Our Real Employment Challenge

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Think the problem is, there just aren't enough jobs? Think again.

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At a career fair in New York this past April, the line to get in stretched around the block. (Reuters)

How can the United States put more people back to work? The simple answer is to generate higher growth than we have seen so far in this recovery -- in the final analysis, only higher demand will convince employers to hire.

But even if GDP growth were more robust, the United States would still face an employment challenge -- one that all advanced economies face. Demand for high-skilled workers (those with college degrees or more education) is accelerating, while demand for low- and middle-skilled workers is falling. This is the result of technology and business-process improvements, which have automated or eliminated whole categories of low-skill jobs, while creating new careers for high-skilled workers. So, even as millions of low- and middle-skilled Americans have joined the long-term unemployed, employers say they are having increasing difficulty filling high-skilled jobs, particularly those that require technical expertise.

Solving the nation's most entrenched problems See full coverage

These trends point to a grim situation: There are too few workers with the skills to drive growth in a 21st-century knowledge economy, and swelling ranks of workers whose skills will not be in demand and who could therefore face long spells of unemployment and underemployment. For the long-term health of the US economy, employers and policy makers need to head off both forms of labor market imbalance.

Preventing a crippling lack of high-skill workers is relatively simple. Across advanced economies, there could be 18 million too few college graduates in 2020, but only 1.5 million of this gap would occur in the United States. China, Europe, and Japan all will face far larger gaps, because of aging and low birth rates; China could have 23 million fewer college graduates than it would need.

The United States is not so well-positioned when it comes to addressing the employment problems of less-educated workers. One way to do so would be to move people out of the low- and middle-skill categories (high school graduates and workers with some college or associate's degrees) into the high-skill group. But even after raising the college graduation rate enough to avoid the projected 2020 gap, there would still be more than 100 million Americans with associate's degrees or less, whose basic education may not give them skills that employers are likely to demand.

Not every American can go to college, but everyone should be able to acquire skills that make them employable. Germany does this through a high school vocational training system that is tightly integrated with industry. Students split time between classroom and work and graduate with the right skills and a job. These programs can be adapted for the United States. In fact, Germany's Siemens is working with a community college in Charlotte, N.C., to train workers in its turbine factory there. Delta Airlines and Snap-on Tools have partnered with community colleges to create curricula for reservations agents and auto mechanics who need to know how to use high-tech diagnostic and repair tools.

One of the biggest challenges will be finding jobs for mid-career workers whose skills may no longer be in demand or have eroded due to long-term unemployment. Again, Germany provides a possible model. Germany's unemployment system was redesigned in the 1990s to stress training and job placement, rather than simply providing benefits. Germany also encourages employers to hire the long-term unemployed by paying up to half of their wages for up to two years.

Displaced American workers can also benefit from credentialing. Workers who have accumulated skills on the job, but who lack formal training or education, have trouble "signaling" their value in the labor market. Through a voluntary credentialing system, workers can be certified in specific jobs -- for example, managing accounts receivable -- so they can transfer their skills to a new employer.

To reach full employment, we must also tackle the demand side of the equation. The first step is to make sure that businesses have every opportunity to create jobs when they see a chance to grow. The United States remains relatively business-friendly, but many processes, such as getting permits for new plants, are overly complex and time-consuming, involving multiple agencies and layers of government. Multinationals want to be here -- we still have the largest consumer market in the world. We can make it far easier for them to expand here, including by creating one-stop processes for getting approvals and permits.

The United States can also help create jobs by making it easier for foreign tourists to visit. Leisure and hospitality industries are particularly good at employing the least skilled workers in the economy. The United States remains a top destination for global tourists but has lost share because of post-9/11 restrictions and visa policies, which often affect citizens of the fastest-growing consumer markets (e.g. Asia). Relatively simple fixes could help bring back global tourism.

Finally, there is no substitute for innovation. The United States must continue to invest in the research and development that leads to new industries -- both through support for basic research and through R&D incentives for business. Entrepreneurs also need access to funding to turn ideas into products, services, and companies. Then, we can do a better job of making sure that innovations that are created in the United States turn into U.S. jobs. This may not mean thousands of positions on the factory floor, where we will continue to see many new machines and fewer people. However, as new McKinsey Global Institute research shows, manufacturing includes a growing number of service jobs, both within manufacturing companies and in their supply chains.

Our jobs challenge is complex and it has been building for many years. The solutions will need to be multi-faceted and enduring -- and flexible, too. In a dynamic global economy, skill requirements will change rapidly, so education and training systems will need to be adaptable. Most important, the United States needs a clear, consistent focus on jobs that will enable us to deal with both the wrenching effects of recessions, but also with the reality of an evolving global labor market that will involve new ways of working and skills that we can't even predict today.

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Lenny T. Mendonca

Lenny Mendonca is a director in the Washington, D.C., and San Francisco offices of McKinsey & Company, a global management consulting firm. More

He currently leads McKinsey’s U.S. state and local public-sector practice, and previously led its knowledge development efforts, overseeing the McKinsey Global Institute and the Firm's communications. His client work focuses on service to public-sector organizations. 

Mendonca is the chairman emeritus of the Bay Area Council and the Economic Institute of the Bay Area, and was vice-chair of the Stanford Graduate School of Business Advisory Council. He is a member of the Council on Foreign Relations and the founder and chairman of Fuse Corps, a program placing entrepreneurs in public sector fellowships; he holds a B.A. from Harvard and an MBA and a certificate in public management from Stanford; and he lives on the Half Moon Bay coast, south of San Francisco, with his wife and two daughters, where he is the founder and owner of the Half Moon Bay Brewing Company.

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