Headwinds for the American worker

George Reban

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[This is the transcript of my regular KVMR commentary that was broadcast on 28 September 2012.   To this transcript I have added some obvious links not included in the broadcast commentary.]

Jobs and the economy are on everyone’s mind as we hear that our GDP growth was again downgraded – second quarter growth was reduced from an anemic 1.7% annual rate to a glacial 1.3% rate.  The innumerates in our electorate just slough this off – after all it’s just numbers.

In addition to this piece of news, we hear that new job creation is at historic lows, and that there are over 3M jobs in the country going unfilled.  Let’s take a look at why that is, and what hurdles face our new workers trying to find a job.  In sum, there are four stiff headwinds that affect each of the over 4M new young people hitting the job markets every year.  Never mind the 24M plus currently un and under employed; to absorb the new yearly crop of would-be workers our economy must create between 200 and 250 thousand jobs each and every month.  In recent years it has not come close to that number.

The first headwind is the inexorable increase in worker productivity that is driven by technological advance.  In the aggregate, each American worker now produces more dollar value of goods and services per year.  This productivity growth is currently at a 3.75% annual level.  Our workforce grows at approximately 1.5% annually.  To absorb these new workers year in and year out, our GDP would have to grow at more than 5% annually.  Recall that in good years our GDP has expanded only at a 3% annual rate.  The result is permanent or systemic unemployment.  [More on these data and their ramifications are found in the previous post ‘The real jobs problem – shhh!’.]

The second headwind is worker dumbth – our educational system outputs workers who not only don’t have sellable skills, but they also are not very smart.  All this is due to the way government operates our public schools, which the unions have made sinecures of teacher seniority and not teaching ability.  Consider that the recently striking Chicago teachers scored lower on the state’s ACT test, required of all high school juniors, than do the students taking the test.  These highly paid and poorly trained government service employees turn out students who can neither read nor have the rudimentary communication skills in spoken English to take the over 600,000 so-called ‘soft skills’ jobs that remain unfilled today.  This process is duplicated in all the big metropolitan areas of the country.

The third headwind is the nation’s regulatory and tax environments.  Both of these are complex, expanding, unpredictable, and harsh.  They disincentivize the creation of American jobs.  People who understand how an economy works know that businesses compete to sell the best product and/or service to their customers at the lowest price.  The labor or jobs component of such output is a cost that successful businesses must minimize.  Today government makes hiring a permanent employee a complex, expensive, and risky undertaking.  Employers are driven to find all kinds of alternatives to creating new jobs that include using new technologies and outsourcing.  Taking a chance with a new employee who is not very bright, has a mistaken notion of self-worth, and is pumped full of information about workers’ rights is definitely something that an employer wants to avoid.

We emphasize the unpredictability component of this headwind.  Employers today face the most uncertain future they have seen since the Great Depression.  We are heading into draconian storms with incomprehensible government debts and unfunded liabilities, unimaginable and unknown tax increases, and governments at every level mangling free markets with mandates and diktats handed down by depressingly ignorant bureaucrats.  All this has reduced Ameirca’s standing with competing countries in terms of the ease and expense of doing business and creating wealth on our shores.

This brings us to the fourth headwind – globalization.  The easiest and surest way for American companies to avoid the heel of government is to go overseas with as much of their enterprise as possible, starting with the exporting of jobs.  This is especially true of companies that produce product for export – why go through the hassle of making it here, when we can make it closer to where our products are used?  And since our government double, or actually triple taxes profits, these companies keep their earned profits off shore, instead of bringing them home to build more things that require the creation of new jobs.

There is little we can do with some of these headwinds, but our governments at all levels have turned out to be the main impediments to the expansion of our economy that is needed to employ the new millions entering the job markets every year.  The alternative solution seems to be to make most of them compliant wards of the state that become putty in the hands of self-serving and corrupt politicians.

My name is Rebane, and I expand on this and related themes in my Union columns and on georgerebane.com where the transcript of this commentary with related links is posted, and where these topics are debated extensively.  However these views are not necessarily shared by KVMR.  Thank you for listening.

