This is the first in a three-part series, researched and written with co-author Natalie Pregibon, Director of P3 Intelligence at Concordia, about the U.S. economy, the job readiness of the country's labor force, and how public education could play a more effective role in addressing the skills gap that keeps existing jobs from being filled. Some of the data analyzed by Ms. Pregibon for this article can be found on the Concordia web site.
This first installment, "Where Have All the Jobs Gone?," addresses structural changes that occurred over more than five decades, leading to the status quo today, where unemployment remains stubbornly high yet millions of jobs go begging. The second installment--"Why Is There a Disconnect Between Available Jobs and Qualified Employees?"--will drill down into available data on the estimated 4 million jobs currently open but unfilled in the U.S., to examine how many and what types of jobs are directly attributable to a "skills gap" among potential candidates for these open positions. The third and final installment-- "What Role Should Apprenticeships, Vocational Education, and Similar Alternatives Play in Traditional K-12 Education?" -- will offer both short-term and long-term policy suggestions to remediate the disconnect between the qualifications employers currently seek in the marketplace and the skills high school and college graduates bring to the labor market.
It is impossible to develop any meaningful palliatives for improving the U.S. economy through a better alignment between public education and consumers of labor without first recognizing some basic facts about the structure of the U.S. economy in 2014. Since the 1960s, the U.S. economy began a fundamental shift from a manufacturing economy to one grounded in services. This is the first such significant shift in the U.S. economy since the transition from an agrarian-based economy to a manufacturing economy when, shortly after the Civil War, the number of manufacturing jobs in the U.S. for the first time exceeded the number of agricultural jobs. The factors underpinning structural shifts in the U.S. economy are many and complex. However, three factors have contributed substantially to this transformation: Mechanization; Globalization; and Transformational Technological Change.
Although it's arguably a subset or consequence of Transformational Technological Change, Mechanization is addressed separately here. Essentially, Mechanization is the process through which jobs that were previously performed by human beings are able to be performed more efficiently and at a lower unit-cost by one or more machines. This "Rise of the Machines" has had a stunning impact on the U.S. economy and the financial well-being of its workers.
It is widely acknowledged that the evolution of specialized jobs for which a college degree was not a prerequisite was the single, greatest factor in the rise of the middle class in the U.S. And that burgeoning middle-class is what drove our consumer economy for decades. Workers were able to develop the specialized skills in demand by U.S.-based manufacturers after being employed. This became the pathway to the American Dream for those without a college degree. The U.S. auto industry, also known simply as "Detroit," was by far the best example of how a worker with no more than a high school diploma could become part of what became the U.S. economy's single, greatest asset: A large and growing middle class.
Not surprisingly, then, the U.S. auto industry is also perhaps the best example of the negative impact of Mechanization on the U.S. economy, resulting in the loss of hundreds of thousands of jobs, primarily on factory floors. As Detroit started losing market-share to foreign competitors, many of those competitors shrewdly built new factories in the U.S., allowing them to sell cars that were made here, rather than continuing to build them abroad and ship them to America. Among other advantages, this reduced the transportation costs that had to be loaded into the sticker price for a new car with a foreign badge. Moreover, and perhaps more importantly, U.S.-based facilities also helped foreign car competitors overcome the biggest obstacle to selling non-U.S. badged cars here: They weren't "Made in America."
When foreign car companies arrived in the U.S., they brought with them highly mechanized assembly processes -- along with just-in-time inventory systems and other efficiencies (raising to prominence the previously little-known industry sector of "logistics") -- that required far fewer workers to produce the same number of units as Detroit's labor-intensive and aging production facilities, located primarily in Michigan, Ohio, and Indiana. These new foreign auto plants were heavily courted by southern states, including Alabama, Mississippi, South Carolina, and Tennessee, through a combination of very attractive tax incentive packages and right-to-work laws that allowed the foreign manufacturers much greater flexibility in hiring and managing the labor they needed.
Mechanization has had the most dramatic impact on the number of workers employed in the auto industry. While some employees are still needed to run machines, and it is still cheaper to complete some tasks through labor rather than invest in expensive new technologies, as technology inevitably becomes less expensive an increasing number of human jobs will be traded for machinery.
Mechanization also changed the nature of the human skill-sets required to run and maintain these new technologies. Prior to Mechanization, low-skilled workers would learn on the job and work their way into more skilled, and better-paid, positions. However, through Mechanization, machines have now divided manufacturing jobs into two categories: Low-skill and high-skill. The qualifications to secure high-skill positions transcend those of Detroit's traditional, assembly line workers. Furthermore, the skills gap between the two is great enough that "training up" a low-skilled worker is financially impractical. Through limiting the upward mobility of low-skilled workers, Mechanization also limits what was once one of the most-effective entrées into the American middle class.
Perhaps nothing has had a bigger impact on the U.S. labor market than having both supply and demand opened up to the global economy. Cheaper labor available in countries with much lower standards of living than in the U.S. has made it possible for corporations domiciled in the U.S. to produce ever cheaper goods abroad (both in terms of pricing and, at least in some cases, quality). The number of products, from apparel to durable goods, manufactured overseas but sold to U.S. consumers has steadily increased over the past fifty years. However, it is important to note that the percentage of foreign-made goods that make up total consumer spending in the U.S. is not as great as some might think; approximately 70 percent of total consumer spending is on domestically manufactured products.
