Category: Global Workforce Trends

Global Shortage of Skilled Workers is a Myth; Global Failure to Create Jobs is the Reality

SOURCE ITEMS

Chart-Global Working Age Population, 2000-2010

Data Source: World Population Prospects: The 2010 Revision, Population Division, Department of Economic and Social Affairs, United Nations.

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Last May I wrote about Coursera — co-founded by the Stanford computer scientists Daphne Koller and Andrew Ng — just after it opened. … When I visited last May, about 300,000 people were taking 38 courses taught by Stanford professors and a few other elite universities. Today, they have 2.4 million students, taking 214 courses from 33 universities, including eight international ones.

 Thomas Friedman, Revolution Hits the Universities, New York Times, January 26, 2013.

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According to UNESCO data, 177 million students participated in formal tertiary education around the world in 2010, an increase of 77 million students since 2000, or 77% (UNESCO Institute for Statistics, 2011).

Education at a Glance 2012, OECD indicators. OECD Publishing, September 2012.

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The Washington-based bank yesterday projected the world economy will expand 2.4 percent, down from a June forecast of 3 percent, after growing 2.3 percent in 2012. It halved its forecast for Japan, cut the U.S. projection by 0.5 percentage point and predicted a second year of contraction in the euro region. It also lowered projections for emerging markets led by Brazil, India and Mexico.

Sandrine Rastello, World Bank Cuts Growth Forecasts as Developed Nations Lose Steam, Bloomberg News, January 16, 2013.  

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In recent years, the proportion of high-skill migrants has been rising – from 19 percent in 1980 in the United States, to 26 percent in 2010, for example – as immigrants filled demand that domestic supply alone could not match.

The World at Work: Jobs, Pay, and Skills for 3.5 Billion People, McKinsey Global Institute, June 2012.

COMMENTS

The world economy has no shortage of workers and no shortage of well educated and skilled workers.  It has a devastating shortage of jobs for people of working age.

The brutal reality is that insufficient global job creation is the problem.

Flooding the world’s labor force with more and more highly educated and skilled workers will not solve that problem.  It will only expand the population of underemployed and inappropriately-employed college educated workers.

If a shortage of skilled workers really did exist, the world’s global corporations, which are awash in record profits and holding large amounts of cash, would be spending much more on worker training and aggressively lobbying governments to increase investments in higher education.  Instead, it’s only lip service for investments in education and training and, in richer countries like the U.S., lobbying for more visas for the world’s growing supply of skilled workers.

A new governmental approach to job creation is the solution.

Governments must shift from passively accepting private sector job creation failure to actively driving private sector job creation decisions.  To begin, they must stop competing with each other for the investment attention of global corporations and start working together to demand more job creation from those corporations.

Liberals and Conservatives Share an Outmoded Belief that Underpins False Hopes for Job Growth

ITEMS FOR YOUR CONSIDERATION

With five cameras, a sonar sensor that detects motion 360 degrees around it, and enough intelligence to learn tasks within an hour, Baxter is designed to work safely alongside humans and do simple jobs such as picking items off a conveyor belt. It’s also cheap enough, at $22,000 a unit, so that the investment math works: If Baxter performs three years of eight-hour shifts, it’s the equivalent of labor at $4 an hour … To teach Baxter a job, a human simply grabs its arms, simulates the desired task, and presses a button to set the pattern.

Brad Stone,Smarter Robots, With No Wage Demands, Bloomberg BusinessWeek, September 18, 2012.

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Anyone who endured Macroeconomics 101 was taught that recessions and depressions occur because of insufficient demand or from overproduction and a general glut of things that no one can buy. This explains the still popular Washington economic cure, which involves artificially generating more economic demand via federal outlays.

The opposite perspective emerges from Say’s Law (named after Jean-Baptiste Say): the proposition that supply creates its own demand when economies are unshackled.

Wayne Crews, Stimulating Demand Misses the Point, Forbes Magazine, September 26, 2011.

