It's About Jobs

I live in Washington, DC so it’s easy to make things political. This town manages to do that with nearly everything. But this is not really about politics even though it may require politicians to truly have an impact. This is about jobs and the crisis that confronts us. A few points to consider:

This might take a while. Typically in the past the US economy would return to a normal employment outlook six months after a recession, but the McKinsey Global Institute estimates it will take five years this time around. With unemployment stubbornly hovering around 9% consumer demand is down, making job creation even more difficult.

Corporate America isn’t helping much. Michael Cembalest, chief investment officer at J.P. Morgan Chase, filed a report that indicates “US labor compensation is now at a 50-year low relative to both company sales and GDP.” Since 2000, company profit margins have increased from under 11% to almost 13% and Cembalest writes that “reductions in wages and benefits explain the majority of the net improvement in margins.” American companies produced $1.68 trillion in profit in the last quarter of 2010, yet hiring remains pitiful and wages stagnant or declining. Companies have seen the global light and run with it; emerging-market nations are producing 70 million new middle class workers and consumers each year. There is a clear connection to higher unemployment and lower wages at home. Nobel laureate Michael Spence conducted a study on job creation over the last two decades and found that American companies doing business globally added virtually nothing to American job growth. The US-centric firms that did the heavy lifting in terms of job creation – health care companies, government agencies, retailers and hotels – are hiring mostly in lower skill and wage positions. We have outsourced our skilled positions and it won’t be easy to get them back.

We are not a mobile society. The rate at which workers move for jobs has been cut in half over the past twenty years. There may be many reasons for this: the crash of the housing market has left many people unable to sell their homes and get out from under their mortgages, unemployed workers in the recession have depleted their savings to the point of being trapped geographically, and the rise of two wage-earner families makes it difficult to coordinate simultaneous job changes. By some estimates there are more than 3 million job openings today, but as opined Rana Foroohar in Time Magazine, “unemployed auto-workers in Michigan can’t sell their underwater homes and retool as machinists in North Dakota, where homes are cheaper and the unemployment rate is under 5%.” We may yet have many of the jobs people need, but how do we get the workers to the jobs?

We are losing our entrepreneurial foundations. The rate of new business creation has been dwindling for 30 years. The explosion of our economy’s financial sector has taken many innovators with it; there are less forward-thinkers trying to forge their own way at the risk of giving up well-paying corporate positions. Beyond that, credit remains exceptionally tight. How do you start a business without capital investment?

Okay, maybe this is political. My congressional neighbors in Washington, Democrats and Republicans alike, spend a good deal of time pointing up ideological differences and haggling over budget minutia. Surely we can all agree that jobs are central to our ability to thrive as a nation. We need to take steps to bring jobs back to the US, to create an environment that encourages investment and rewards innovation, to better educate our workforce for the types of jobs the global economy requires, to help increase the mobility of our citizens so they can go where the jobs are, and ensure that we are providing fair and growing wages to keep up with our ever-increasing cost of living. There are other countries, Germany in particular, that have faced similar circumstances to our own and are now thriving. Their blueprint may not be a perfect fit for the US, but surely there are valuable lessons to be learned. We’ve won world wars and put men on the moon – this should be well within our reach. It will take unprecedented cooperation between our political parties, as well as between our public and private sectors, but can there possibly be any more worthy goal at this point in our history?

Comment by Suresh on July 24, 2011 at 6:10am: Doug, some great points. The entrepreneurial spirit is the most worrying part. There are huge opportunities that are opening in the emerging world and american entrepreneurs (particularly) small and micro business need to be more globally oriented for exporting their products/services. The internet is a great tool that is underutilized in my opinion by most small biz. The concept has been the America is the center of the universe and people will come to us and that trend is slowly drifting away. If we need to do business globally, we will have to learn what works in these emerging and growth markets.

The pie in the corporate world has been shrinking (Auto industry) is a great example, so we need to create more pies and not just focus on getting a bigger piece of the exisiting shrinking pie.

