Can U.S. Economic Growth Be Speeded Up? II. A Major Roadblock

 

In my last post, “Can U.S. Economic Growth Be Speeded Up?”  I pointed out that:

  • GDP growth has averaged just 2% since the end of the Great Recession in May 2009.
  • The Federal Reserve has taken unprecedented steps to keep interest rates low in the meantime but these efforts aren’t boosting GDP and, in addition, have quite harmful side effects.
  • Wages are growing and consumers are spending money but business investment is shrinking and productivity growth is slowing.
  • This means that the problem is supply side rather than demand side, contrary to what many economists are saying.

At least part of the problem is a lack of skilled workers. Two articles in today’s Wall Street Journal, here and here point out that:

  • America is now home to a vast army of jobless men, seven million of them age 25 to 54, who are no longer even looking for work. This is 15.6% of the traditional prime of working life.
  • Openings for manufacturing jobs this year have averaged 353,000 per month up from 311,000 per month in 2015 and 121,000 per month in 2009.
  • According to the Manufacturing Institute, 8 in 10 manufacturing executives say that the growing skills gap will affect their ability to keep up with customer demand.Capture39
  • As shown in the above chart, at the present time there are only an average of two unemployed manufacturing workers for each job opening, way down from the level in 2010.

Conclusion. Speeding up economic growth requires new business investment in order to increase worker productivity. But a lack of skilled and trained workers will greatly hamper this effort.  The solution here is better vocational and career training in high schools and at community colleges.

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How to Restore Manufacturing in America

The former CEO of Nucor Steel Company, Dan DiMicco, has written a book, “American Made: why making things will return us to greatness” describing why and how U.S. manufacturing dominance has shrunk in the past 50 years and how it can be restored.  Nucor is the largest American steel company and has never laid off an employee in its 42 years in existence, even during the recent recession.
CaptureHere is Mr. DiMicco’s prescription for a return to industrial greatness:

  • Build public-private partnerships to restore the manufacturing base. For example, only $60 billion out of the $765 billion stimulus bill in 2009 was devoted to infrastructure spending.  As another example, the corporate income tax rate should be significantly lowered.
  • Level the playing field in international trade. When Germany and Japan built up huge trade surpluses in the 1970s and 1980s, the Reagan Administration responded with the Plaza Accord in 1985 outlawing foreign currency manipulation. Since then China especially has adopted a strongly mercantilist trading policy, subsidizing key industries, exporting as much as possible and importing as little as possible. No president since Reagan has insisted on equitable rule-based trade agreements where the rules are enforced.  This would help immensely.
  • Rebuild the nation’s infrastructure. Mr. DiMicco would be willing to increase deficit spending for such needs as highways, bridges, fiber-optic lines, mobile networks, and urban wastewater systems.
  • Develop our energy resources. Go all out on natural gas production by fracking. This will lower our carbon footprint and has the potential to make us completely energy independent, thereby greatly reducing our trade deficit.
  • The skills gap myth. It would help if the U.S. had better career education for high school students unlikely to go to college. But Nucor sponsors cooperative training programs at all of its locations and has no trouble finding workers.

A strong revival of U.S. manufacturing has the potential to create 30 million new jobs and thereby revitalize the American middle class.  Mr. DiMicco’s prescription makes a lot of sense.

A Global Perspective on Income Inequality II. Where Are the Jobs?

 

My last post on January 23 shows vividly what the challenges are in restoring the American middle class to the prosperity which existed up until the Great Recession hit in late 2007.  The problem, of course, is the gale strength force of globalization which is lifting up low wage workers all over the developing world and creating huge competition for the many low-skilled workers in the United States.
In today’s New York Times, the former Obama Administration car czar, Steven Rattner, writes about “The Myth of Industrial Rebound” in the United States, explaining why manufacturing jobs are coming back much more slowly than other jobs.  “Manufacturing would benefit from the same reforms that would help the broader economy: restructuring of our loophole-ridden corporate tax code, new policies to bring in skilled immigrants, added spending on infrastructure and, yes, more trade agreements to encourage foreign direct investment.”
CaptureThe above chart shows the huge decline in manufacturing jobs relative to other parts of the economy such as the education and health sector as well as the professional and business sector.  Of course, these more rapidly growing service sectors are the ones benefitting from the information technology revolution.  In manufacturing, on the other hand, the low skill jobs are going overseas while the high skill jobs, using technology such as robots, are much fewer in number.
Conclusion: in order to increase manufacturing jobs in the U.S., we better government policies, as outlined above by Mr. Rattner.  But we also need to recognize that there aren’t going to be as many high skilled manufacturing jobs in the future.  We are going to need much better K-12 and post-secondary educational outcomes to prepare the middle class for the high skilled service jobs which will predominate in the future.

Many Skilled Jobs Are Going Begging in the U.S.

A few days ago the Omaha World Herald ran a story, ”Manufacturers Want More Young People to Consider a Job on the Factory Floor”, pointing out that there are almost 100,000 manufacturing jobs in Nebraska paying an average salary of $55,000 per year, many of which are unfilled because of a lack of qualified applicants.  Says Dwayne Probyn, Executive Director of the Nebraska Advanced Manufacturing Coalition, “Science, technology, engineering and math, that’s what we need.”
This is in fact a nationwide problem.  A few weeks ago the New York Times had an article, “Stubborn Skills Gap In America’s Work Force” reporting on a recent study by the Organization for Economic Cooperation and Development assessing literacy, math skills and problem solving using information technology, for people aged 16 – 65, in the 22 advanced nations of the O.E.C.D..  Eduardo Porter reports that while the U.S. is about average in literacy skills, it lags way behind in both math and problem solving skills.
One question addressed by Mr. Porter is the much larger wage premium for highly skilled U.S. workers over unskilled workers, than in most other O.E.C.D. countries.  Another question is “how can the U.S. remain such an innovative, comparatively agile economy if the supply of skilled workers is so poor?”  The suggested answer is troubling.  “The American economy rewards skill very well but the supply hasn’t responded.”
This situation is first of all an indictment of K-12 education in the U.S. which has a high school graduation rate of only 80% and also focuses too much on college preparation rather than career education.  These two problems are likely interrelated and at least partially explain the skills gap.
Another factor is immigration.  Right now the U.S. is still attracting more talented foreigners than other countries.  But it is risky to our economy to depend on foreign talent which can stay home as well as choosing to go elsewhere.  Immigration reform will help with this problem but improved K-12 education will help even more.