COMMENTS

Now that we are so far away from the trauma of 2008, experts generally agree that policies haven’t worked as expected – but they continue to hope that GDP growth will produce massive job growth.  That hope is based on a shared belief that increases in GDP require equivalent increases in job growth.

The two sides offer competing formulas for stimulating GDP growth, but both rest on this belief.  Liberals call for increasing consumer demand (demand side economics), which in turn should generate more investment and more jobs.  Conservatives call for increasing investor funds (supply side economics), which in turn should increase hiring and then generate more consumer demand.  Both formulas end up in the same place: high GDP growth and a low unemployment rate.

The key connection for both formulas is the belief that the production of commodities that will be sold in markets is primarily dependent on human activity.  More production requires more human activity.

Well into the 20th century this belief had considerable validity.  It no longer does.  Machine activities have replaced large portions of human activity in the production of commodities for sale in markets, and more machines are being brought on line every day around the world.  Increasingly, machines are not only replacing physical production activities (like assembly line tasks), they are replacing information gathering and decision-making tasks.

In this context, the old formulas for job growth don’t work.  A large amount of investment in buildings and machines produces only a tiny amount of job growth.

In the 21st century, jobs must be created intentionally, not as a byproduct of investment growth or demand growth.  Competing companies can’t do that kind of intentional job creation without putting themselves out of business.

Only governments can intentionally create jobs.

The ‘All’ in ‘We’re All in This Together’ Is the Whole World

ITEMS FOR YOUR CONSIDERATION

… that if you just “work hard and play by the rules” you should expect … a decent life and a chance for your children to have a better one. There is just one problem: It’s out of date.

… when Clinton first employed his phrase in 1992, the Internet was just emerging, virtually no one had e-mail and the cold war was just ending. In other words, we were still living in a closed system, a world of walls, which were just starting to come down. It was a world before Nafta and the full merger of globalization and the information technology revolution, a world in which unions and blue-collar manufacturing were still relatively strong, and where America could still write a lot of the rules that people played by.

That world is gone. It is now a more open system.

 Thomas Friedman, New Rules, New York Times, : September 8, 2012.

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Anybody with an idea and a little expertise can set assembly lines in China into motion with nothing more than some keystrokes on their laptop. A few days later, a prototype will be at their door, and once it all checks out, they can push a few more buttons and be in full production, making hundreds, thousands, or more….“Three guys with laptops” used to describe a Web startup. Now it describes a hardware company, too.

Voilà, a Factory in Your Garage, Reading File, New York Times, February 6, 2010.

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Both cyclical and structural effects appear evident in the recession, suggesting that some features of the U.S. economy can benefit from stimulatory monetary and fiscal policy, while others are more permanently damaged and unlikely to respond to such policies.

 Eric Swanson, Structural and Cyclical Economic Factors, Economic Newsletter, Federal Reserve Bank of San Francisco, June 11, 2012.

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After all, borders are not impermeable. On the contrary, globalization – the immense flow across borders of people, ideas, greenhouse gases, goods, services, currencies, commodities, television and radio signals, drugs, weapons, emails, viruses (computer and biological), and a good deal else – is a defining reality of our time. Few of the challenges that it raises can be met unilaterally; more often than not, cooperation, compromise, and a degree of multilateralism are essential.

Richard N. Haass (Director of Policy Planning for the US State Department (2001-2003), To the Victors Go the Foils, Project Syndicate, Apr. 25, 2012.

COMMENTS

When there are no limits to competition, competition destroys the commons – whether that commons is arable land, fish stocks in the ocean, the earth’s breathable air, or the economy in which all the world’s working people must earn an income sufficient to support a family and contribute to the well-being of their communities.

Structural factors that rob working people of living wage jobs are not confinedto the U.S., are not confined to any nation. There are national and local variations, but, fundamentally, the structural problems are global in scope and must be addressed through globally coordinated efforts.

