Creating Jobs in America, Part 1

Stephen DeAngelis

September 22, 2011

In June, two members of the President’s Jobs and Competitiveness Council, Jeffrey Immelt, the Council’s Chairman as well as the chairman and CEO of General Electric, and Kenneth Chenault, the CEO of American Express Co., wrote an op-ed piece explaining what the Council is doing to try and generate jobs. [“How We’re Meeting the Job Creation Challenge,” Wall Street Journal, 13 June 2011] They stated the obvious when they wrote that “the inescapable truth is that we have a persistent jobs challenge that demands an aggressive response.” The Council, which includes 26 private-sector leaders, was established to develop “ideas that will accelerate job growth and improve America’s competitiveness.” The June op-ed piece was the Council’s “initial ‘progress report’ to the president.” It included “a series of steps” that Council members believe “can help spur hiring in the short term in areas like construction, manufacturing, health care and tourism.” Immelt and Chenault admitted that the challenges are daunting and the solutions difficult. They wrote:

“No single idea, however well-conceived, will solve our nation’s employment challenge. So we’re taking a comprehensive approach with eight teams focused on specific areas such as skills and training, regulatory reform, and innovation. We analyzed which actions are critical to accelerating job growth in high-potential sectors, while also addressing areas of concentrated unemployment.”

Immelt and Chenault reported that the Council recommended five “fast-action” steps to the President, that they believe “can support the creation of more than one million jobs within these industries.” The step involves training:

“• Train workers for today’s open jobs. There are more than two million open jobs in the U.S., in part because employers can’t find workers with the advanced manufacturing skills they need. The private sector must quickly form partnerships with community colleges, vocational schools and others to match career training with real-world hiring needs.”

Senators Mary L. Landrieu (D-LA) and Patty Murray, (D-WA), claim that in the months since Immelt and Chenault published their op-ed piece available job openings have increased to 3 million. They ask, “With so many Americans out of work, what is the delay?” [“How to Close the Skills Gap,” Wall Street Journal, 10 August 2011. They continue:

“Workers want to work, and so many businesses want to hire—but there is a widening ‘skills gap’ that prevents many Americans from filling the jobs of the 21st century economy. If we want to get our economy back on track and get workers back on the job, we will have to address this issue in a better way. … We believe that the skills gap is a consequence of our failure to seriously invest in the education of America’s work force. Without an educated pool of workers from which to hire, small businesses are bearing the financial burden of teaching these skills. John Russo, the president of Scientific Analytical Solutions in North Kingston, R.I., recently talked to the AP about the problem his small business faces: ‘It’s very difficult to find the right person, and there’s all walks of life trying to find jobs. I honestly think there’s a large swath of unemployable. They don’t have any skills at all.’ The Small Business Administration (SBA) hears the same sentiments from those on the front lines in its field offices across the country. At a recent roundtable organized by the Senate Small Business Entrepreneurship Committee, SBA district directors repeatedly cited the alarming, widening skills gap in the nation as preventing small businesses from expanding.”

Even though business leaders and politicians agree that a skills gap is keeping workers from getting hired, they can’t agree on what to do about it. The Senators offer their recommendations:

“Closing this skills gap needs to be a top priority. A critical first step: reauthorizing and reforming the Workforce Investment Act, our nation’s foundational federal work-force development policy. We also need to expand innovative approaches that have produced results, such as career pathways programs that provide labor-market information to students and job seekers about in-demand jobs, and the skills and education necessary to get them. Other important elements of tackling this problem include integrating education and work-based learning, and supporting strategies that allow learners to work while receiving training (also known as ‘earn and learn’ strategies). We should also support public–private partnerships that draw on the expertise of successful members of the business community to help provide assistance and job-preparation advice to our work force. Building a bigger and more highly skilled work force will help our small businesses step up to global competition. There’s no excuse to delay getting to work on the problem any longer.”

Their recommendations would have had greater impact had they been bipartisan; but, finding politicians willing to work with the other party is a tougher challenge than dealing with unemployment. Training is certainly critical, but, as Immelt and Chenault imply, it must targeted geographically. In a bad economy, many workers aren’t free to move to locations that have job openings. So training an unskilled worker in Mississippi to fill a job opening in North Dakota isn’t going to work. That means that the best way to fill those two or three million job openings is to train workers who already live in the area where openings exist. Immelt, Chenault, and the Senators agree that such training should involve public/private partnerships since both sectors benefit. The public sector reduces its welfare rolls and increases its tax rolls while the private sector gains the workers it needs to foster growth and increase profits. The Council’s next recommendation involves government permits.

“• Streamline permitting. Cut red tape so job-creating construction and infrastructure projects can move forward. The administration can take a few simple steps to streamline the process of obtaining permits, without undercutting the protections that our regulatory system provides.”

Promoting infrastructure construction was one of the main thrusts of the President’s recent jobs speech. The President “seeks $50 billion to invest in highways, transit, rail and aviation, including upgrading U.S. airports and supporting Nextgen Air Traffic modernization. Mark Zandi, chief economist at Moody’s Analytics, said the spending increases have a ‘large bang for the buck’ when there are so many unemployed construction workers.” [“Factbox: Key elements of Obama’s $447 billion jobs plan,” by Alister Bull, Jeff Mason, Laura MacInnis and Caren Bohan, Reuters, 9 September 2011] The Council’s next recommendation deals with tourism.

