All of the vitriol and finger-pointing going on in Washington... economy ignores a core issue: U.S. demand for low-skilled and... A Lost Generation?

A Lost Generation?
Economic evolution erodes long-term demand for U.S. unskilled workforce
By Rebecca McReynolds
All of the vitriol and finger-pointing going on in Washington over how to right the
economy ignores a core issue: U.S. demand for low-skilled and unskilled labor is
rapidly disappearing. Jobs that provided a solid living for previous generations are
gone, stranding millions of workers with obsolete skills and little hope for achieving
the Great American Dream: That each generation will do better than the one that
came before.
“This is not cyclical,” says Erik Hurst, V. Duane Rath Professor of Economics at
University of Chicago Booth School of Business. “Even if economy improves, it won’t
put people back to work.” Hurst and Jesse Greene, Senior Fellow at the Richard Paul
Richman Center for Business, Law, and Public Policy at the Columbia Business
School, explored structural and evolutionary forces that are eroding demand for the
country’s unskilled workforce at a recent workshop. “The Future of the American
Worker,” sponsored by the Richman Center, looked at where those jobs have gone,
and what it will take to bring them back.
Running the Numbers
It’s no secret that manufacturing jobs have been moving overseas for the years. The
problem is that but nobody really noticed because the construction boom during the
last decade absorbed most of those displaced factory workers. “In this sense, the
housing bust masked the effects of the ongoing decline in manufacturing
employment,” Hurst says.
The housing bust pulled that mask off, exposing the real impact of the decline in
manufacturing jobs on the overall economy. “Roughly 35% of the increase in nonemployment for all groups in the U.S. between 2007 and 2011 can be attributed to
the decline in manufacturing demand during the 2000s,” Hurst says.
That impact can be most clearly seen against the backdrop of the country’s anemic
recovery. As the overall unemployment rate inches below 9%, most of the jobs being
created are for higher skilled and college-educated workers. “The fraction of jobs for
low skilled workers has declined, and that decline is persistent,” Hurst says.
It’s Evolutionary
The move away from domestic manufacturing is a natural result of an increasingly
global economy, says Green, who also sits on the board of Caterpillar Corp. U.S.
corporations were already shifting their focus – and their manufacturing – to
markets with the fastest growth opportunities and the lowest cost structures. The
Great Recession just sped up the process, Green says.
With the economic collapse of 2008 corporations went into survival mode. Longterm strategic growth initiatives were scuttled in favor of quick fixes with fast
payoffs. “The focus became short-term,” Greene says. “Companies needed to save
cash, save capital and become more efficient.” That meant shuttering higher cost
factories as demand dropped for their products, and outsourcing administrative
operations wherever possible.
The result is that companies have learned to do more than less. They have adopted
more efficient operating systems, lowered their cost structures, and developed more
flexible business models that lean heavily on part-time and temporary workers.
“Companies are thriving despite the ‘new normal’ of economic weakness,” Green
says. “They have discovered that they can continue to grow without building their
employment base, and that is impacting low-skilled and semi-skilled workers.”
Getting Back to Work
This “new normal” puts the pressure on U.S. workers to become more competitive in
the international marketplace, Greene says. But that won’t be easy, and it will
require major changes in their overall mindset, he says. First, salaries here will have
to stay flat or even decline as wages in emerging markets such as China and India
catch up. Workers will also need to upgrade their skills while accepting more
flexible work rules around hours and job descriptions.
One way to do that is to leverage their skills to meet the needs of the market,
including accepting the fact that a global economy will mean more job changes over
their careers and constantly upgrading their skills. “Industries are going to die, and
technology is going to shift,” Greene says. It’s up to the U.S. worker to keep up.
Government policies will also have to adjust to support these new realities. Historic
policy responses to unemployment, such as public work program and tax cuts, won’t
ease the permanent effects of structural and evolutionary forces reshaping the job
market, Hurst says. A better use of those resources would be to help today’s idle
workers develop the skills they will need to compete in a global economy.
“Addressing barriers to skill acquisition may have the most lasting effect on
increasing the employment prospects of those workers who leave the labor force as
a result of the ongoing decline in the manufacturing sector,” Hurst says.