Comments

[Account Deleted]

What a gloomy gus you are, George! Haven't you seen the polls? Obama will be re-elected and we'll all have access to his "stash"! And free cell phones and NO co-pay for In-you-end-OOs! Biden just hepped us to that bit of good news.
Helicopter Ben has promised to publish billions of copies of that "green" perennial best seller every month until we run out of zeros. Add to that an "evolving" morality from Washington and soon we'll be able to marry 3 small amphibians and any of the off spring that might result.
And you worry about work.

[Russ Steele]

One over looked headwind is the drug test. Many jobs require drug free workers and many of our young people cannot pass these tests.

[David King]

I guess, if you can’t redistribute wealth because you killed the incentive to work, just redistribute people.

Yeah, that’s the ticket!

http://www.youtube.com/watch?v=UhLBSLLIhUs&feature=relmfu

[billy T]

The second item concerning the dumbth of the worker greatly saddens me. Hopes were dashed again during the Chicago teacher strike. Not because of monetary compensation, but hope for slight moves to reform the system and rate teachers. That went nowhere.

The Chicago school system has a graduation rate of 60%, or 4 of out of ten kids fail to graduate. A small percentage of 4th graders are proficient in reading. Future looks bleak. And 39% of Chicago teachers send their kids to private school.

There was no movement to rate teachers, even with factors such as poverty, unmotivated parents and homelessness was factored in. Strike!! Unfair. The teachers will continue to rate themselves via their union. Currently, they rate themselves at 92% being good or excellent educators and that will never change. Meanwhile, the system pumps out less and less proficient students at higher costs and less accountability.

Somebody better keep an eye on the referee in this battle over education reform. Somebody is kicking the stew out of our children and the teachers say it isn't them.

[George Rebane]

Redistributing people (DavidK 1141pm), now that's an idea that is not used fully - the H1-B visa allows us to bring in talented people, but there is little we can do to reciprocate with the legions of double dummies that no one wants to hire on our shores. Remaining ignorant and having other people pay your way is probably the most important of the newly discovered rights of the 20th century.

The interviews with economically suffering Greeks and Spaniards make one thing clear - while in socialist la-la land, none of them saw it coming. And now they are pissed at everyone except themselves. As ScottO points out (932pm), we are delaying our come uppins by printing Bernanke bucks while ignoring that inflation is a government tax, the most insidious one of all (I have quantified it and given the formula for computing it). And public debt is just the delayed payment of that tax.

RussS (1004pm) is right on drugs that are keeping many young out jobs and also out of the military which gives most young service personnel a good start with at least one sellable skill upon discharge. But to take advantage of that we have to have a robustly growing economy (see 'The real jobs problem - shhh!') not a robustly anti-business economy.

Mr Tozer (600am), though, highlights the unsolvable problem. Much of the education needed for 21st century first world jobs is unaccessible a large fraction of our population, and most tragically to our youth. It takes very clever teachers to impart skill sets that such people can profitably use. The barrel bottom crowd we now have in the classrooms can't deliver, and the redistribution environment promoted by politicians does not motivate anyone to seek a productive career. This is the systemic scourge about which I devote these pages, and you all energetically debate its pros and cons.

In sum, the stark reality of the situation can be captured in many ways. My way is through simple relationships that brook no bullshit. In the case of jobs its

GPSgrowth = (1+ProductivityGrowth)*(1+WorkforceGrowth) - 1.

Do the arithmetic. Obamunism has no solution for it.
http://rebaneruminations.typepad.com/rebanes_ruminations/2012/09/the-real-jobs-problem-shhh.html

[Account Deleted]

re: Billy's 6 am post - Where do all of the Democrat "leaders" send their children? Sure isn't the govt schools that they tout as the best. One of Obama's first acts as pres was to eliminate school choice for the poor in DC. His daughters, of course, go where the evil 1% send their children. This has to do with indoctrination, not education. The referee has to be the parents. One of the major driving forces behind real estate values in SoCal is the schools that are near by.

