2010
Thoughts for Labor Day 2010
Labor Day is a time when economists typically pause to reflect on the state of the labor market. With the U.S. unemployment rate at 9.6%, and widespread agreement that the recovery is slow to non-existent, there is little good news on this front. As this recession wears on, it has become increasingly evident to most thoughtful analysts that, although the 2008 financial crisis was the precipitating event, the US economy suffers from severe structural problems that are contributing to the persistence of high unemployment.
Most fundamentally, in light of the trend toward globalization, the evolution in the skills and knowledge of the US workforce has been inadequate for most workers to maintain the standard of living to which they have been accustomed. For years, jobs have been moving offshore, where any given level of skills could be purchased at a far lower price. At the same time, the goods produced by those workers (and purchased by US workers) contributed to the trade deficit—which then had to be financed through massive international borrowing. China, in particular, allowed trade imbalances to continue because they helped keep its massive population employed.
So when the financial crisis came along in 2008, it was the economic equivalent of an already severely ill patient then catching a bad case of the flu; such a person simply can’t recover as quickly (or possibly at all) as would a healthy person.
This suggests that, while quick fixes (e.g., a stimulus plan) can help ward off disaster, addressing the underlying structural problem—the skills and knowledge of the U.S. workforce—will be necessary if the US is to maintain a resilient middle class (a hallmark of a stable democracy).
The Obama administration’s Race to the Top competition is a good step in the right direction for our K-12 education system. But much more will be needed, including a coherent and aggressive strategy that provides incentives and resources for private employers to invest more heavily in the education and training of the U.S. workforce.