A global system in which one nation outdoes others for a few years, and then another nation outdoes others for a few years, while the global trend is greater hardship for the greater number, is not one the American people should want and it is not one in which a high standard of living can be sustained.

The Global Policy Crisis Keeps Growing Because We’ve Never Seen This Kind of World Economic Crisis

ITEMS FOR YOUR CONSIDERATION

But it is no accident that so many of the world’s economies are sputtering at the same time, or that so many people around the globe are angry. … One reason for the synchronized gloom, of course, is the synchronization of the global economy. … Rather, we are all, both together and apart, trying to figure out three big questions. … The first is how nation-states fit into a globalized world economy.

Chrystia Freeland, The three questions of global importance, Reuters, June 21, 2012.

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In an era of globalization, there are no innocent bystanders. There are certainly no oases of prosperity in the face of yet another major shock in the global economy. America’s growth mirage is an important case in point.

Stephen S. Roach, The Great American Mirage, Project Syndicate,  June 27, 2012.

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The possible conclusions are stark. One possibility is that those investing in financial markets expect economic policy to be so dysfunctional that the global economy will remain more or less in its current depressed state for perhaps a decade, or more. The only other explanation is that even now, more than three years after the US financial crisis erupted, financial markets’ ability to price relative risks and returns sensibly has been broken at a deep level, leaving them incapable of doing their job …

J. Bradford DeLong, The Perils of Prophecy, Project Syndicate, June 27, 2012.

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If we are to thrive as a global community of almost 10 billion – the projected population by 2050 – these new models are not optional, they are an absolute necessity.

From the Introduction, Outlook on the Global Agenda 2012, World Economic Forum.

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As a world economic crisis developed in 2008 and lasted longer than most economists predicted, it became increasingly clear that beliefs about macroeconomics and macroeconomic policy needed to be thoroughly examined. … By the end of this fascinating conference, we knew that we had entered a brave new world and that the crisis is generating enough questions to fill our research agendas for years to come.

From the Preface: Olivier J. Blanchard, David Romer, A. Michael Spence and Joseph E. Stiglitz, In the Wake of the Crisis: Leading Economists Reassess Economic Policy, MIT Press, 2012.

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We are living in very unusual times,” said Mohamed A. El-Erian, the chief executive of Pimco, the world’s largest bond manager. “History may not be as reliable a guide as it’s been in the past.”

Jeff Sommer, Flights to Safety Can’t Hide the Dangers, New York Times, May 12, 2012.

COMMENTS

A significant number of economists and policy experts have wondered whether this global economic crisis is different – for two reasons: very few experts saw such a severe crisis coming and, even after absorbing that surprise, very few expected the crisis to be so resistant to policy interventions and to persist for so long.

The crisis is different this time – because it is embedded in a confluence of historical developments that the world has never seen before.  It involves the following developments:

  • Global climate change is damaging agricultural, tourism, fishing, and other weather sensitive industries, forcing producers to invest in very costly efforts to move and/or modify productive activities
  • The scale and scope of global production is running up against absolute resource limits, substantially curtailing practices that once were common and allowed market based productive activities to increase at low cost:
    • discovering easy to extract oil, natural gas, and mineral  deposits
    • opening up frontiers (territories not organized under western models of political authority) to invading waves of farmers, miners, loggers, entrepreneurs, and investors
    • adapting to dwindling fish stocks by fishing farther from shore and deeper
    • finding and harvesting virgin forests
    • abandoning aging and polluted cities, rivers and lakes (increasingly costly to maintain) to build newer cities in regions where rivers and lakes are untarnished
  • The centuries long era of incorporating the world’s territories and peoples into the western system of nation-states and coercing and bribing the world’s peasants, tribal peoples, and unpaid family and community workers into labor and consumer markets has come to an end; this has all but eliminated one of the primary ways in which the growth of demand for goods and services generally kept pace with the growth of productive capacity
  • The global spread of advances in productive technology, which entails the substitution of machine energy for human energy and machine thinking for human thinking, is slowing the growth of demand for goods and services by reducing opportunities to gain income through work.

