George Rebane
The importance and magnitude of EVERY social problem lies in its numbers. If you don't understand the numbers and how they relate, all you can do is emote about the problem.
In these pages I have written an uncounted number of laments regarding the country’s dismal and deteriorating job situation. Various organizations estimate that today there are about three million jobs in America that go unfilled. Why? Well it turns out that it isn’t all about not having enough STEM skills in the workforce. No doubt, science, technology, engineering, and math trained people are in great demand, but there is also a big demand for workers who can demonstrate that they have the so-called ‘soft skills’. The near term problem is that available jobs outnumber workers with the required skill sets.
As an example, due to a skills shortage 600,000 manufacturing jobs went unfilled in 2011. Yes, manufacturing, the sector that we have been moaning and groaning about that is being exported overseas. With somewhere in excess of 20 million workers unemployed, employers still can’t even connect one out of forty of those to jobs that require strapping stuff together and moving it around.
Nick Schulz of the American Enterprise Institute outlines some of the basic shortcomings of our unemployed workforce (here). These start at the low end of just being able to properly answer the telephone. They also have little knowledge of the social contract that makes our culture (or the lack of it?) work, i.e. they lack certain “forms of social discipline” essential in a multi-person workplace. But perhaps ranking right up there in our workforce deficits is “the lack of elementary command of the English language” which includes things like “simple grammar and spelling”. This shortcoming is primarily present in the younger contingent who have been most recently blessed and passed through our unionized public education systems ranging from K-16.
How much softer can a skill set get than having these elements, skills which were much more prevalent in the 2007 workforce than today when the unemployment rate was four percentage points lower? And I notice that in this election season no politicians of any stripe are pointing these facts out to the country for fear of offending tens of millions of voters with realworld facts, as Romney recently found out. If you can’t find a job, and you kinda think that your problem is a chronic one as outlined above, then it doesn’t take rocket science to know that you’ll probably vote for the candidate who is going to send you more money, preferably forever.
As technology and investment increase, so does worker productivity – each worker accounts for more of the country’s generated wealth, thereby requiring fewer workers to pump out any given level of GDP. The ONLY solution to this conundrum is a healthy and predictable environment for a high-level of economic growth, as we will see below. Sadly none of this is fostered by the current federal government which is hell bent to implement obamunistic policies to restrain America from a timely exit from its economic doldrums which I believe history will record as Depression2.
The data that support these conclusions are worker productivity and workforce levels. I downloaded some data from the Fed on this and did some back of the envelope noodling to try and illustrate the problem. During the 1987-2007 interval the real per worker productivity (in 2005 dollars) of goods and services per worker rose at an average annual rate of 3.76%. In the same period the size of our workforce grew at 1.51% per year. And America’s annual GDP growth rate averaged 2.98% in real terms (again anchored to 2005). What does that tell us that we don’t hear on the news?
If worker productivity growth were zero, then GDP would enjoy a nominal growth rate that is the same as the growth rate of the number of workers. But real GDP grew at almost twice the rate (2.98/1.51) of worker growth. That means that workers in the aggregate became more and more productive during those 20 years. Think of (# of workers) x (annual productivity/worker) = GDP as a good working approximation.
When you crank out the simple algebra here (see the tech addendum below), these numbers point to what has been happening, and what will happen in spades as accelerating technology continues to increase worker productivity. The brutal truth is that we could have produced that GDP growth without adding a single worker since 1987 – actually, the number of workers could have declined by almost 1% a year in that interval, and the country would still have produced the recorded wealth gain.
So what happened with all the ‘surplus’ workers. Well, a lot of them quit producing or produced at a much lower than the average productivity rate. Government programs, and perhaps even our underground economy, helped absorb and maintain some such workers. So here is the conundrum. Today we need to boost our GDP growth rate for all the right economic reasons ranging from reducing deficits, providing needed entitlements, and generating new jobs to absorb our workforce growth. But if we add productivity growth into the equation, then that pushes down the need for new workers and new jobs to achieve any given level of GDP. And if we absorb the surplus workers into the transfer payment population, then that destabilizes the social order and reduces investment, job creation, technology development, and productivity. A very vicious loop which we can illustrate with an influence factors diagram, but I’ll spare you.