[TomKenworth]

This liberal's kids both went to public schools, including one of the ones he taught in. It's a matter of being smart about which public schools, and locating one's housing accordingly. The funny thing here is that the Conservatives all believe that children born and raised in poverty will grow up and turn into adults who are perfectly functional, in financial terms. This does happen with a select few, but, for the most part, poverty children simply beget more such children. If you want real social change on the order of financially responsible citizens, every last one, you'll have to go back to the drawing boards. Charter schools that syphon off that minority group of poverty children who have the fire in the belly to make a change, by definition, are NOT the answer for the rest, who will grow up as they would have anyway. The Charter schools merely take advantage of what is already there, kids with fire in the belly, often with good parents (if both present, a rarity) stoking those fires.

Want to free up some cash for the project and keep lawyers from inventing new ways of making cash?

Try this:

Many malpractice and class action cases wind up paying pennies to the consumer, or a paltry sum to the planitiff, and it looks like lawyers are being just as abusive as the defendants. My solution would be to pass a law that limits the lawyers gross from any such suit (if successful) to no more than 50% total amount awarded by the court. You could play around with that 50% figure, to get it to the point where lawyers would look positively greedy to fight the law. Try sticking in 90% to see what that sounds like.

[George Rebane]

TomK 1124am - your schooling prescriptions deserve the rebirth of that discussion thread on RR under a new post on the design of an education system.

But I think there's more to your prescription on lawyer compensation in tort suits. If the objective is to minimize the number of such insane and/or frivolous suits, why not have the law limit lawyer compensation to no more than, say, 10% of what the plaintiff gets.

This is different from two aspects - 1) a lower percentage to discourage lawyer instigated suits, and 2) what the court awards is often absurdly more than what the plaintiff finally gets deposited into his account. Tie the lawyer's take tightly to the extent that the plaintiff is made whole.

[David King]

Why do we have an engineering shortage? Anyone? Anyone?

Answer: We don’t!

We have a fake crisis. When you take over the
student loan program and apply affirmative action mandates, you control the narrative and can create any crisis you want. Human resources departments have become the implementers. These people are incapable of understanding the potential of an individual engineer.
The socialists in the E.U. have gone so far as to create an engineering employment card.

See here:

http://spectrum.ieee.org/at-work/tech-careers/passport-to-engineering

"The biggest issue that engineering organizations have with the directive is its definition of a ”competent authority”—which, says FEANI secretary general Dirk Bochar, ”aren’t always competent. And those that are competent aren’t always the authorities. In Italy, for instance, all applications for professional qualifications must go through the Ministry of Justice. These people have neither the ability nor the capability of judging and evaluating whether an engineer coming from Belgium or Bulgaria is equivalent to one from Italy.”

So, there you have it, the lazy power brokers will determine who works!

What pisses me off is the beilef that one can cookie cutter an engineer from a big pile of dough.

What a joke!

[George Rebane]

DavidK 1158am - I covered this in my 11feb12 Union column and in RR (you may have missed it).
http://rebaneruminations.typepad.com/rebanes_ruminations/2012/02/a-new-barrier-to-growth.html

But I'm not sure how to interpret your argument. The fact is that we do have an 'engineering crisis' in that we are not producing enough qualified American STEM graduates to fill the needed jobs - currently about a 2.4M national shortfall - therefore we import (H1-B) and outsource.

Whether such a shortfall is produced by students not motivated or politicians or incompetent HR departments is another topic. As I have written here, no engineering manager will hire an engineer based on the recommendations of his HR wonk. The professional manager will tightly specify the required skill sets to HR, and use HR only as a rough first level filter for making the hire decision.

[Walt]

More jobs are about to be canned ( no real pun intended) Campbell's Soup is closing shop here in Sac.
Comcast is closing call centers as well.
The over regulation and taxation climate surely must have nothing to do with it. But count on Lefties to open the can of "greedy business" to paint them in a bad light.

