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Where Have All the Jobs Gone?
By Mel Miller

In a recent blog I discussed the growing problem of student loan debt and the fact that recent college graduates’ unemployment rate is double the national average. As the economy continues its slow recovery from the Great Recession one must ask “Where are the jobs?”

Also bearing discovery is whether college graduates have received the skills required by employers. The political rhetoric always seems to focus on how to revive manufacturing jobs; rarely does one hear from a politician touting a service sector jobs program. Why?

President Obama in a January speech at North Carolina State University announced the establishment of a high-tech manufacturing institute with a goal of creating well-paying jobs. The President said it’s the kind of innovation that will reinvigorate the nation’s manufacturing economy. He wants to announce the creation of two more such institutes in the near future.

The President’s goal is laudable, but is it achievable? As reflected in the chart, the number of manufacturing jobs has changed little since 1939, while the number of service jobs has grown exponentially. Manufacturing now contributes less than 12% of GDP, down from nearly 30% in 1953. According to the Bureau of Labor Statistics, the number of manufacturing employees has declined from 16 million in 1953 to the current 12 million, while GDP has grown from $2.6 trillion to the current $17 trillion. How is this possible?

Manufacturers have invested in labor-saving equipment. More is being produced with fewer and fewer workers. Productivity gains (output per hour) have been far greater since 1980 in manufacturing than the remainder of the economy. Because manufacturing jobs are now more highly skilled—albeit fewer in number—many now require a college education.

Gone are the days a high school education was the ticket to a well-paying manufacturing job. There is a steel rod and wire manufacturer in Illinois that at one point employed several hundred workers. Now the rolls of steel enter one end of the plant and pallets of steel rods or wire exit at the other end, with only three workers involved monitoring the robotic equipment.

If the purpose of the President’s high tech manufacturing institutes is to make sure the three workers in the referenced example have the required skill set, that’s all well and good; but to assume thousands of manufacturing jobs will be the result is rather naïve. Low-skilled, low-paying manufacturing jobs have been taken over by developing countries. The jobs are gone and most of them are not coming back—not even with high volumes of relatively cheap natural gas produced in the U.S. I wonder if a more productive effort might be to stimulate service jobs…

But I worry (a natural hobby of economists) about the impact of expanding automation in the service sector. According to a recent article in The Economist, one hundred years ago the farm sector employed one in three Americans. Today, less than 2% of the workforce produces far more food. No high-tech farm institutes will bring back those jobs—nor should they.

Technological revolutions, in the long run, prove beneficial to society; yet in the short run, the job dislocations are gut-wrenching. The service sector is vulnerable to a technological revolution. In the past, the tech revolution focused on routine task jobs, but the rapid rise in processing power now puts non-routine jobs (service jobs) at risk. Computers today can mimic human thought. A recent Oxford University study stated that 47% of today’s jobs could be automated in the next two decades. As a society, should we not look for answers now?

I question whether colleges are meeting the needs of employers since the unemployment rate of recent college graduates is double the national average. Maybe the “solution” is to create high-tech institutes involving educators, employers, and the public sector to develop a strategy to deal with the coming service sector technological revolution, rather than attempting to revive manufacturing.

 

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Posted: March 10, 2014