While the drop in unemployment rate in November from 10.2% to 10% was welcome news, the fact remains that economy is still in crisis mode.
The United States is coping with 15.7 million unemployed and 7.3 million jobs lost between December 2007 and October 2009. And, despite November’s jobless claims dip, we’re not likely to see real improvement anytime soon.
In a recent New York Times column, Thomas Friedman suggested that a critical reason for the Great Recession is “an education breakdown on Main Street” that has undermined the ability of the average American worker to compete in the global arena. While financial disasters and job losses have grabbed the headlines, there is credible evidence supporting Friedman’s contention.
Manpower’s 2009 Talent Shortage Survey (June 2009) of 39,000 employers in 33 nations reported that 30% of employers were still experiencing difficulties in filling jobs. In the European Union, this represented 2.3 million jobs and in the United States, about two million vacant positions, i.e., jobs unfilled for six months or longer. This was confirmed by two additional reports. A National Federation of Independent Businesses 2009 survey indicated that 23% of small businesses had few or no qualified applicants for job openings, and 8% had vacant positions.
The September 2009 Employment Dynamics and Growth Expectations Report from the staffing firms Robert Half International and Career Builder also reported that human resource managers judged 47% of their applicants unqualified. Many of these vacant positions were STEM jobs or those that are in science, technology, engineering, or mathematically-related areas. For the United States to retain its competitive edge, it must build up its technological and scientific talent in such high-tech areas.
The 2009 EDGE Report pronounced technology as the number one area of future job growth once the economy recovers. Economists at Goldman Sachs, HIS Global Insight, and the Northern Trust concur in the importance of this sector in producing new jobs. The United States must keep spawning new technologies in such areas as aerospace, nanotech, biotech, and advanced manufacturing that produce innovative high-value products and services generating high-wage employment gains.
But it will take time to retrain current workers and better prepare students for this transition to a “Cyber-Mental Age” of all-embracing technology. The canary has been singing in the mine for several decades warning of our growing lack of talent as we enter a transitional labor-market era.
For the year 2010, a chief economic concern is the future of the U.S. job market. As a historical economist trying to connect the dots for a more holistic picture, I think that this 2010 jobs crossroad can best be described in three paradoxes: a technology paradox, a people paradox, and a globalization paradox.
The technology paradox
In 2009, the World Future Society predicted that over the next decade the amount of new technology introduced into the U.S. economy may equal that of the last 50 years. Already an acceleration of the talent shift from low-skill jobs to more complex knowledge jobs across major world economies is increasingly evident. Many of these jobs are in STEM-related occupations. At the top of this STEM jobs pyramid are scientists and engineers with advanced degrees who are inventing new technologies.
However, installing, applying, and maintaining these technologies across the entire spectrum of the U.S. economy will require an even broader base of middle jobs for knowledge technologists. The U.S. Bureau of Labor Statistics and the Educational Testing Service predict that over the next decade, 60% of these positions will not require a four-year college degree at the entry level, but rather appropriate occupational certificates, two-year degrees or post-secondary apprenticeships.
Gone forever are the days of semi-skilled, well-paying blue-collar factory jobs that can provide a 19-year-old dropout or high school graduate with a living wage. Today counting on a low-skill manufacturing or service job to keep you in the middle class is as sensible as buying a BETA tape for a Blue Ray DVD player.
The people paradox
Many national economies are just beginning to experience the disruption unleashed by a rising tide of a baby boomer retirements, and due to decades of declining birth rates, a dearth of replacement Generation X and Y workers. Between 2010 and 2050, the United Nations predicts some dramatic annual national population losses: Germany, 100,000; Italy, 100,000; Russia, 700,000; Japan, 50,000, and Korea, 50,000. The shrinking working-age populations of such countries will have to support higher and higher numbers of retirees.
In the United States, 79 million baby boomers will retire, but the fertility rate has remained at a replacement level. Thus, when immigration is included, the U.S. workforce will not shrink over the next decade, but it is likely to grow very slowly. Shifts in generational values are also magnifying the impact of demographic change.
On top of this, the work-life ethos is changing. To varying degrees, both Generations X and Y are more interested in obtaining a good work-life balance. Most businesses are having problems adjusting to their demands for more flexibility. Added to this is a widening skills gap between these generations.
