Thursday, June 16, 2011

Jobless Productivity

By Christa Tinsley Spaht, Project Manager.  

Two articles came out last week addressing the sometimes conflicting worlds of job creation and productivity. In the New York Times’ Companies Spend on Equipment, Not Workers,” the managing director at a technology company in Minnesota articulates his company’s decision to buy incentivized, discounted equipment over hiring workers. (And no, that equipment wasn’t made in America.) After the expense of time (sifting through resumes, interviews) and money (drug tests, mandated training) and risk (workers may not have the right technology skill sets), it’s easier to just build the firm’s easier-to-predict capital investment instead. On top of that, the article notes that since the recovery began, equipment and software prices have dropped (-2.4%) while labor costs have grown (+6.7%).

The story is discouraging for those of us worn down by the inescapable term “jobless recovery.” Employers would rather invest in machinery to complete automated processes than go through the trouble of the hiring process. It sounds like employment (and wages) can’t grow as long as productivity in increasing.

The Atlantic has a brief article (“The Easiest Way to Understand Why We Can't Create Jobs") that highlights  a new McKinsey Global Institute (MGI) report, “An Economy That Works: Job Creation and America’s Future”. In short, as long as productivity exceeds demand, job creation won’t be able to keep up. To tie it back to the New York Times article, if it is a big hassle to find a worker to fulfill a certain role in a firm, then the value of human capital can’t surpass the value of more tangible capital. Then the article sums up three places where jobs actually are created:
  1. More buyers for existing stuff (Higher demand)
  2. New buyers for new stuff (Innovation)
  3. Stable demand in less productive sectors (Growth in government, health care, or construction employers).
Worsening consumer confidence, weak housing markets, stalled domestic innovation (possibly due to regulations and/or globalization), and dramatic cuts to state and local government workers and services have all contributed – some more than others – to the jobs slowdown.

The MGI report remarks that jobless nature of economic recoveries is mounting due to restructuring within firms, dramatic drops in new startups, and skill and geographic mismatches between workers. That mismatch is a huge problem. In fact, Manpower’s annual talent shortage survey reported that, “52 percent of U.S. employers are experiencing difficulty filling mission-critical positions within their organizations, up from 14 percent in 2010. The number of employers struggling to fill positions is at an all-time survey high despite an unemployment rate that has diminished only marginally during the last year. U.S. employers are struggling to find available talent more than their global counterparts, one in three of whom are having difficulty filling positions.”

The hardest jobs to fill in 2011, according to survey respondents, were those in the skilled trades. IT staff, engineers, teachers, management/executives, and secretaries/administrative assistants.

At this point in the U.S. – two full years from the point when economists said the recession ended – and especially for those in the economic development field, none of this is terribly surprising news. Firms can’t find the right kind of workers? There is a shortage of skilled trades workers? The U.S. can’t (or won’t) keep up with the things that spur job creation? Our innovation is lagging? We’re losing the globalization game? Tell me something I don’t know!

To attack these far-reaching challenges, both MGI’s report and our CEO’s recommended reading Make It In America push for a national industrial agenda to align these resources rather than frustrating our productivity as a nation over mismatched components – the wrong people in the wrong jobs. MGI recommends four key areas of progress in order to revive job creation in the U.S.:
  • SKILL: Ensure that the workforce acquires skills needed for the jobs that will be in demand
  • SHARE: Find ways for U.S. workers to win “share” in the global economy through foreign investment and exports
  • SPARK: Encourage innovation, new business creation, and the scaling up of U.S. industries
  • SPEED: Remove unnecessary impediments (e.g. regulations) that slow business investment and job creation.
Additionally, Manpower encourages employers to create a holistic workforce strategy to build their own talent in the face of specific skill scarcity.

The key themes of coordination and comprehensiveness are what we need to embrace as the post-recession national economy attempts to heave forward. We already know what the problems and setbacks are. Many of Market Street’s client communities are taking on holistic strategies that stretch their economic and business development organizations far beyond their traditional missions of recruitment and marketing. The Greater Austin Chamber of Commerce's Technology Partnership is a great example of applied collaboration for the purpose of innovation-driven job creation.

Unfortunately, we probably will not see in the immediate future (as desperately as the U.S. needs it right away) an effective national agenda that coordinates skill development, job creation, innovation, building and exporting manufactured goods, and productivity, but the local and regional applications of these aligned components are what continue to build job demand and keep the country from stagnating and falling further behind globally.