To some extent, the presence of U.S.-domiciled companies has been reduced primarily to R&D, marketing, and management, with all other components in the production chain outsourced to foreign countries and companies. Even when assembly is completed in a U.S. facility, it oftentimes is accomplished using components produced elsewhere. And while there has been a movement afoot to bring some types of manufacturing, particularly high-tech production, back to the U.S., there are some industries, such as fabric and apparel, that will not likely return to the level of domestic output for which they were known half-way through the 20th Century.
Perhaps no one, U.S.-domiciled corporation better represents the Globalization factor than Apple and its relationship with foreign manufacturers, such as Foxconn Technology, a Taiwanese company with global operations. Foxconn assembles an estimated 40 percent of the world's consumer electronics because it can do so quickly and cheaply. Ironically, some aspects of this trend are counterintuitive to the Mechanization factor. At the Foxconn City facility in China, for example, the labor is so cheap relative to the product pricing in the U.S. that the Gorilla class for Apple's iPhones are made by hand, not by cutting-edge, high-tech machines.
Globalization has pushed low-skilled jobs out of the U.S. and into foreign countries. All manufacturing sectors have felt the squeeze except those at the high-end of the value-added chain. The U.S. continues to have the competitive advantage in high-skilled service jobs like finance and management but in the recent economic downturn, even this sector of the U.S. labor market has become constrained. The result is more high-skilled workers competing for fewer jobs and being forced to instead take lower-skilled (i.e. mid-level) jobs. This intense competition for available jobs works its way down to the low-skilled workers who already are dealing with a job shortage. Additionally, the demand for lower skilled jobs pushes wages down, further exacerbating the situation.
Transformational Technological Change
Whether it's facilitating communications, fostering transactional efficiencies or protecting vital systems from hackers, Transformational Technological Change has created hundreds of thousands of jobs in the U.S. with the broad adoption of new technologies by businesses and consumers alike. Workers not only need to have a certain level of technological savvy just to compete in some entry-level jobs in traditional industries -- such as demonstrating a facility with one or more types of business software like Microsoft Word or Excel -- but they must also be conversant in the fundamental technologies in which high-tech companies compete. It is almost inconceivable that someone could successfully pursue a career with Google without having a basic understanding of what it is Google does, and how. Contrast this with the auto industry, where a traditional auto worker didn't need to know how an internal combustion engine worked or how it made a car go, in order to get a well-paying job on the assembly line installing seats or doors.
A new consumer product is more likely to be a phone app or computer program than it is to be the hardware on which they are run. Network software and the security protocols necessary to protect those networks from being breached are just as important as the underlying business of the entities that rely upon the integrity of those systems. Social and business media platforms such as Google, Facebook, Twitter, LinkedIn, Instagram, and Flickr have created significant new channels through which products and services are marketed, reviewed, endorsed, and sold, as well as developed remarkably valuable mechanisms for collecting consumer preference and behavior data that is revolutionizing the way consumers buy an incredibly broad range of products. For example, in 2012, worldwide e-commerce sales topped $1 trillion for the first time.
Moreover, the top companies that have emerged as a result of technological advancements are fundamentally different than their predecessors. Today's companies do not require large workforces to be impactful. In the 1950s, General Motors was the world's largest corporation and employed 600,000 Americans; today a resurgent GM employs only 87,000 workers in the U.S., based on hourly and salaried U.S. workers (including subsidiaries). Contrast that with photo-sharing company, Instagram, which with only 13 employees was bought by another technology-driven company, Facebook, in 2012 for $1 billion. That is not to say that tech companies that start small don't develop into large corporations that employ thousands. Google has grown to more than 47,000 employees worldwide.
Just as new companies materialize on the crest of the tech revolution wave, older companies that do not adapt to our brave, new digital world tend to disappear. Consider Kodak, once a photography leader, which filed for bankruptcy in 2012 due to its inability to compete in the digital realm. Technology-driven companies require tech-savvy employees. Job seekers with tech-skills are increasingly in high demand, while those lacking such skills find it ever more difficult to secure meaningful and remunerative employment.
With the exception of professional services -- law, medicine, finance, and consulting -- where the know-how and basic mechanisms for the delivery of services have evolved much more slowly and methodically, the workforce in the U.S. has witnessed and been subject to what can best be described as a paradigm shift. The magnitude of this paradigm shift is akin, and perhaps eclipses in its long-term impact, the transformation of the U.S. economy from agrarian to manufacturing.
The question must then be asked: To what extent has public education kept pace with the changing requirements of the U.S. labor force in order for the population to be gainfully employed in a variety of these 21st-century pursuits?
In order to answer that question, one must first parse out what percentage of the 4 million available but unfilled jobs in the U.S. remain open as the direct result of a mismatch between required job qualifications and workers' skills. This will be the subject of the second installment in this series, "Public Education and Job Readiness: Why Is There a Disconnect Between Available Jobs and Qualified Employees?"