Too Many Well Educated Workers: a Global Problem and a U.S. Policy Dilemma

SEVEN ITEMS FOR YOUR CONSIDERATION

Chart-Tertiary Education enrollment ratiosData source: Global Education Digest 2009: Comparing Education Statistics Across the World, UNESCO Institute for Statistics, 2009.

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Chart-Tertiary Education enrollment by regionData source: Global Education Digest 2009: Comparing Education Statistics Across the World, UNESCO Institute for Statistics, 2009.

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“Companies no longer need to divide their skills strategies between high-cost ‘head’ nations employing-high skilled, high-waged workers, and ‘body’ nations that are restricted to low skilled, low waged employment. This change has come about via a combination of factors including the rapid expansion in the global supply of high skilled workers, in low-cost as well as high-cost economies, advances in information technologies, and rapid improvements in quality standards in emerging economies, including the capability to undertake research and development.”

Phillip Brown, Hugh Lauder, and David Ashton, Education, globalisation and the knowledge economy, Teaching and Learning Research Programme and Economic and Social Research Council, September 2008.

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“Unemployment is running at 14 percent and record numbers of people are emigrating in search of work. … Ireland’s pitch to China was its usual combination of low corporate tax rates, a well-educated work force of English speakers and ready access to the European Union’s market of 500 million people. The country’s technological skill, particularly in agribusiness and education, was also emphasized.”

Douglas Dalby, Ireland Makes Pitch to Official From China, New York Times, February 20, 201.

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“More people are losing the same gamble as a 33 percent jump in U.S. graduate school enrollment in the past decade … runs headlong into a weaker job market.”

Janet Lorin, Trapped by $50,000 Degree in Low-Paying Job Is Increasing Lament, Bloomberg, Dec 7, 2011.

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[IBM] stopped providing a geographic breakdown of its employees in 2009. At the end of 2008, U.S. staff accounted for 115,000 of its 398,455 employees, according to its annual report that year.

Beth Jinks,  IBM Cuts More Than 1,000 Workers, Group Says, Bloomberg, February 28, 2012.

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“Tech drives the economy, but it doesn’t drive employment. ‘We are a 100-person company and we serve 50 million people. That kind of leverage has never existed before,’ said Drew Houston, co-founder of the start-up Dropbox, a service that stores and shares digital files.

Nick Bilton, Disruptions: In Davos, Technology Moves Center Stage, New York Times, January 29, 2012.

COMMENTS

The assertion that a major impediment to economic growth and reducing unemployment and underemployment is a mismatch between the knowledge and skills most workers have and the knowledge and skills corporations are seeking is repeated often in the media and is widely accepted as true.  Thus, calls for investing in the higher education programs that will create a workforce with the newer and higher end knowledge and skills the corporations want are also common.

The policy experts who make the skills mismatch assertion base it on reports by business leaders that they have a hard time filling certain positions.  Unfortunately, those policy experts make the mistake of generalizing from a sample of workforce recruiting situations that is not at all representative of the larger population of U.S. recruitment situations.

Three reasons shortages of high end workers are not representative:

  • They are almost always geographically localized, concentrated in particular industries, and relatively short term
  • They evolve and move from place to place, but they never disappear; they develop when and where innovation is successful and reflect the nature of the innovation
  • On an ongoing basis, they account for only a small part of the overall demand for high end workers.

Those policy experts also make the mistake of drawing artificial national and sub national boundaries around workforce recruitment activities, ignoring the fact that a growing proportion of the world’s corporations, including smaller domestic corporations now recruit globally.  (And new evidence shows that corporations, not small businesses, account for the bulk of job creation and job destruction — see Floyd Norris, Small Companies Create More Jobs? Maybe Not, New York Times, February 24, 2012. )

The Global Problem

For the world economy as a whole, the salient shortage is the other way around: high end workers face a shortage of opportunities to put their educations and skills to work in good jobs (living wages and adequate benefits, safe working conditions, socially beneficial products and services).  And this mismatch between the supply of high end workers and the demand for their knowledge and skills is getting worse.

The key factors:

  • Global demand for highly educated workers is growing very slowly because the world economy as a whole is growing very slowly;
  • The global supply of highly educated workers is increasing rapidly as nations, states, provinces, and cities invest in education as a way of competing for the business investments that generate good jobs
  • Businesses of every size and in every economic sector pursue competitive advantage by investing in newer technologies than can now do the kinds of communications, evaluation, and decision-making work that most college educations prepare people to do.

Education is a good in and of itself, but global investing in higher education will not solve the long term problems of high unemployment and declining wages and benefits in the world economy.  Public investments in education address the supply side of the global labor market equation, but unemployment and underemployment in a world with an expanding population of workers, including well educated workers is fundamentally a demand side problem.