Comment by Doug Munro on July 24, 2011 at 9:05am: Well said, Suresh. While the globalization of large corporations has been largely driven by profit margin (the pursuit of cheap labor being a prime motivator) and largely been a drag on employment here, the pursuit of a presence in global markets by small businesses could create significant employment opportunities here as well as help drive a new model that would generate growth in our overall GDP. Emerging markets have embraced this sort of model and we risk falling further behind if we don't ramp up ourselves. Unfortunately I fear that until credit becomes looser it will remain very difficult even for those with great ideas and drive to realize the sort of growth you speak of.

Comment by Rick Gilbert on July 25, 2011 at 5:28pm: Excellent synopsis of the current situation. How do we get Corporate America to invest some of that $1.68 Trillion here in the US and create some jobs. Corporate executives need to remember the dedicated employees that helped them compile all that cash. It sickens me to hear stories like Cisco, who has $44 billion in cash and is getting ready to lay-off 10,000 employees by the end of August 2011. The only explanation for this behavior is Greed!

Comment by Marlene Rogers on July 26, 2011 at 1:38am: Rick, you hit the nail on the head.....GREED! It is sad, when organizations are showing they are make huge profits, but refuse to create more jobs in the US with so many talented professionals that have been unemployed for the last 2+yrs. The funny thing is that organizations are putting all there eggs in one basket with the employee's that have been holding down the fort for the last 2+yrs , with no salary increases, no promotions, and working longer hours to fill the gap of those co-workers that were laid off. Now those are the same employee's that are looking to leave their current employers for better pay or career growth, only to see organizations not replacing those vacant positions, which is closing the job market even more.

The Government has given most companies tax incentives to help jump start the economy by creating jobs so unemployment goes down and people are getting back to work, but instead companies have outsources the jobs to other counties. The middle class has been the most hit during this recession, but yet, the one’s who end up paying off the debt.

The focus needs to be put back on getting people back to work. At the end of day, the middle class are the ones who will resume spend money, which will help jump start this economy once again.

Comment by Valentino Martinez on July 26, 2011 at 1:40am: Now, with the ending of the NASA Space Shuttle Flight Program thousands of aerospace workers will be laid-off. More importantly, the race for Research & Development supremacy in space travel is on and it will be headquartered in either Russia or China. Our budget deficit will delay any significant investment in NASA who will become less and less an attractive employer for youngsters who once aspired to be ASTRONAUTS, or affiliated with a dynamic Space Program. That career track will become less of a beacon as a career destination and more of flickering candle.

So it is about JOBS...In this case aerospace jobs in R&D, manufacturing and production. The aerospace industry, in years to come, may actually attract some of our bright minds but will it be indicative of not only losing jobs to foreign shores, but people talent as well? Sadly, there may come a day when the old boast that "We are the Greatest", will have to be specific and qualified as to what industries that term will actually apply to because when you abdicate from a leadership role in a high tech industry the reality of future Space Transport Vehicles will be produced and manufactured most likely outside of the USA.

Comment by Suresh on July 27, 2011 at 8:31am: Valentino, have to agree with your "We are the Greatest" cannot be applied in general terms. Its often misleading and does not help the kids have a true understanding what the competition is like.

I won't blame companies for creating jobs where the market is, lets face it, thats reality of doing business. What we need to focus is build on existing strengths in this country which comes to innovation - universities, research facilities and work on education. There needs to be a cultural change overall regarding COMPETITIVENESS Worldwide, not just the 50 states.

Comment by Doug Munro on July 27, 2011 at 2:05pm: Thanks to all for your input. Some excellent points. As the debt ceiling/budget debate rages on I increasingly fear that we may never truly invest in the necessary intellectual infrastructure to regain our competitive advantage. Large companies operate under the Jack Welch theory that the sole purpose of a business is to increase shareholder value, no matter the consequences or ethics of that philosophy. Small businesses are fighting an uphill funding battle that isn't likely to change in the near future. Politicians have neither the vision nor backbone to push for much-needed public investment in education and innovation. It's a dangerous brew and we are all going to drink of it.

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