But do you see the relationships, at least intuitively?? It appears that no one in the Obama administration sees it, or, alternatively, they are obamunists of a common mind and look forward to the impending chaos in the country (ref the DHA and FEMA armaments build up). Let me be more brutal, I don’t think that even the Republicans in Congress or in the state legislatures have come to grips with this Titanic heading for the iceberg. No one wants to talk about IT.
So let’s take a look at this ‘IT’ as we peer into the future. According to the Bureau of Labor Statistics the current civilian labor force numbers 154.6 million, and the labor force participation rate is 63.5 percent, giving us about 98.2 million workers employed at some level. That leaves 56.4 million people of working ages not working for various reasons. If we take the above result from the worker numbers, productivity, and GDP growth rates, and assume that they hold for the next, say, ten years, then playing with these numbers (see technical appendix) shows that there will be approximately 180 million people in the civilian labor force in 2022. And recalling the above arguments, technology abetted productivity increases dictate that we can still grow the economy (GDP) at the stipulated (recovered) 2.98% rate without adding a single worker to today’s 98.2 million employed. In fact, we can achieve that GDP growth rate with even fewer workers, other things being equal.
Hopefully this will let you understand why I have been saying that there will be at least 70 million people un(der)employed by 2020. And the real situation will be worse since current tax and regulatory policies in effect (and those about to go into effect) will not let us achieve anywhere near the 2.98% economic growth rate during the remainder of this decade.
A natural question at this point would be, at what rate would we have to grow GDP in order to absorb the new people coming into the workforce and employing them at the current participation rate. Here we conservatively assume that the chronic and systemic unemployment rate at today’s levels will persist - we just have to absorb the influx of new workers. Again, we can go to our model in the appendix and squeeze out the answer by solving for the required GDP growth rate – so, the answer please. We would then require a sustained level of 5.3% growth per year. This is shown in the figure below that also let's you answer other 'what if' questions on how GDP, workforce, and productivity growths relate.
And now you know why no politician of any stripe wants to talk about the real employment problem in America, because no one has a clue on how to get the economy to such unprecedented sustained growth levels with our currently underskilled workforce, educational system, built-in latencies, socialistic dreams, and entrenched obamunistic goals and policies.
Instead, employers have been using every recession, especially the current one, as an opportunity to permanently pare their employee ranks of redundant, obsolete, and generally incapable workers. And the added regulations requiring new and, in my opinion, egregious worker compensations just continue to roll up the lower rungs of the economic ladder for the low skilled workers. They simply become permanent Democrats, which, of course, is another target objective of obamunism.
All said and done, it’s a sad tale when so many unemployed American workers have become such double dummies that they can’t even reach for the low hanging fruit in the job markets.
Our government has, for decades, made sure that the cost of hiring and retaining a worker will be greater and greater every year. This, without any concurrent rise in value of the employee to the employer from the government. Added to that equation is the steady rise in a probability that said employee, once hired, will prove to be a detriment to the company or even financial ruin to the business through frivolous lawsuits or liability for the employees conduct or actions. Obama-Kare is pounding the final nail in that coffin. It has been shown in countries such as Spain and France that employers are loathe to hire, given that the employee is now a permanent millstone around the employer's neck. George's posting above is one of the major reasons I will not vote for Romney (although there are several others). This country is saddled with ruinous debt and a huge percentage of uneducated, greedy and bone-lazy non-producing citizens. As George has stated, it won't matter who wins the presidential election, we are toast. At least let's have the little boy who can only lie and blame others be the captain of this left-wing disaster. Let the whole world see who was at the helm when this Titanic of a country goes under.