U.S. Public Policy Dilemma

Again, education is a good in and of itself, but more U.S. investments in higher education will not pay off in better jobs and growing incomes for U.S. workers.  The reasons are tied to extensive U.S. engagement in the world economy:

  • Investments in higher education produce high end workers who become part of the global supply of high end workers; the skills and knowledge of those workers are available not only to U.S. corporations but to the competitors of U.S. corporations
  • Those investments also put more downward pressure on high end wages and benefits in the U.S. because they add to an already excessive global supply of high end workers available to U.S. corporations
  • Investments in programs that increase the demand for high end workers (big government investments in transitioning to green energy sources is often proposed) don’t increase demand only for U.S. high end workers; not only do U.S. corporations outsource work and recruit lower cost workers from other countries, so too do government agencies.

U.S. workers will get more employment opportunities and wage growth from investments in higher education only if the global demand for high end workers is brought into balance with the global supply.  U.S. policy makers, acting alone, cannot cause this to happen.  A much higher level of global management of investments in higher education, investments in job creation programs, and investments in income supports for working people whose labor is not needed is required.

A good model for this is offered by federal government management of the supply and demand for workers in the in the U.S. 1950’s and 1960’s.

In those decades, federal investments in higher education increased substantially, but it also made large investments in job creating programs – notably, investments in the development of military technology, in an ambitious space program, in research across the spectrum of intellectual fields, in new regulatory programs, and in community jobs programs.  It also expanded income supports for workers not easily absorbed into the labor force because of disabilities, age, and skill limitations.

Thus, while higher education investments increased the demand for high end jobs, other government investments increased the supply of high end jobs, low end jobs in both the public and private sectors, and moderated the overall demand for jobs.

U.S. policy makers could and should lead in implementing this model for managing labor force development in the world economy as a whole.  That would serve the interests of U.S. working families.  But they cannot even fully participate in such an effort because American voters believe strongly in American exceptionalism and have an associated strong dislike for multinational government institutions (and for government involvement in economic matters in general).  And that is a real dilemma.

U.S. Workers Are Settling Into a Global Era of Fewer Good Jobs and Declining Incomes

ITEMS FOR YOUR CONSIDERATION

Chart-Missing Civilian Labor Force
Source: Andrew Sum, et al (see citation below quote)

“Following 2007, the pool of hidden unemployed has risen steadily and strongly from 4.7 million in 2007 to close to 6.5 million in 2011; a rise close to 1.8 million or 40%. This was the third largest annual average number of hidden unemployed in the 45 year history for which such data exist dating back to 1967.”

Andrew Sum, Mykhaylo Trubskyy, with  Sheila Palma, The Great Recession of 2007-2009, the Lagging Jobs Recovery, and the Missing 5-6 Million National Labor Force Participants in 2011: Why We Should Care, Northeastern University Center for Labor Market Studies, January 2012

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Change in Average Hourly Earnings of U.S. Employees, 2006 – 2011

Chart-Average Hourly EarningsSource: Historical Data, Current Employment Statistics, Bureau of Labor Statistics.

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“Spain’s jobless rate for people ages 16 to 24 is approaching 50 percent. Greece’s is 48 percent, and Portugal’s and Italy’s, 30 percent. Here in Britain, the rate is 22.3 percent, the highest since such data began being collected in 1992. (The comparable rate for Americans is 18 percent.)

Thomas Landon, For London Youth, Down and Out Is Way of Life, New York Times, February 15, 2012

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Looking at the changes within countries over time, the overall long-term trend is obvious: the majority of countries have witnessed increases in low-wage employment over the past 15 years. Overall, figure 20 shows that, since the second half of the 1990s, low pay has increased in about two-thirds of countries for which data are available (25 out of 37 countries). … While it is too soon for an assessment of the short-term effect of the crisis on low pay (since few countries have published their data on low pay in 2009), there is little reason to believe that a global recession will have brought about any improvement in the overall situation of low-paid workers.

Global Wage Report 2010/11: Wage policies in times of crisis, International Labour Organization, December, 2010

COMMENTS

In a free market economy, buyers and sellers negotiate prices.  When buyers have lots of choices and sellers don’t, buyers have the leverage to push prices downward.

We have seen this in the U.S. housing market: huge numbers of houses are on the market and an army of builders are waiting in the wings to put even more houses on the market – the ratio of sellers to buyers is very high.  Thus, even though houses are beginning to sell a little better, prices are still falling.

The same thing has happened in the global labor market: the ratio of available workers (sellers) to employers with jobs to fill (buyers) is very high, and it will stay high.  There are several structural reasons:

  • the integration of national economies into a single world economy based on free market principles has made huge numbers of unemployed and underemployed workers newly available to the world’s major employers and many intermediate size employers
  • expanding national education systems are producing a growing supply of skilled workers for the global labor market
  • the global economic crisis of 2008-2009 produced large numbers of business failures and consolidations, reducing the number of employers competing for the growing global supply of workers
  • the production of a given volume of goods and services continues to require fewer and fewer workers as machines and computers do more of the brute work and more of the routine thinking
  • global consumption of goods and services is not growing fast enough to reduce the ratio of available workers to available jobs.

Thus, even though hiring in the U.S. is beginning to get a little better, the bargaining position of U.S. workers, even those who are unionized, continues to deteriorate.  Given this trend, either real U.S. wages and incomes will decline much further, or rates of unemployment, underemployment, and non-participation of working age people in the workforce will remain high.

