“Well every morning about this time, she gets me out of bed, a-crying get a job. After breakfast everyday she throws the want ads right my way, and never fails to say – get a job.” So go the lyrics from the famous Sha-na-na song. Ok, so I’m dating myself since I remember Bowser and the boys singing that one, but sometimes age brings with it a certain perspective.
This morning, the Department of Labor released what is euphemistically called the Jobs Report for May. The numbers were not great, and the markets and pundits have reacted accordingly. Getting a job has definitely become more difficult for Bowser, with the overall unemployment rate increasing for the third month in a row. If Bowser happens to be a teenager or young adult, getting a job is more difficult – this cohort has been experiencing depression-level unemployment rates for years. If he happens to be an African American male, things are just as bad, as the unemployment rate among this group has risen by a half a percent in just one month.
One statistic in the May Unemployment Situation Report remained strong. Unemployment among those with college degrees remained at 4.5 percent – and has barely moved from that level even during the height of the recession. In addition, wage growth for college graduates continues to outpace the national average. About a third of the population has a college degree, up from just 20 percent in 1990, and just 16 percent in 1980, the last time the country experienced a major recession.
The American economy is one of the world’s most knowledge intensive. It is driven by knowledge based industries and provides much of the design and technology for even the simplest products. For example, even though most toys are assembled in Asia, they are designed in America. While most clothing is sewn abroad, it is designed, and often even cut in America. The unskilled parts of the production process take place in other areas where overall educational attainment levels are low. This allows American consumers to take advantage of an economic concept called Comparative Advantage – which states that two parties can both gain from trade if they have different relative costs for producing the same goods.
America is so good at producing skilled people. It is the low cost producer. Firms here focus on high knowledge industries and jobs, while other economies – Bangladesh, Haiti, China – focus on lower skilled occupations. In this way, the American economy is able to better provide all of us with the largest variety of goods and services at the lowest possible price.
Now how does this tie to unemployment, and what perspective does age bring. Today, unemployment is high among those with the lowest levels of educational attainment, particularly the young. This is because firms in America do not create low-skilled jobs outside of certain service industries that are not subject to trade (in fact one of the areas with the most rapid employment growth is the food service sector which tends to employ large numbers of unskilled workers). The same thing happened in 1980, when America’s heavy industry (particularly the steel industry, but also automobile manufacturing and mining) began to move from a low-skilled mass labor force to a mechanized production process. This led to very high unemployment rates – particularly among middle aged, non-college educated men.
At the time, the pundits and politicians all went into high gear to support heavy industry and to create policies to get steelworkers back to work. But even with government support, there was no way that the thousands of steel workers would ever again be employed in blast furnaces. The world had simply changed around them. When America recognized this in the later part of the 1980’s the economy boomed again.
The same thing is true today. Trying to “compete with China” in low-wage assembly production is not only impossible; it simply makes no economic sense.
Government support to protect favored sectors simply does not make reality go away. It didn’t work for coal miners and steel workers in 1980, and won’t work today for bankers, autoworkers, railroad workers, or for whatever “green” workers are. Rather, policies that encourage entrepreneurial risk-taking and skill development will be what pull the economy out of neutral, and lead to the next economic boom.