As an apropos side note, please check out the latest Pew poll. Good grief!
http://washington.cbslocal.com/2012/09/20/study-only-15-percent-of-democrats-believe-economic-news-is-bad/
Posted by: Account Deleted | 21 September 2012 at 07:08 PM
Even those that have a job and not doing that well
“The Atlantic has been on the Millennial beat for a long time, explaining why 20-somethings aren’t buying cars or houses or cable subscriptions, not getting married, not having children, and sometimes not even moving out of their parents’ basements. The answer, again and again, is the economy. Unemployment for adults between 20 and 24 is 14%, compared to the national average of 8.1%. But even those with jobs are facing something without modern precedent: Steadily falling annual earnings.”
Posted by: Russ Steele | 21 September 2012 at 08:06 PM
Just for the record, and perhaps because I do not do so often enough, I believe that George's analysis of the coming employment crises in the US is pretty much spot on. I also think that his observation that we have declining basic job skills is also correct. I may disagree about preferred solutions; but this is a real issue that we are not addressing.
Posted by: Steven Frisch | 22 September 2012 at 08:02 AM
The Federal Reserve Bank of San Francisco, Center for Study of Income and Productivity has an interesting index call the Tech Pulse. This indicators has been declining since 1975.
The Tech Pulse Index is an index of coincident indicators of activity in the U.S. information technology sector. It can be interpreted as a summary statistic that tracks the health of the tech sector in a timely manner. The indicators used to compute the index are investment in IT goods, consumption of personal computers and software, employment in the IT sector, as well as industrial production of and shipments by the technology sector. The index extracts the common trend that drives these series.
The Tech Pulse Index grew 7.2% over the past 12 months.
More details HERE: http://www.frbsf.org/csip/pulse.php
Posted by: Russ Steele | 22 September 2012 at 08:07 AM
SteveF 802am - a heartening response. I (all of us I think) would be interested in some specific thoughts you might have on this problem. Bouncing our various ideas could be very productive.
RussS 807am - I haven't heard of this index, and going there explains why. They announce - "The econometric model used to construct the Tech Pulse index is re-estimated every month. Consequently, every month the whole historical time-series of the index is revised.
The econometric specification of the model underlying the index as well as the source data have changed substantially compared to the versions of the index released before August 2008. Therefore, the current version of the Tech Pulse index is not directly comparable to previous versions of the index published before December 2008." (emphasis mine)
It seems like a work in process that is way too volatile for near-term decision making. Thoughts?
Posted by: George Rebane | 22 September 2012 at 08:24 AM
Russ, we used the Tech Pulse Index as part of the advance analysis of future industry trends in California for the CaEconomy Summit (it comes back around in about 12 months). There was quite a bit of debate about the methodology. Ultimately we decided that it was worth considering because the method used to construct the model merely compares deviations from historic average growth rates, meaning that even if the methodology in any given year changes, we were not comparing year to year, we were comparing a single year to the historic rate.
By the way, the Silicon Valley Manufacturing Group does a similar measure for the Bay area.
Posted by: Steven Frisch | 22 September 2012 at 08:45 AM
George@08:24
I agree that the index is not an effective near term term tool. I was most interested in the longer trend in the graphic accompany the article, even though the methodology had been revised. I stumbled across the Index when I was looking for an article on the impact of technology on productivity that I had read some time back. The SF Fed did a study on the impact of technology on productivity, but it was in 2005 and the world has changes since then, not sure it would be useful to our discussion.
Posted by: Russ Steele | 22 September 2012 at 09:40 AM
RussS 940am - noting SteveF's 845am comment, I would agree that the longer term indicator is probably the best use of the TPI. But even then one has to consider that every year is essentially a new and revised view of what the past was like as they swap a new model for the old and run the raw data through it. Making decisions on the short term movement of the TPI is akin to tracking noise from an unknown distribution since that will also change as the next regression model changes - pros don't do it, but it creates sellable graphics.
Posted by: George Rebane | 22 September 2012 at 10:07 AM
Lets take a look from my prospective. Kids and young adults have been brainwashed that " manual labor" is beneath them. " Your nothing if you don't work indoors, have your own office,or boss other people around. You MUST have a collage education to be anyone these days". Hard work outside seems to be a bad thing these days.