“• Boost jobs in travel and tourism. This industry is one of America’s largest employers, but the U.S. has lost significant market share. By making it easier to visit the U.S. through improved visa processes, we can win back market share in travel and tourism and create hundreds of thousands of jobs.”

The U.S. isn’t the only economy in the doldrums. With money tight around the world, the tourism sector is unlikely to offer significant relief to the unemployment rate. Not only that, but many of the jobs in that sector are minimum wage positions that come with few benefits. You can’t rebuild the economy on those kinds of jobs. The Council’s next recommendation deals with small business credit.

“• Facilitate small-business loans. Help small-business owners obtain the information and support they need to access Small Business Administration funding. At Jobs Council town halls in Dayton and Minneapolis, small-business owners expressed frustration about the challenges in obtaining financing and assistance. We must move quickly to allow easier access to SBA funding. SBA Administrator Karen Mills is already tackling this challenge, and the administration should accelerate and prioritize these efforts.”

The news has not been good on the small business front. According to recent reports, “The ranks of self-employed Americans are shrinking. In August, 14.5 million people were self-employed, down 2.1 million from the most recent peak in December 2006, according to Bureau of Labor Statistics data.” [“Fewer people choose to be self-employed,” by Laura Petrecca, USA Today, 7 September 2011] Lack of access to business loans has certainly played a role in this troubling trend. Professor Scott Shane, a professor of economics at Case Western Reserve University, agrees that more attention should be given to small businesses; especially those that are already established. “If we want to create a lot of jobs,” he writes, “it … make[s] more sense to get existing small businesses—across all industries—to return to hiring [than it does to expend money on technology start-ups]. [“To Create More Jobs, Go Where the Jobs Are,” Wall Street Journal, 13 June 2011] He bolsters his case by reporting, “Census researchers figure the private sector generated 14 million-plus positions from March 2008 to March 2009—and in a the midst of a recession, no less.” While the data supports much of what Shane recommends, I have two concerns. First, existing firms are not going to create new, high growth industry sectors that have the potential of generating thousands of new jobs so you can’t completely ignore start-ups. I agree with Shane that such superstar start-ups are rare; but, they are nevertheless important cogs in the job creation system. Second, by solely concentrating efforts where the jobs are (instead of where they are not), systemic, intransigent unemployment never gets addressed. I don’t mean to imply that Shane believes that start-ups should be neglected or persistent unemployment ignored. I just don’t want a short-term focus to keep America from addressing long-term needs. The final recommendation is specific to the construction industry.

“• Put construction workers back to work. More than two million construction workers don’t have work. Every city in America has commercial buildings that can be made more energy efficient. Both the private and public sectors can step up to create good jobs and save energy.”

I don’t disagree that “every city in America has commercial buildings that can be made more energy efficient,” but there must be some compelling reason for private sector building owners to spend the money to upgrade them. Potential long-term energy savings is a good but not sufficient reason. If it were a good enough reason, owners would be pursuing the upgrades without having to be encouraged. The President wants to spend $30 billion to modernize schools and community colleges and another $15 billion to rehabilitate and refurbish vacant and foreclosed homes. Modernizing schools and colleges only makes sense if the education provided by those schools is also upgraded. Our educational system remains in crisis; but, that’s another story. As for fixing up vacant and foreclosed homes, refurbishing a building only to have it sit vacant doesn’t make any sense. With credit tight and unemployment high, such projects could be a bad investment unless they are accompanied by a jobs creation program in the neighborhood being rehabilitated. More on that subject tomorrow.

 

Immelt and Chenault admit that these initial recommendations are “not enough” to solve the current unemployment challenge. They conclude:

“To truly bend the curve over the longer term, we need a more strategic view. … This strategic approach will emphasize a number of areas for job growth. First, we need to focus on fast-growth companies and small business. Second, we need to make America the most attractive place on Earth for high-tech services and manufacturing jobs and to accelerate foreign direct investment in the U.S. Finally, we need to address the competitiveness of America’s infrastructure. … By year-end we also will have looked at and made recommendations on building and improving systems for national competitiveness, including R&D investment, tax policy, visa reform and high-skilled immigration, as well as applying business concepts (like the Lean Six Sigma approach) to regulatory processes. Some of these ideas, by their nature, require bipartisan legislation and therefore may take longer to move forward, but they are all critical. America needs more growth. The United States needs to reverse trends that developed over a long period of time, and the solutions aren’t easy politically, socially or economically. The economic decisions we make now will determine American job creation and competitiveness in the years to come. Government, business and labor need to work together to get this done.”

How critical is short-term job creation? According to a Wall Street Journal survey, a “persistent slowdown in hiring is the biggest threat to the U.S. recovery.” [“Sluggish Hiring Seen as a Threat to Recovery,” by Phil Izzo, Wall Street Journal, 13 June 2011] Economist Nicholas S. Perna, of Perna Associates, told Izzo, “If jobs don’t grow fast enough, the recovery will sputter.” Manufacturing jobs are particularly critical. It has been estimated that for every manufacturing job that is created, eight jobs in the supply chain sector are also created. Some analysts talk about the risk of a double-dip recession. Other analysts, looking at the unemployment rate, insist we can’t have a new recession because we’ve never recovered from the Great Recession.