This confluence emerged in recent decades and has permanently damaged the capacity of the world economy to generate the large pulses of consumer demand that historically called forth the productive investment responses that produced pulses of demand for labor.  The pulses of demand for labor increased wages and moved families from the ranks of the poor into the ranks of the middle class.  Over the longer term, more wealth was also pumped into the hands of the people at the top, preparing those people to respond to the next pulse of consumer demand.

Today, there is no mechanism for generating that heartbeat of economic growth.  The confluence of forces has damaged both phases of the cycle.

On the demand side, the first response to the confluence was a massive increase in global debt levels.  Debt growth sustained the growth of demand.  However, debt growth had to come to an end.

Today, with global debt levels very high and with global corporations wielding enormous political power in the world economy, it is not politically feasible to generate a Keynesian pulse of global consumer demand (either by massively expanding global debt levels or by  redistributing a large amount of wealth from the affluent to the have-nots).  But, even if the world economy’s leaders did find a way to generate a large pulse of consumer demand, it would largely fail to restart world economic growth.

On the supply side, the productive investment responses to a large pulse of consumer demand can no longer produce the employment and income gains that they produced in the past.  The ratio of machine energy to human energy in the world economy is so high now that demand for labor would not increase sufficiently to drive up global wage levels to the degree that was the case in the past.  Moreover, and more importantly for the long run, increasing the production of goods and services in the context of a world of resource limits that are becoming more difficult to overcome will drive up consumer prices. Whatever wage gains are realized will be offset by a higher cost of living..

From time to time in the history of the capitalist world economy, its magic has faltered and then been restored. This time the magic will sporadically flicker on for a while here and there in the world economy, but it will not be restored.  Something else will happen.

Hard Working? Creative? Strong Language and Computer Skills? Earn Up to $4 Per Hour in the New Global Labor Force

ITEMS FOR YOUR CONSIDERATION

The job didn’t pay much: four bucks an hour if you really hustled. But for Catherine Fraser, a recent community college graduate from Mountain View looking to pick up a little extra spending cash, the work was a hoot.

… said analyst Martin Schneider with 451 Research. “Like manufacturing has done forever, crowd-labor lets us break down a job into tiny components, where one bit of fact-checking or writing a few sentences is now the equivalent of gluing that chip onto a computer board.”

… The larger question — and one with huge global implications as crowd-sourcing redefines and in some cases kills traditional jobs and long-established labor-management models — is whether the crowd-labor pool could essentially become one big worldwide digital sweatshop. While industry studies show average hourly earnings across all categories range from about $7 in India to $16 in Western Europe, the fast-growing segment of micro-taskers earn half that on average, and some make only $1.50 an hour.

Patrick May, ‘Crowd labor’ helps spur social networking revolution, San Jose Mercury News, Updated: 05/01/2012.

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Series Index May

Series Index Apr

Rate of Change

Employment Index

50.8

54.2

 Slower

Business Activity/Production

55.6

54.6

 Faster

New Orders

55.5

53.5

 Faster
Source: May 2012 Non-Manufacturing ISM Report On Business, Institute for Supply Management, June 5, 2012

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For Great Wall, a private sector Chinese car maker that employs 50,000 workers, the Swiss robots and other machinery that line its bright factory floor produce more than cost savings. The company hopes they will help it build cars good enough to compete with the global auto makers.

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According to Nomura, 28 percent of factory machines in China use numerical controls – one measure of automation. That may be far lower than Japan’s 83 percent, but China is growing far faster than Japan did at a comparable stage of development, says Ge Wenjie, a machinery analyst with Nomura.

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In other words, China may soon be known less for cheap Christmas toys and more for high-end medical equipment, luxury cars and jet engines.

