasury management.

According to BusinessWeek, one out of three private-sector jobs is now at risk of being outsourced—and that does not count such back-office functions as accounts payable, marketing and sales. The magazine adds that “as soon as work can be made routine—whether it’s reading an X-ray or creating blueprints—the job can potentially be outsourced.”

You can see this trend in the jobless rate for managers and professionals. They now account for almost one-fifth of the unemployed. At the end of the 1990-91 recession, they were 11%; 20 years ago, little more than 6%. Not surprisingly, most of these people are highly educated; college graduates constitute more than 13% of the unemployed these days. Once a job is lost, it is becoming increasingly difficult to find a new one. Some 22% of the unemployed have been out of work for a half year or longer—one of the largest percentages in the postwar period. It was because of this weakness in the labor markets that the NBER took so long to declare the official end to the last recession.

Workable solutions to this problem are difficult to come up with. While a faster rate of economic growth might eventually force some firms to add to their staffs, the nagging problem of outsourcing will still remain. Legislation preventing companies from shifting jobs overseas goes against our capitalist system; it would also invite retaliation from other countries. Tax incentives to create jobs and penalties for exporting jobs might pass, but again, would be subject to widespread criticism.

What can we do? In the final analysis, the solution is more education. This is the way the U.S. has maintained its lead in the past. To create new jobs while the old ones migrate overseas, our workers must be better trained, and provide more value-added than their counterparts elsewhere. To be sure, there is room for them; the entrepreneurial spirit that has fostered new companies in new industries must not be stifled. This is why economic development needs to give additional attention to worker training and educational issues now.

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