Employment Optimism? Really? This January was Worse than January 2011 and Adverse Global Economic Forces are Still in Play

ITEMS FOR YOUR CONSIDERATION

Downward Trends in U.S. Civ Labor Force ContinueData source: Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics

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Private Sector Job Growth is Dominated By Lower Wage Industries

Percent of Private Sector Job Growth By Selected Industries

Jan-11

Dec-11

Jan-12

Goods-Producing

30.3%

32.3%

31.5%

Private Service-providing

69.7%

67.7%

68.5%

Retail Trade

31.0%

2.8%

4.1%

Temporary Help Services

13.5%

3.8%

7.8%

Leisure and Hospitality

-6.7%

8.6%

17.1%

Other services

-5.9%

2.3%

2.7%

Total 4 Selected Service Providing

31.9%

17.5%

31.8%

Data source: Employment Situation Summary Table B, Employment News Release, Bureau of Labor Statistics, February 3, 2012.

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Job Cuts, January 2012 Greater than in January 2011

(Ten Industries with Highest Cuts)

 

January 2012

January 2011

Retail

12,426

5,755

Financial

7,611

2,822

Pharmaceutical

4,071

2,090

Entertainment/Leisure

3,910

1,545

Aerospace/Defense

3,634

3,167

Government/Non-Profit

3,021

6,450

Food

3,000

873

Consumer Products

2,464

1,783

Industrial Goods

2,230

1,874

Transportation

1,770

725

Data Source: 2012 Kicks Off With 28% Surge in Job Cuts, Press Release, Challenger, Gray & Christmas, February 2, 2012.

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January 2012 Purchasing Managers’ Index (PMI) for Manufacturing Lower than in  2010 and 2011

2010

January

April

July

Oct

56.7

59.0

55.7

57.0

2011

2012

January

April

July

Oct

January

59.9

59.7

51.4

51.8

54.1

Data source: table of Manufacturing Business PMI history, Institute for Supply Management. 

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“The man in charge of a firm with several hundred thousand staff around the world bemoaned that, ‘we live in a world where wealth creation is uncoupled from job creation. This once close connection is ruptured.'”

Tim Weber, Davos 2012: Youth unemployment ‘disaster’, BBC News website, January 28, 2012.

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SMBs in developing countries are keeping pace with their more developed counterparts when it comes to providing employees with smartphones, netbooks/mini notebooks, and media tablets. In some cases, they are actually more likely to provide these products to their staff.

The Consumerization of IT Helps Level the SMB Playing Field Across the World, IDC Says, Press Release, International Data Corporation (IDC), January 25, 2012.

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“This suggests that the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. … Stricter market incentives to control costs in the face of stiff domestic and international competition may also be factors. In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs. These special factors are not readily addressed through conventional monetary or fiscal policies. But such policies may be able to offset the central obstacle of weak aggregate demand.”

Rob Valletta and Katherine Kuang, Why Is Unemployment Duration So Long?, Federal Reserve Bank of San Franscisco Economic Lettter, January 30, 2012.

COMMENTS

The only way to arrive at optimism about U.S. employment is to focus attention on indicators that are poorly related to unemployment changes (GDP growth, initial unemployment insurance claims, the traditional unemployment rate) and ignore global economic forces that continue to spell trouble for U.S. employment growth

Misleading indicators:

  • An uptick in the rate of GDP growth is misleading about employment growth because machines now play such a large role of in the production and sale of goods and services in the U.S.;  modest upswings in GDP can take place with almost no impact on employment
  • Initial claims for unemployment insurance (UI) get a lot of press, but only about 43 percent of unemployed workers receive UI; unemployment among workers who mostly do not qualify (many workers in retail and service industries) can rise or fall dramatically with little impact on initial claims
  • As is well known, the traditional unemployment rate is a downwardly biased measure of unemployment; it does not count as unemployed persons who have opted to do something other than look for work until prospects improve (e.g., going to school,  taking a self-financed sabbatical, making repairs to the house) and does count as employed persons who want full time employment but can only find part-time employment and persons who are working in jobs beneath their qualifications.

Global forces that undercut U.S. job growth are still in play:

  • Global and U.S. GDP growth rates will be modest through at least 2012 because of financial turmoil, lots of supply, and weak demand
  • The number of competing nations in the world economy has not diminished and very high levels of unemployment are pushing many nations to become even more aggressively competitive
  • Slow global market growth continues, which means the world’s global businesses must continue to relentlessly cut labor and other costs to survive
  • Emerging market countries with skilled workers, advanced production capacities, and much lower production costs will continue to outbid the U.S. for the investments that produce the most jobs per dollar of investment
  • Facing higher production costs in the U.S., much of the investment in the U.S. will continue to be in high tech, high profit activities that produce relative few jobs, and those jobs will be ones for which very few U.S. workers have the required skills.

The labor force participation rate, which is a better indicator of whether we should be optimistic about job growth, has been trending downward for many years.  Taken as a whole, economic signals indicate that this trend is locked in, whatever economists and reporters may wish to read into short term economic indicators.