The US GDP is growing too slowly to create enough jobs to tame 9.1 percent unemployment. New business formations have traditionally been a major source of job creation, but since 2007 formations have been 20% below normal or 1.8 million jobs short of normal pace. McKinsey estimates 21 million jobs need to be created by 2020 for the economy to return to an optimistic scenario of 5% unemployment. They regard a 7% scenario as more plausible for 2020. Even in the optimistic scenario, 6 million lacking a high school diploma will be unemployed.
Prior to the mid-1980s, restoring employment to a pre-recession level took 6 months, but this time it will take 60 months. We welcome gains in jobs, but they are a Potemkin village if they cost the taxpayer $278,000 apiece. Realistically, we should focus on crafting medium and longer term plans. Consumer spending is and is likely to remain limp. Government spending is in political deadlock due to our mountain of national debt – whose interest payments could crush us or force us into radical inflation. If you hear glib speeches on easy fixes to our jobs shortage, don’t believe them. Only Washington talking points are reliably shovel-ready. The most plausible catalysts for a jobs recovery are US exports and business investment, including business formation.
In the exports market, products from low-skill workers are uncompetitive due to our comparatively high wage rates. To succeed in the medium and long term, McKinsey believes we will require more graduates with high demand skills, finding ways to win in international competition, innovation and scaling up of company size, and removing regulatory impediments to investment and job creation.
Refocusing US education to equip students for success in international commerce will take a generation or more. Removing regulatory impediments could be done quickly if fostering investment and meaningful jobs is a serious priority. US prowess in innovation is strong, but other nations are improving. Building sustainable advantages for winning in international commerce is challenging as those advantages will need to evolve.
We have the talent, the resources, and certainly the need to take this on. Progress will pay off gradually through desirable employment in both large and small businesses. What we lack is leadership determined to make it happen.
Alan Daley is a retired businessman living in Florida. He follows public policy from the consumer’s perspective.