MCBASSI & COMPANY

Thoughts for Labor Day 2010

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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.

Another look at low-wage jobs going unfilled

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Last month, my colleague Laurie Bassi posted about the “surprising” finding that manufacturing firms are having a hard time filling some of their available jobs.  Laurie noted that one likely explanation is fairly simple and obvious: many of the jobs are paying below-market wages and aren’t attracting workers for that reason.

Last week, Slate writer Daniel Gross tackled the same issue – and came to a similar conclusion: “employers shouldn’t be surprised that Americans won’t take their crummy, low-wage jobs.”  He notes that even in an era of high unemployment, “the laws of supply and demand apply” and employers may simply not be offering terms that are attractive enough to potential employees.

Sloppy NY Times reporting about skills mismatch

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Today The New York Times ran a front page story on how the “skills shortage” is having a negative effect on manufacturing in the United States.  The article reports that manufacturing firms are not able to find the highly skilled employees they are seeking for $15 to $20 an hour, and can’t find job applicants who come with the highly technical, specialized skills required for the work.

Although the Times is not typically known for its pro-business reporting, this article strikes me as frightfully one-sided.  It fails to consider that employers’ complaints about skill shortages may simply result from below-market wages and/or miserable investments in training.

If U.S. manufacturing is to get the skilled workers it needs, then it will have to compete with the other sectors in which these workers are in demand and can find jobs (even in a labor market with dreadfully high unemployment).  And if manufacturers want highly-trained workers, then they need to invest in training (which far too many do too little of).

The classic economic symptom of a declining firm is a failure to invest.  When manufacturers complain about the shortage of skilled workers, they are confusing the symptom with the problem.  If they would raise wages and/or invest in training people, they’d find that the apparent “shortage” would begin to disappear.

How health care stifles innovation

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Yes, I know that health care is not the topic du jour.  But innovation is.  And the two are intimately related to one another.

In recent months, I’ve had the opportunity to witness first-hand how the U.S. “system” of health care stifles our individual creativity and, ultimately, our collective ability to innovate.

A promising young journalist friend was almost unable to accept a once-in-a-lifetime, part-time writing assignment—even though his employer was willing to grant him a leave of absence.  Why?  Health insurance.  A gifted handyman is unable to exit an untenable living relationship and geographically relocate to a new place that holds greater economic promise for him.  Why?  He’d lose the health insurance that comes with his significant other.  A first-rate saleswoman languishes in a job that she hates.  Why?  She is afraid of losing the health insurance that her less-than-inspiring employer provides to her family.

Yes, health care reform has been passed, and some relief will begin to trickle through the system over the next few years.  But it will take more than this before our individual and collective energies are no longer held hostage by the health care system. 

This is something that reasonable people should be able to agree on, despite differences in their political leanings.  If we are to unleash human potential – and we must do so as a nation, if we are to maintain a comfortable standard of living – then we simply can’t have an entire nation of creative people whose life choices are dictated by their need to maintain their current health care plan.

This calls into question the motivations of employer lobbying groups that resist any and all innovations that would help people achieve greater health care security.  While it might be in employers’ individual interests to continue to use health care as a means of reducing employees’ ability to quit, it is not in our national interest. 

It stifles creativity and innovation at a time in our nation’s history when creativing and innovation are exactly what we need.

Meaning at work

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A whopping 19 percent of Harvard’s 2010 class applied to Teach for America (up from 14 percent in 2009).  Overall, the teacher service corps has enjoyed three consecutive years of 30 percent growth in its applicant pool.

Without a doubt, the state of the labor market accounts for a portion of this growth.  Turns out that hedge funds and investment banks (which have traditionally attracted the lion’s share of Harvard grads) aren’t hiring like they used to.  But most Harvard grads still have plenty of options—they certainly aren’t forced to choose a demanding, low-paying job. 

This is a choice.  And it’s a harbinger of things to come.  When (not “if”) the war for talent begins to re-emerge as a major concern for corporate employers, they will be well-served to take note of the increasing number of applicants seeking meaning as a primary element of their jobs.