No one wants to start at the bottom and work their way up. Now, the young think they know it all, and demand a place at the top just because "they have a degree in their hand" never mind the ink isn't dry yet.
We need people that are not afraid to get their hands dirty, break a sweat, follow orders from those with many more years of experience. Not backtalk and claim they know so much more, because they read it in a book somewhere.
Book smart is no replacement for the real knowledge of actually learning by doing, and listening to those that have been there, and done that.
The school of hard knocks has never failed a single student.
Posted by: Walt | 22 September 2012 at 10:09 AM
Walt 1009am - Points well taken. And thereon we have a full spectrum problem with our workforce. As you point out, no one wants to even enroll in the school of hard knocks.
Posted by: George Rebane | 22 September 2012 at 10:37 AM
Walt, I suspect the reality lies somewhere between "they don't know much of anything" because they don't have the experience and "they know everything" because the have the book-learnin'.
I spent many years building snow-fences, digging ditches, hauling crap around, cleaning offices, and working at the lowest rung of the ladder in kitchens. I agree with you that working is inherently not only its own reward, but some of the best training for doing more later in life.
But I have also learned some of the most valuable lessons from those that came from college, with fresh eyes and new ideas, and boldly critiqued my assumptions and methodologies.
I have come to the conclusion that it is this diversity of skills, abilities, perspectives, and gall that drives creative thought.
Posted by: Steven Frisch | 22 September 2012 at 10:43 AM
Did I somehow stumble upon the Kumbaya blog? My mistake...
Posted by: Michael Anderson | 23 September 2012 at 12:38 AM
Give me a collage grad who thinks he knows something and I will show you a guy that really knows nothing at all. " book learn'n" is no substitute for "hands on". This I know. Been there ,, done that.
Now we have all these "kids", fresh out of the classroom, who think they can be "the boss" because the have a piece of paper in their hand ( or hanging on the wall)that certifies their "smartness".
In my job 'world", I have had many an educated guy show up on a job site thinking he had the tiger by the tail just because he went to school, and the book "said so". And before the week is out is asking all the "old timers" what the hell to do,and how it should be done. They soon figure out, there is no school that will teach that real knowledge.
Posted by: Walt | 23 September 2012 at 02:11 PM
"The school of hard knocks has never failed a single student."
4609 were killed this year in your "school."
http://www.bls.gov/iif/oshwc/cfoi/cftb0261.pdf
Posted by: TomKenworth | 23 September 2012 at 08:18 PM
TomK 818pm - was there a conclusion about the 4609 killed?
Posted by: George Rebane | 23 September 2012 at 09:13 PM
Conclusion? Self evident. Sometimes the "hard knocks" are lethal, oe career ending, if you will. Or you get to join the 47% if you are not killed, but are instead badly injured. You know, you become one of those self identified "victims" who feels that someone (the government and the rest of the taxpayers) "owe" them something.
If that tape was obtained, how many more such incidents were missed? Possibly even worse incidents...
Posted by: TomKenworth | 24 September 2012 at 08:33 AM
Insight from the Instapundit: HIGHER EDUCATION BUBBLE UPDATE: Hard Unemployment Truths About ‘Soft’ Skills: Finding qualified applicants for high-tech jobs would be great. So would finding someone who can answer the phone. “The skills shortage is not just an absence of workers who can write computer code, operate complex graphics software or manipulate cultures in a biotech lab—as real as that scarcity is. Many people lack what the writer R.R. Reno has called ‘forms of social discipline’ that are indispensable components of a person’s human capital and that are needed for economic success.”
80% of life is showing up. On Time. Properly dressed. Able to speak appropriately. A lot of people don’t get that. It’s the consequence of lacking the bourgeois virtues that used to be taken for granted, at least among the middle class.
Posted by: Russ Steele | 24 September 2012 at 12:04 PM
TomK 833am - yes, there are mortality and morbidity statistics available on all kinds of endeavors and enterprises. Is there a general principle or something that we should draw from your citation that would help us make better decisions along the way? Otherwise what you have served up is more anecdotal mush.
Posted by: George Rebane | 24 September 2012 at 02:01 PM