Only 63.2% Of Americans In the Work Force, Lowest Figure Since 1978 – Fed Policies Cannot Change This Trend Due to automation, we have manufacturing growth without adding jobs. Most new opening are in sectors requiring low skills

By Paolo von Schirach

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September 8, 2013

WASHINGTON – Lacking any significant public policy initiative focusing on the never healed US economy, most analysts have become Fed watchers. The only game in town is guessing if and when the Fed will phase out QE3, (quantitative easing), and if so, how fast and what it will mean. Such a move will have an impact on interest rates. In fact,  belief that the Fed will soon stop the easing program as US employment slowly trends down has already caused long-term interest rate to go up.

 Fewer Americans are working

Still, whatever action the Fed will undertake on QE3, the most recent employment data underscore a negative historic trend; and I am not sure that Ben Bernanke and his Fed colleagues sitting in the policy making Federal Open Market Committee, (FOMC),  can reverse it just by manipulating interest rates. 

Simply stated, while unemployment is going down (we are at 7.3%) and more jobs have been created in August, (plus 169,000), the broader trend shows that fewer and fewer Americans are now in the work force. Even worse, fewer and fewer young adults have a job.

Indeed, the percentage of Americans now employed is the lowest it has been since 1978, when Jimmy Carter was in the White House, and far fewer women were in the labor market. Furthermore, looking at the data, we see that the percentage of Americans aged 16 to 24 now working is only 54.8%, down from almost 70% in the 1970s.

Young people without a job

Sure enough, there may be fewer young people in the work force today because more of them are in college. Still, many analysts conclude that this huge drop indicates that far too many young Americans cannot find a job. And the longer they are out of work, the harder for them to find employment in the future.

Likewise, it is clear now that the lower unemployment numbers (we are down to 7.3%) are deceptive,  because the drop is largely due to people who simply stopped looking for work and therefore are no longer counted. Add to this picture the large number of workers who have accepted part-time jobs while seeking full-time positions and we get a rather sad outlook.

People out of the job market

So, here is the future, for a large number of unskilled or semi-skilled  Americans. We have a large army of unemployable people, young and old, while many if not most openings are in low skills, low wage sectors. In simple language, for millions of Americans there is no longer an open road leading to the American Dream. No upward mobility. No career ladder. No comfortable, middle class life style.

Can the Fed, all by itself, change  any of this? I doubt it. Low interest rates may help stimulate economic activities; but they cannot become a substitute for fundamentals.

Well, if so, what is missing in America?

Jobs killed by globalization and automation

No easy answer. Still, I see at least two trends, both of them negative. The first one is a combination of the impact of globalization and automation. The net outcome is loss of employment due to the migration of jobs to low wage countries, (globalization), combined with employment lost due to increased deployment of computer controlled machines and more sophisticated and more affordable robots, (automation). In other words, especially in manufacturing, you lose your job because it went to China, or because a robot now can do what you used to do.

Inadequate public education

The second trend is the lowering of education standards in America, right when we would need a powerful national surge to boost the reach and the quality of public education. Indeed, precisely because everything is becoming more and more high-tech, whatever good jobs opening there will be in the immediate and long-term future, they do and will require sophisticated expertise. And there is no way to land one of them without command of math and science, and therefore the skills necessary to master complicated programs and state of the art computerized machines.

The automation trend is ongoing and unstoppable. As a result, while we may see a stronger US manufacturing sector –and this is of course good news– do not expect employment growth as a result. Factories do and will employ fewer and fewer people, even as they experience higher demand. In fact, in the not so distant future we shall have completely automated factories, with no workers.

Combine this historic trend with localized production thanks to 3 D printing (see link above to a related piece) and other innovation, and we can start predicting the eventual disappearance of factory jobs. Hard to say how long it will take, but we are headed that way.

Of course, we could do a lot more about improving public education, and indeed there are many initiatives. But it seems that we are still way behind, without any real sense of urgency backing new undertakings. Lacking significant progress in this crucial area of “human capital build up”, millions of young (and poorly educated) Americans will be left behind and unable to catch up in this fast-moving world.

The future belongs to the super skilled

Education is indeed most critical. Looking ahead, it is clear that the only way to get a piece of the future is to be highly skilled —in fact, make that super skilled.  The future belongs to the smart innovators, to those who will create new things, new services or new processes, and many others who will support these efforts.

The others will get the scraps. Sure, we can imagine that even in the future there will be a need for janitors, nursing home staff, store clerks and landscape workers. But those will be, as they are today, mostly dead-end jobs.




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