By Don Durfee, Analysis: Robots lift China’s factories to new heights, Reuters, June 3, 2012.

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Unit labor costs fell in 23 of 47 service-providing industries, the most since 2003 …

Output per hour increased in 32 of the 47 [service-providing industries] industries studied.  In most of these industries, productivity rose as output growth was accompanied by declines or more modest increases in hours.  Several  industries posted double-digit productivity gains as a result: local as well as long-distance general freight trucking; refrigerated warehousing and storage; radio and television broadcasting; wireless telecommunications carriers; and travel agencies.

In a few industries, productivity rose despite falling output.  In industries such as postal service; couriers and messengers; video tape and disc rental; photofinishing; and newspaper, book, and directory publishers, rising labor productivity reflected declines in both labor hours and output, with hours falling more rapidly than output.

Productivity and Costs by Industry: Selected Service-Providing and Mining Industries, 2010, Economic News Release, U.S. Bureau of Labor Statistics, May 31, 2012.

COMMENTS

During the 20th century each new generation of U.S. workers faced declining employment opportunities in agriculture, mining, and manufacturing.  But those lost employment opportunities were offset by growing employment opportunities in government and private service sector industries.

This is no longer the case.  Job growth in government and service sector industries has slowed considerably.  Moreover, some government agencies and service sector industries are embracing new production technologies and becoming job shedders themselves.

The hallmark of the first half of the 21st century may well be a decades long global employment crisis.  National governments are still trying to apply economic remedies carried over from the 20th century in a world that is vastly different.  National economic sovereignty is gone.  Rich and poor nations alike are now joined at the economic hip in a single world economy.

Sticking with the “each nation goes it alone” strategy for addressing the global employment crisis isn’t working.  Rather than getting increasing prosperity, U.S. working families and local business owners are getting a larger share of the world’s very high level of poverty.

The practical alternative for the U.S. is to join with the world’s other nations to build institutions that coordinate national economic policies and set minimum global standards for corporate behavior, working conditions, wages and benefits.

Globalization cannot be undone, so there is no other choice.

Time is Running Out for the “All News is Good News” Spin on U.S. Employment Prospects

ITEMS FOR YOUR CONSIDERATION

Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed today in Washington. The median estimate called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent, while hours worked declined.

Timothy R. Homan, Employment in U.S. Increased 69,000 in May, Bloomberg, June 1, 2012.

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The proportion of Americans in their prime working years who have jobs is smaller than it has been at any time in the 23 years before the recession, according to federal statistics, reflecting the profound and lasting effects that the downturn has had on the nation’s economic prospects. … The percentage of workers between the ages of 25 and 54 who have jobs now stands at 75.7 percent, just a percentage point over what it was at the downturn’s worst, according to federal statistics.

Before the recession the proportion hovered at 80 percent.

Peter Whoriskey, Job recovery is scant for Americans in prime working years, Washington Post, May 29, 2012.

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A gauge of manufacturing in the 17-nation euro zone fell to a three-year low of 45.1 in May, indicating a 10th month of contraction, while unemployment reached 11 percent, the highest on record. China’s Purchasing Managers’ Index dropped to 50.4 from 53.3, the weakest production growth since December.

Simon Kennedy, Global Growth Heads for Lull as Europe Output Shrinks,  Bloomberg, June 1, 2012

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Markit chief economist Chris Williamson attributed the [manufacturing] slowdown to “a near-stagnation of export orders, reflecting deteriorating demand in many overseas markets, notably the euro zone but also emerging markets such as China.”

Steven C. Johnson with editing by Chizu Nomiyama, Weak export demand slows May manufacturing growth: Markit, Reuters, June 1, 2012.

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“We are living in very unusual times,” said Mohamed A. El-Erian, the chief executive of Pimco, the world’s largest bond manager. “History may not be as reliable a guide as it’s been in the past.”