Since the publication of A Nation at Risk in 1982, a steady drumbeat of reports continues to be issued about the serious deficiencies of American education. In this age when some form of postsecondary education is a requirement for all but low-wage, low-skill jobs, the overall U.S. high-school dropout rate has now reached 30%. Even more alarming, the average high school graduation rate in the 50 largest U.S. cities was 52.8%. In a 2005 survey, 60% of American manufacturers reported that even those high-school students who did graduate were poorly prepared for entry-level jobs.
As one inner-city Algebra I student told Bill Gates, “Some people seem to think it’s cool to be stupid. But it’s not.” If you do not think that the United States is paying a price for such thinking, just look around.
The rate of personal educational progress has significantly slowed. The United States is falling behind a number of other nations in the percentage of youth finishing high school and obtaining specific career preparation at the postsecondary level. The Organisation for Economic Co-Operation and Development reported that between 1998 and 2006 there was no increase in the number of younger people in America who successfully obtained skilled jobs.
For the first time in American history, the next generation of workers will not be better educated than the generation now retiring. Too many younger American workers are not equipped for today’s rapid pace of change in which jobs come and go, and skills can rapidly become obsolete. This is the people paradox.
The globalization paradox
Over the past several decades, the United States has muddled through these skilled people shortages using two major talent safety valves:
1) America has imported large numbers of high-skill workers using H1-B visas.
2) U.S. businesses have used outsourcing, not just of low-wage jobs, but also millions of high-skill, high-wage jobs which they have placed in countries with wages either equivalent or higher than the United States, including: Germany, Japan, Singapore, Korea and Canada.
But these business talent safety valves are about to fail.
As we have seen, many nations are beginning to experience severe yearly population declines. This population shrinkage includes a significant decline in the size of their workforces. And the go-to sources of talent that countries could once easily rely on, such as India and China, are having challenges of their own.
Both India and China graduate about 400,000 engineers each year. Yet according to several McKinsey & Company studies and other sources, only about 25% of Indian graduates are considered qualified for employment in international businesses. Worse yet, only 10% of Chinese graduates meet world-class multinational expectations. As India’s and China’s economies have become more sophisticated, they are moving from low-skill to high-skill products and services.
To meet these demands, both countries have begun to call home millions of expatriates-engineers, scientists, medical personnel, and others-to fill the large talent gaps growing across their economies. One indication of this change is the change in H-1B visa applications. For the fiscal year 2010 after 211 days there were still thousands of H-1B visa slots available. For 2009 it took one day to fill all the slots and in 2008 two days. Would be immigrants from India and China are finding good career opportunities at home.
This is the globalization paradox. In the immediate future, U.S. businesses will fail to import nearly enough high-skill talent. Nor will they be able to export enough high-skill jobs overseas. How will America keep pace with both new job growth and finding the massive amount of talent needed to replace departing boomer workers? The bottom-line answer: the U.S. labor market must begin equipping more Americans with the education and skills to fill these jobs.
A global talent enigma
The present talent enigma threatens the future U.S. and global economy. The housing-banking bubble collapse has changed nothing. The current recession will only quicken the pace in eliminating low-skill jobs as the United States moves firmly into a knowledge-based technology economy. Current economic upheavals may for a time mask these talent shortage issues, but over the next decade they will not be able to reverse the major socioeconomic forces behind this global talent showdown.
The United States needs an immediate major overhaul of its talent creation and distribution systems. If not addressed, Manpower, Inc. predicts that over the next decade, 10% to 20% of U.S. businesses that cannot fill key positions will be forced to close. Businesses will face the dire possibility of 12 to 24 million vacant positions.
There are, however, businesses and communities that have begun working to change this talent black hole into a decade of opportunity. They are beginning to forge partnerships that I call “Gateways-to-the Future.” Across America, numerous community-based organizations (CBOs) and non-governmental organizations (NGOs) have been at work for more than a decade expanding business-education partnerships. They have mobilized the broad participation of chambers of commerce, unions, parent organizations, workforce boards, economic-development organizations, and other community groups.