[Walt]

Sorry, off topic. But this just hit the wires.
As I see it, Government " we know what's best, despite the fact we really don't know what we are doing" is at it again. Now they are messing with the "endangered species" they claim to love.

http://www.sacbee.com/2012/09/29/4864747/california-hatchery-killing-salmon.html#

" We don't know which fish is which... just kill them all"

And they bitch about the gold dredgers?

[David King]

George Rebane | 29 September 2012 at 12:54 PM

I consider the H-1B program human trafficking!
However, it really doesn’t matter; it will collapse under its own weight.
Weather affirmative action or the H-1B program, the pressures on these people will become overwhelming.

http://www.wgbhnews.org/post/ag-coakley-brings-crime-lab-chemist-annie-dookhan-court

http://www.youtube.com/watch?v=wqyiVZi4UVk

"...no engineering manager will hire an engineer based on the recommendations of his HR wonk. The professional manager will tightly specify the required skill sets..."

I call it trickle down incompetence.

[George Rebane]

DavidK 216pm - Affirmative action will collapse as you say, however, the H1-B has been a small and successful program for US companies. I myself have benefited from it in getting good engineering talent. The problem is retention; successful H1-B workers should be able to apply for citizenship.

Don't understand your "trickle down incompetence".

[David King]

George Rebane | 29 September 2012 at 02:21 PM

"...the H1-B has been a small and successful program for US companies. I myself have benefited from it in getting good engineering talent."

Yes, at the higher levels. I worked at the lab / field level. A good engineer does not necessarily make a good manager.

"The problem is retention; successful H1-B workers should be able to apply for citizenship."

Agreed.

[billy T]

Concerning education again, there is something wrong with the government run schools when the last TWO National Teacher of the Year are unemployed due to cuts and the old burned ugly as buzzard guts sea hag witches from hell are still working due to tenure. Something very wrong.

Parents don't have a say anymore. Neither do kids. Its all about the teachers that suck eggs big time and wait for retirement. A self perpetuating institution that is the scourge of our great nation. And, yes, I don't give a flying rat's ass about teachers' self esteem. Respect is earned. The public perception of sleaze ball teachers is justified, like it or not.

The good news out of the Chicago strike was 50,000 students went to school every single day. They were in charter schools. The other 350,000 students and their parents were victimized by the teachers' union that locked out students rather that be held to a reasonable standard.

The other good news out of Chicago is that many teachers have dumped the union and higher pay and opted to teach in charter schools were they can dedicate themselves to teaching and be held accountable. 50,000 students out of 400,000 is a good start.

[George Rebane]

billyT 819pm - Well said.

[TomKenworth]

Still busy trying to make silk purses out of sow's ears? Kids who do well in school generally come from families where parents are together and doing well. This is true of ALL schools, public, charter, and private. If you want higher test scores from the bottom half of the bell curve, make sure their parents have decent paying jobs first, then blame the teachers later, if there is still a problem. Getting beaten up at night in a rat infested, uninsulated dwelling, with blaring tv, and fighting parents/step parents, guardians, or lonely in a group home, is not conducive to quiet study time.

It's the Jobs, not the teachers. Find another scapegoat, avoid mirrors at all costs, I suppose...

[George Rebane]

TomK 924am - there's truth to a kid's home environment having an affect on learning in school. But an integral family and culture can take a kid through some very poor and tough years (my early years are witness to that).

Much has been written by sociologists of all stripes about the destruction of the black family unit by Great Society programs. In the late fifties and early sixties the middle and lower class black families were pillars of their communities that produced self-reliant kids whose metrics were increasing by leaps and bounds. The culture to succeed was in place.

Now a large fraction of black families are permanent multi-generational wards of the state. There are no conceivable wealth creating jobs for which these folks are qualified, except perhaps 'equal opportunity' jobs in government. And there are not enough of those to do any good, but enough to increase the aura and reality of government incompetence.

I believe the first step in the right direction is to remove the welfare commons that attract so many into single motherhood using their kid(s) as meal tickets. But I know of no progressives who would brook that path.