Jeff Sommer, Flights to Safety Can’t Hide the Dangers, New York Times, May 12, 2012.

COMMENTS

Since the official end of the Great Recession, economists, with very few exceptions, have reiterated optimism about U.S. job growth following economic news releases, whether the news was good or bad.  This optimism was and is untenable.

Even after decades of economic globalization, U.S. economists continue to make the mistake of treating nation to nation variations on larger global employment themes as though they are largely autonomous national employment themes.  This mistake leads economists to carry forward into the current era a trust in nation-based economic analysis tools and nation-based economic policy formulations that were developed for an economic era that is all but gone.

Until U.S. economists revise their analytical approach and policy formulations to fit the global economic era in which we all now live, Americans will continue to be fed hopes about U.S. employment trends that are largely destined to be disappointed.

In Bill Clinton’s 1992 presidential campaign the phrase, “It’s the economy, stupid”, was used as a reminder to campaign workers to stay on message.  It became fairly well known outside the campaign and is still occasionally quoted.

Long ago, U.S. economists should have revised that phrase to “It’s the world economy, stupid.”

The Rapid Global Deployment of Increasingly Smarter Machines Overturns Traditional Economic Policy Assumptions About Employment Growth and Income Distribution

ITEMS FOR YOUR CONSIDERATION

Last week Amazon, the online retailer, announced it was buying a robot maker called Kiva Systems for $775 million in cash. … Kiva Systems’ orange robots are designed to move around warehouses and stock shelves.

Or, as the company says on its Web site, using “hundreds of autonomous mobile robots,” Kiva Systems “enables extremely fast cycle times with reduced labor requirements.”

Nick Bilton, Disruptions: At Amazon, the Robot World Comes a Little Closer, New York Times, March 25, 2012.

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The value of the global industrial robot-system market will double to $41 billion by 2020, according to an estimate by Christine Wang, an analyst at Daiwa Capital Markets in Hong Kong. Global unit sales last year jumped about 30 percent to a record 150,000 units, the IFR said.

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Reuter, the Kuka CEO, said higher wages in China make investing in robots a simple trade off.

“It comes down to the question: at what cost can a robot do the job more efficiently?”

Richard Weiss, Kuka Robots Invade China as Wage Gains Put Machines Over Workers, Bloomberg, April 12, 2012.

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This is the potential of the “Internet of Things”: billions and billions of devices and their components connected to one another via the Internet. 50 billion devices by 2020, according to companies like Ericsson.

…

The basic building block of the Internet of Things is machine-to-machine communication (M2M), devices equipped to communicate without the intervention of humans.

…

Large scale M2M users may offer their services dozens of countries, selling the same devices globally.

Rudolf Van der Berg, The Internet of things, OECD Insights,  January 31, 2012.

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IBM says Watson’s skills — interpreting queries in natural language, consulting vast volumes of unstructured information quickly, and answering questions with a defined level of confidence — can be applied to many industries. It has already sold the technology to WellPoint Inc. (WLP), the U.S. insurer, and Citigroup Inc. (C), and expects to generate billions in new revenue by 2015 from putting Watson to work.

… Martin Kohn, IBM’s chief medical scientist, said in an interview. Using Watson “we have access to much more information than we could possibly accomplish by reading on our own, or even 100 people reading.”

Beth Jinks,  IBM’s Watson to Help Memorial Sloan-Kettering With Cancer, Bloomberg, March 22, 2012.

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There is reason to believe that code kernels for the first Turing-intelligent machine have already been written.

“Two revolutionary advances in information technology may bring the Turing test out of retirement,” wrote Robert French, a cognitive scientist at the French National Center for Scientific Research, in an Apr. 12 Science essay. “The first is the ready availability of vast amounts of raw data — from video feeds to complete sound environments, and from casual conversations to technical documents on every conceivable subject. The second is the advent of sophisticated techniques for collecting, organizing, and processing this rich collection of data.”

