After falling slowly for several months, the U.S. unemployment rate ticked back up over 9 percent in May. Only 54,000 new jobs were created last month, many fewer than had been predicted. At the same time, the stock market is almost back to its pre-2008 levels, and corporate profits are mostly robust. Why does job growth remain stagnant while corporations continue to grow? Can we ever bring jobs back to the U.S. economy—and if so, how?
Bhaskar Chakravorti has some answers. The senior associate dean for international business and finance at the Fletcher School and executive director of its International Business Center and Center for Emerging Market Enterprises, he has advised more than 30 Fortune 500 companies, as well as policymakers, investors and entrepreneurs. Prior to coming to Tufts, Chakravorti was a partner at McKinsey & Co., based in the international management consulting firm’s Boston office.
Tufts Now: For the past year, the economy has shown signs of recovery, with corporate profits growing and the stock market making a comeback. Why hasn’t job growth matched those gains?
Essentially, companies get back on the path to profitability when they see an uptick in demand, and they start running factories or offering services again. But going through a wrenching recession like the one we have just experienced, they have become much sharper about how to do more with less. They have learned how to get more productivity by keeping the employment level the same or even reducing it.
Is part of this “offshoring” jobs to other countries?
The second thing American businesses learned about surviving an economic crisis was how to reduce costs—and a big part of reducing costs is to take jobs that are moveable and place them where wages are lower. There are many reasons for cost differentials between the U.S. and other parts of the world. In emerging or even yet-to-be emerging markets, wages, operating costs and corporate tax rates are much lower. So corporate leaders say, “Any job I can move without hurting the service delivery or the quality of the product, I will do that.”
So we can’t compete with these lower overseas costs and wages?
The actual percentage of jobs that have been offshored is still pretty small, but a crisis like the one we’ve had accelerates this process, so there is plenty of potential for more jobs to be offshored.
However, these global economic systems are highly fluid—jobs slosh back and forth. The slosh back element that leaves some room for hope is that wages are going up in the emerging markets that have been absorbing U.S. jobs. There is intense competition for highly skilled workers in China and India, for example.
Despite the talk of how the Chinese and the Indians are producing the best scientists and engineers, the number of them who are really employable is still pretty small. So wages for that sliver of talented workers in those countries are being driven up. And as their wages rise, American companies will start asking: “Should I go through the pain and suffering of dealing with an offshore workforce, or should I just bring them up to, say, Lewiston, Maine?” A number of call centers, for example, have moved back from India to Maine recently for this very reason.
What happened to the jobs in this country?
A big chunk of the job growth that we saw before the crash was borne on the back of the construction and the real estate industries, and those were the same industries that broke us. Now those jobs will not come back—we are overbuilt. So a lot of those skills have to be redeployed elsewhere, and that requires retraining and new industries to open up—and a lot of that has not happened.
After other recessions, jobs recovered quickly. What is different now?
In other recessions as demand picked up, companies needed to get factories and service centers running again, and they went right back to the workforce to do that. New industries also started opening up. After the early 1980s economic downturn, the Internet economy started booming in the 1990s, and the information technology and telecommunications companies started absorbing a number of jobs. Then in 2001 we had a downturn, but there was the housing and real estate boom that picked up a lot of jobs.
Right now, we don’t know what the next industry will be that could absorb the surplus workforce. People today are talking about the next big thing being the green industry or health care. But both require new technologies, and that requires some reasonably strong, higher-order job skills. So it’s not as easy as just retooling the existing workforce. For people in their 30s, 40s and 50s, it is very hard to acquire the high-level skills required to, say, improve the productivity of a solar cell or do gene splicing. That’s the dilemma we are facing right now.
Is anyone finding a job these days?
There is a very high demand for people with certain kinds of skills. If you are a computer science or engineering major, you are going to get snapped up. So if we want true jobs and economic recovery, we must turn out more graduates with those hard skills. But the pipeline supplying highly skilled workers is broken, and that’s true in all of higher education, including technical colleges and community colleges, as well as high schools.
For example, I did a study on the health-care cluster in the Boston area. One of the huge vulnerabilities here is that we have great health-care institutions, but these require not just M.D.s, but also lab technicians and others who support all the operations. We don’t have enough people coming through the system with these skills. If we fixed this supply side, it would have a ripple effect. There would be more spending, because of more jobs and wages, and this could spark other businesses.
What else could government be doing?
Though many economists hold different views, I think the government can do a whole lot more, such as spending money on infrastructure. You can see how broken our roads and bridges and other public facilities are. So government investment in a number of industries definitely would help, and infrastructure is one of those industries. It is a labor-intensive sector, so it could recoup some of the jobs.
The flip side is that this would all be deficit spending, so of course you want to watch the amount of debt you are taking on. But this is not the time to limit investment in jobs when unemployment keeps hovering between 9 and 10 percent if you want real economic recovery.
Should the government subsidize emerging industries?
The government should subsidize certain industries that have the ability to create jobs. Right now, subsidies are primarily driven by where the political weight is—so it is primarily decided by pork barrel dynamics. But if agriculture subsidies were redirected to clean, green technologies, that could well change the job landscape. In the solar industry, for example, you need highly trained scientists who can work on new technology that can improve the productivity of solar cells, getting more energy from the same amount of sunlight. If the government does provide better subsidies for this industry, we will see a lot more solar installations, which are quite labor intensive and could be done by people with relatively light retraining. This same workforce could assemble and build the solar modules.
Is there a way to catalyze consumer spending, even with high unemployment?
The government can also help on the export front because exports are big drivers of jobs, and a number of other countries are much more proactive in accessing export markets. The U.S. government has not been as proactive as possible in managing and opening new export markets.
Would better controls on immigration open new jobs for Americans?
It is paradoxical. People worry about immigration and think that opening the borders is making it worse for American workers because immigrants are taking jobs. But it is a much more complex issue. In fact, for many companies, bringing in legal foreign workers has actually expanded business. Take the information technology outsourcing company Infosys. By bringing in foreign workers to work with clients here, they have created anywhere from three to four new jobs for each foreign worker.
Another myth is that jobs are lost when companies move to the Internet. Take movie rentals: Blockbuster shuts down while Netflix soars, so we worry about lost jobs. But according to some recent studies, for every job that is lost because of a business moving to the Internet, there are 2.4 new jobs produced, on average, because the Internet expands the volume of customers using any service.
So in the end, what are our best moves?
What the government can do is identify those sectors that have a multiplying effect on jobs and provide special incentives to them. Another thing would be for the government to reduce the amount of red tape now required for entrepreneurs to set up new businesses and then potentially fund entrepreneurs. These people are highly skilled and motivated. Many could be people laid off from the workforce who, with the right incentives, could establish their own businesses and then each give jobs to three more people.
Gail Bambrick can be reached at firstname.lastname@example.org.