In Santa Ana, Calif., Fargo, N.D., Danville, Ill., Mansfield, Ohio, and in many other communities, these local CBOs and NGOs are now making significant local investments to reinvent their local and regional education-to-employment systems. They have helped businesses stay competitive through worker retraining and elementary/secondary/postsecondary career-education programs, including career academies. These CBOs and NGOs are rebuilding talent pipelines and helping to attract new businesses offering higher-wage, higher-skilled jobs for their communities.
CBOs/NGOs are often regional entities that can encompass many communities. They act as neutral civic spaces that begin the conversation of what needs to be done and then building a broad network of partners that engage in the “strategic doing” needed to reinvigorate local labor markets.
Such action is urgently needed as our research shows that students must be informed that there are fewer and fewer occupations that will not require some formal professional, scientific, mathematical and/or humanistic-based career education beyond high school. Also, for the majority of those currently employed, lifelong learning updates are essential. But even more is needed.
At the national level, the U.S. Congress can encourage these community investments by allowing businesses to capitalize investments in training and education, just as they now capitalize investments in plants and equipment. This will help reduce unemployment by encouraging companies to once again offer entry-level job trainee positions to fill vacant positions.
Businesses will also have an incentive to invest in career information and education programs in community elementary, secondary, and postsecondary institutions to rebuild the shattered education-to-employment pipeline. In 2009, U.S. businesses invested $53 billion annually in training and education. This could grow to over $100 billion by 2020 if such tax legislation was enacted by the U.S. Congress. (Read more about capitalization of training and education in Gordon’s article in the January issue of EBN.)
For the economy to grow between 2010 and 2020, the U.S. education-to-employment system needs to be rebuilt. If left unchanged, we may see increasing numbers of people, even degreed individuals, with poor job prospects. While the overall unemployment rate in October 2009 was 10.2%, analysis reveals that there was great variation by age and educational attainment. For those with less than a high school diploma the rate was 15.5%; for high school graduates, 11.2%; those with some college, 9.0%; and for holders of Bachelor’s degrees or higher, 4.7%.
What is the likely scenario for unemployment in the next decade? At the end of the last major U.S. recession in April 1982 the unemployment rate reached a high of 10.8%. It seems likely that the unemployment rate will peak between 10.5 and 11% by June 2010, and it is likely to remain stubbornly high – perhaps about 8% by the end of 2011. What will occur by mid-decade, beyond the massive retirement of the baby boomers, will largely depend on the future revamping of the U.S. education-to-employment system.
According to U.S. Department of Labor data, 62% of all U.S. jobs in 2010 will require higher skill levels. While 97 million people will be needed, only 43 million Americans will have the educational qualifications for these jobs. Businesses will try to make up the difference by using the failing talent safety valves discussed earlier. On the other hand, 38% of all U.S. jobs in 2010 will still be low-pay/low-skill requiring 61 million workers, but 115 million Americans will be competing for these jobs.
Without a massive overhaul in our education-to-employment system we predict that by 2020 the U.S. labor market will be significantly out of balance. High pay/high/skill jobs will rise to 74% of the U.S. labor market; 123 million people will be needed, but only 43 million are likely to be qualified. On the other hand, low-pay/low-skills jobs will shrink to 26% of the total; 44 million people will be needed, but over 142 million will be available.
The impact of this talent meltdown will probably be greatest on small and mid-sized companies, with larger corporations merging or leaving the United States. Large companies will poach the talent they need from smaller businesses. Wages in key STEM occupations will begin to rise rapidly. Over the next decade, more dollars will chase scarce talent worldwide. Businesses in the United States, China, and India are already feeling the effects of wage inflation in retaining or attracting workers in many STEM occupational areas.
The United States has faced difficult economic odds before and beaten them throughout our history by encouraging flexibility, renewal, and growth. America’s competitiveness can be revived by moving away from a dependence on consumer consumption and expanding technological innovations that boost exports and the manufacturing and service sectors.
Will 2010 be a year in which the meltdown of our labor force continues or the beginning of economic growth based on regenerating U.S. talent? We all can play a part in making that decision by investing in new talent strategies at the local community level and supporting changes at the federal level that foster business liquidity and training.
Edward E. Gordon is the president of Imperial Consulting Corporation and the author of The 2010 Meltdown: Solving the Impending Jobs Crisis (Praeger, 2005) and Winning the Global Talent Showdown (Berrett-Koehler, 2009).
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