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Economists at the Hamilton Project of the Washington DC think-tank, the Brookings Institution, say that up until the early 1970s, virtually all prime-aged men were gainfully employed - - regardless of whether they had a high school diploma or a college degree. Over the last 40 years, however, the United States has witnessed a dramatic change in the employment situation for men, particularly for less-educated workers who have faced greater challenges finding jobs and have increasingly dropped out of the labour force.
As shown in the chart above, while employment rates for men with bachelor’s degrees have declined only slightly, employment of men with only high school diplomas has fallen considerably -- from a high of 97% in 1967 to just 76% today. (These figures exclude incarcerated men - - in 2009, 3.4% of men ages 30-50 with high school degrees were institutionalized, versus only 0.3% of men with college degrees.) Source: Brookings Institution
In the period 1990-2008, almost all the
additional increase in US employment was in the non-tradeable sector led by
government and health care.
a paper by Prof. Michael Spence, a Nobel laureate in economics, and Sandile
Hlatshwayo, a researcher at the Stern School of Business, New York University,
almost all of the incremental employment increase of 27.3m jobs was on the
non-tradeable side. On the non-tradeable side, government and health care are
the largest employers and provided the largest increments (an additional 10.4m
jobs) over the past two decades.
Ireland had a similar experience in the period
1998-2007 when over 400,000 new jobs were added in construction, public
services, non-tradeable business services, retail and distribution but a tiny
amount was added in the tradeable goods and services sectors, which comprise the
bulk of exporting trade.
The Spence/Hlatshwayo paper says that the US
economy did not have a conspicuous unemployment problem until the crisis of 2008
because the non-tradeable sector absorbed the bulk of the expanding labour force.
That pace of employment growth now appears unsustainable. Fiscal weakness, a
resetting of real-estate values, and lower consumption all point to the
potential for long-term structural unemployment.
The economists say that in terms of economic
value-added -- the output of the economy that is measured by GDP and
generally correlates with income - - the tradeable sector experienced a slight
This means that one sector was growing in terms of jobs but not income while the
other was growing income but not jobs, resulting in increasing inequality in US
The authors say that companies in the tradeable
sector, under the pressure of global competition, are moving low- and
mid-skilled work to other countries while the higher-skilled Americans who
remain in those firms share in the benefits of that shift through wages and
salaries that started higher and have been growing faster.
In the non-tradeable sector, the story is one of rapidly rising employment but a
slow rise in output, which has resulted in stagnant wages and benefits.
The economists say that "while many goods and
services are less expensive than they would be if the country were walled off
from the global economy, we cannot assume that these cost savings necessarily
compensate for diminished employment opportunities. People might trade away
cheaper goods for assurances that a wide range of productive and rewarding
employment options would be available, now and in the future."
They add that high value-added, higher-paying
jobs, especially in the tradeable sector, generally require highly educated
people. More and better education does not by itself guarantee that the number
of such jobs is significantly expandable, given the scope of the tradeable
sector. But more scientific and engineering degrees might promote job growth and
- - together with some public-sector investment in promising technologies - - it
might also expand the scope of the tradeable sector as well.
However, they say private incentives and social
objectives are not perfectly aligned. Nor are they diametrically opposed either.
Multinational firms have access to abundant global supplies of relatively
low-cost labour in multiple skill categories, so there is not much payoff to
investments that increase labour productivity in high-income countries’
tradeable sectors. Public-sector co-investment properly targeted, however, could
shift these incentives by lowering the cost of private technology investment.
The paper says given the prospect of slowing employment growth
in non-tradeables and rising competitive pressure on tradeables, major
employment problems in the near future are a certainty. Even if the
non-tradeable sector is able to continue to absorb the growth in the labour
force, pressure on wages and salaries will be downward, and consequences for
income distribution unavoidable.
The authors conclude that if employment in
advanced countries like the US recovers strongly along with growth, political
support for an open global economy will be easier to sustain. But, given adverse
trends in the tradeable sector and the non-tradeable sector’s exhaustion as a
source of job creation, a more likely scenario is that unemployment remains
stubbornly high, despite a return of normal growth. In that case, politics will
become divisive and polarized, and the inclination toward protectionist
“solutions” will increase, jeopardizing global economic openness.
They says: "It is not a good idea to assume
that markets will solve these distributional problems by themselves; the
evolution of structure and the income distribution are largely the result of
market incentives. All countries, advanced and emerging, have to address issues
of inclusiveness, distribution, and equity as part of the core of their growth
and development strategies."
The economists say that the late renowned American economist,
Paul Samuelson, once said that every good cause is worth some inefficiency.
"Morally, pragmatically, and politically that seems right. Delivering on the
opportunity part of the social contract is one such cause."