THE U.S. JOB CREATION machine is sputtering, and Washington seems at a loss at how to fix it. The usual recession-fighting tools — spending increases, tax cuts, dramatically easier monetary policy — have been tried. And even if that were not the case, Republicans and Democrats would probably be ideologically deadlocked over what to do next.
The Obama administration is reportedly considering a temporary cut in the employer share of the Social Security payroll tax. This has the advantage of being potentially acceptable to Republicans, and it might encourage a few businesses to hire people they would not have otherwise. But, in a country that produced barely 54,000 new jobs in May — and needs another 21 million to return to pre-recession unemployment levels by 2020 — it’s no panacea.
Like other fiscal and monetary tweaks under debate, a payroll tax cut would address cyclical joblessness: unemployment attributable to the collapse in demand brought about by the financial crisis of 2008. Yet the problem is also structural. It’s due not just to the latest downturn in business conditions but also to broader, more lasting changes to the U.S. and global economies. As a new report from the McKinsey Global Institute notes, technology increasingly enables companies to cut costs in a recession through permanent layoffs; the growing global middle class can do many jobs that once had to be performed in the United States. Difficult as it has been to develop a counter-cyclical economic policy that works, the United States also needs to meet these structural challenges.
Fortunately, the McKinsey report implies that progress against structural causes of joblessness may be easier than countering the business cycle. There are practical solutions to suit every ideology.
Democrats argue that the labor force needs greater government support for training and education. McKinsey’s research supports that claim, noting that the United States is on course to produce at least 1.5 million fewer college graduates by 2020 than it will need. There also will be a significant mismatch between the skills graduates have and the skills employers demand. Government at all levels should use its money and clout to cut the cost of college, focus higher education on the needs of business and supply students with the information they need to negotiate the job market.
For their part, Republicans have traditionally argued that government regulators impede business formation and expansion — and McKinsey confirms that, too, noting that investment decisions are frequently delayed or deterred due to overlapping or conflicting environmental and land-use considerations. The problem isn’t so much what governments require companies to do before they can get to work; it’s that it often takes the relevant officials too long to give business a yes or no. McKinsey recommends “plug and play” enterprise zones, which would be preapproved for zoning and environmental permits, as one way around this chronic issue.
The good news is that some of the same trends that have cost the United States jobs in recent years may be about to turn in favor of U.S. workers. McKinsey projects that tourism and manufacturing will be among the biggest job-producing sectors between now and 2020, thanks in part to a cheaper dollar. Here again, however, government will have to lend a hand, streamlining the visa process for middle-class visitors from emerging market countries and welcoming direct investment from international firms. Even outsourcing call centers and other services to emerging markets may have peaked, as technology enables companies to use home-based U.S. workers to do those jobs.
The U.S. economy faces a huge challenge to employ its growing population in the coming years. Its advantage, as always, is the talent of the American worker. But it will take a lot more pragmatism to make the most of it.