Brandon Keim, Artificial Intelligence Could Be on Brink of Passing Turing Test, Wired, April 12, 2012.

COMMENTS

The prevailing U.S. policy approach to creating jobs and distributing income reflects the traditional optimism of economists about long term employment and income distribution trends.  It treats employment growth and the widespread distribution of income through private sector payrolls as beneficial side effects of economic growth that require little attention from government.  The primary concern for government is providing optimal conditions for private sector investment.

The general optimism of economists about employment and income distribution includes a specific optimism about the impact of technology driven productivity growth.  Economists generally acknowledge that the implementation of new production technologies reduces the demand for labor in the industries in which those technologies are introduced.  But, they go on to argue that the workers who are displaced (or their children) find work in new industries (also created by the new technologies).  The net result is greater wealth for society and no permanent upward trend in unemployment.

Assumptions Underlying This Optimism Are Obsolete

In the past, this logic worked fairly well in the U.S.  Today, however, three key assumptions underlying this logic are violated in the real world.

The first assumption is that technological innovations will not be implemented faster than displaced workers can retrain for and find alternative work in emerging industries.  This assumption is no longer operative because unprecedented efficiencies in research and development fields, unprecedented fluidity of capital flows, and unprecedented levels of global competition are generating employment displacement and new skill requirements faster than human institutions can respond.

The second is that global market institutions will always evolve fast enough to keep the global capacity to consume growing as fast as the global capacity to produce grows.  The expanding role of debt financed consumption in the growth of global markets in recent decades and the prolonged duration of the financial and economic crisis that began in 2008 because of the tightening of credit show that this assumption is at least questionable.

The third assumption is that machines can displace only a small portion of human work activity.  This is no longer true.  Recent years have brought businesses massive increases in computing power, lower cost high capacity information storage, and computer programs that use highly sophisticated computational algorithms.  These hardware and software advances are now being deployed to mimic an expanding range of human work activities.

Job Creation and Income Distribution Must Become Direct Goals of  U.S. Economic Policy

If the assumptions on which economists rest their optimism about employment growth and income distribution are now obsolete, then public policies that succeed in stimulating private sector investment growth are unlikely to produce the employment growth and income distribution outcomes needed by the majority of people.  Creating good jobs and implementing policies that widely distribute incomes must become direct goals of government policy making, rather than secondary goals.

To continue with the current focus only on providing optimal conditions for private sector investment will only bring us more of what we now have: declining middle class incomes, more families living in poverty, and too much wealth owned and controlled by too few people.

Where Will They All Work?

“Consider Stanford’s experience: Last fall, 160,000 students in 190 countries enrolled in an Artificial Intelligence course taught by Mr. Thrun and Peter Norvig, a Google colleague. An additional 200 registered for the course on campus, but a few weeks into the semester, attendance at Stanford dwindled to about 30, as those who had the option of seeing their professors in person decided they preferred the online videos, with their simple views of a hand holding a pen, working through the problems.

…

Besides the Artificial Intelligence course, Stanford offered two other MOOCs last semester — Machine Learning (104,000 registered, and 13,000 completed the course), and Introduction to Databases (92,000 registered, 7,000 completed). And this spring, the university will have 13 courses open to the world, including Anatomy, Cryptography, Game Theory and Natural Language Processing.”

Tamar Lewin, Instruction for Masses Knocks Down Campus Walls, New York Times, March 4, 2012.

COMMENTS

Stanford is only the tip of a global iceberg of educational capacity growth that is beginning to dump huge numbers of well educated workers into the world economy.

A big question for state university systems:  If you are the son or daughter of a middle class family in China or India or Kenya or Peru, why settle for an online education at State U. when universities of the caliber of Stanford, MIT, and Harvard offer unlimited enrollment opportunities?

For more on this issue, see my previous post:

Too Many Well Educated Workers: a Global Problem and a U.S. Policy Dilemma, February 29, 2012

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.