Capitalism and Western Civilization: Jobs

William H. Young

A lopsided mismatch of jobs and workers in America has worsened, to open the twenty-first century. The rising demand for high-skill technical workers has not been met by our education system, impeding job creation for lower-skill workers as well. Simultaneously, demand for middle-skill workers is declining, reducing their employment prospects without significant re-training. Job growth is now principally in less-productive sectors of the economy and small businesses.

Let’s consider some overall perspectives about jobs using data from the U. S. Bureau of Labor Statistics (BLS) and others as cited below. First, “in a typical year, about one-third or more of the work force turns over, leaving old jobs to take new ones,” as Stanford’s Edward P. Lazear explains (The Wall Street Journal, May 16, 2011). When the labor market “creates” 200,000 jobs, “it is because five million are hired and 4.8 million are separated.” 

Today, total nonfarm payroll employment is around 132 million—about the same as it was in 2001. Until recently, job growth after the recession largely resulted from a decline in the number of workers laid off. Most new jobs have been part time openings.

Between 1982 and 2000, the Civilian Employment‒Population Ratio increased from 58.5 percent to 64.6 percent. Since 2001, the ratio has fallen back to 58.5 percent. The difference is about 15 million idle working-age men and women who could be employed—and contributing to economic growth—but aren’t. This includes an increasing number of those who are, or are becoming, unemployable.

City College of New York historian Judith Stein (“Where Have All the Jobs Gone?Dissent, June 9, 2011) analyzed the nation’s job growth over the past twenty years in what are called the “tradable” and “non-tradable” sectors of the economy. The tradable sector consists of the goods and services (autos, computers) that can be produced in one country and consumed in another; that sector is subject to fierce international competition. In the non-tradable sector (construction, health care, education, government) production and consumption occur in the same country; that sector is immune from international competition. “Between 1990 and 2008, the economy added 27.3 million jobs….But 26.7 million of those jobs were in the non-tradable sector.”

Michael J. Mandel adds (“A Lost Decade for Jobs,” Economist’s View, June 23, 2009) that between 1999 and 2009, about 7 million jobs were added in health care, education, and government while more than 3 million jobs (net) were lost in the rest of the private sector economy (including 5.8 million lost in manufacturing).

David Wessel explains (The Wall Street Journal , April 19, 2011) that

U. S. multinational corporations…that employ a fifth of all American workers, have been hiring abroad while cutting back at home….The companies cut their work forces in the U. S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million….That’s a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U. S. and 2.7 million abroad.” “Jobs at multinationals…sustained the American middle class.”

But “the U. S. may be losing its appeal as a place for big companies to invest and hire.”

Since 2001, employment at small businesses (fewer than 50 workers) has grown by 6.5 percent to nearly 50 million workers. Employment at medium-size (50 to 500 workers) and large-size firms meanwhile has declined, reports Kelly Evans (The Wall Street Journal, November 8, 2011). Large firms now employ only about 17.5 million workers, down from nearly 21 million a decade ago.

Present and looming benefit costs for American workers help drive employment overseas and chill small business hiring. In September 2011, health care benefits for private sector employees averaged 15.7 percent of total compensation. Other fringe benefits brought total benefits to 29.5 percent of compensation. More-generous large-corporation (and college, government, and union) benefits set the bar high for America.

In recent decades, wage and employment growth have both been lowest at the middle segment of the skill distribution, notes Arnold Kling (“What If Middle-Class Jobs Disappear?The American, November 3, 2011). Wage improvements have tended to be concentrated at the high end, and employment gains have tended to be largest at the low end of the skill distribution. MIT economist David Autor calls this the “hollowing out” of middle-grade jobs, resulting in the bipolarization of the labor market between good jobs and commoditized ones (“Winners and losers,” The Economist, September 10, 2011).

According to Joseph Manyika et al, the McKinsey Global Institute (Growth and Renewal in the United States, February 2011), even before the recession, “America was on track for its worst decade for job creation in at least half a century….Now a wave of labor arbitrage and the substitution of technology for humans are wiping out many routine white-collar jobs in rich countries.”

“Indeed, what is most striking when you talk to employers today is how many of them have used the pressure of the recession to become even more productive by deploying automation technologies, software, outsourcing, robotics—anything they can use to make better products with reduced head count and health care and pension liabilities,” comments Thomas L. Friedman (The New York Times, July 12, 2011). “They are all looking for the same kind of people…who…have the critical thinking skills to do the value-adding jobs that technology can’t.”

George Mason economist Tyler Cowen argues, in The Great Stagnation (2011), that while earlier inventions such as the automobile and electricity produced millions of jobs, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity.

In fact, annual new job creation from entrepreneurial startup corporations has fallen by 2 million (about half) since 2000, notes John Bussey (The Wall Street Journal, August 12, 2011). And such corporations, in what former Intel CEO Andy Grove calls (“How America Can Create Jobs,” Business Week, July 1, 2010) the “scaling process” of new inventions, are opening factories for initial production in foreign countries because of the lack of American engineers and other workers with critical technical skills.

Shedding new light from the Census on that trend, “the share of American workers in the science and engineering professions fell slightly in the past decade, ending what had been a steady upward trend in the proportion of workers in fields associated with technological innovation and economic growth,” report Conor Dougherty and Rob Barry (The Wall Street Journal, February 17, 2012). The share of these technical workers fell to 4.9 percent of the labor force in 2010, down from a peak of 5.3 percent in 2000—the first such decline since 1950.

Since the publication of A Nation at Risk (1983), we have had nearly thirty years of grandiose rhetoric about the urgency of reforming the broken U. S. education system. But performance continues to deteriorate. Neither secondary nor college education nor hundreds of government training programs over decades have yielded workers with the knowledge to keep pace with technology and job requirements. Ironically, we have instead become rich with “diversity”—of unemployables.

Our political and business elites must at long last remake our education system so that it produces graduates with the skills needed to fill the technologically focused jobs in the twenty-first-century global economy. Moreover, those elites need to reform a regulatory system that attaches cost burdens to prospective workers that make them non-competitive in an era where small businesses are creating most new private sector jobs. Finally, they will need to address the problem of what to do with a new class of unemployables. If they don’t, the nation will not long thrive.

Within academia, a politically-correct curriculum is failing to help our people satisfy their fundamental need to engage in remunerative work. Addressing that need, along with the accompanying liberal education that NAS seeks, should become a priority goal of the academy.

Next week’s article will examine how laws and regulations affect jobs and the economy.

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This is one of a series of occasional articles applying the lessons of Western civilization to contemporary issues relevant to the academy.

The Honorable William H. Young was appointed by President George H. W. Bush to be Assistant Secretary for Nuclear Energy and served in that position from November 1989 to January 1993. He is the author of Ordering America: Fulfilling the Ideals of Western Civilization (2010) and Centering America: Resurrecting the Local Progressive Ideal (2002).

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