Americans Are Unemployed Because They Don't Have Any Skills

Americans Are Unemployed Because They Don't Have Any Skills
from Clusterstock by Vincent Fernando



Many argue that America should go back to manufacturing products, 'like it used to', forgetting that American manufacturing output has actually kept growing over the last two decades even though manufacturing employment has shrunk.

Thus they argue that more Americans should be working in manufacturing, rather than other things, as if this would be a solution to unemployment.

Some even romanticize the day when an unskilled laborer could earn a high middle class salary.

The Economist's Free Exchange blog issues an extensive take-down of this entire line of thinking.

Free Exchange: [Emphasis added] Consider the employment question first. Mr Scheiber writes about the importance of manufacturing jobs, saying:

The beauty of manufacturing is that wages and productivity aren't necessarily tied to education level. A person with a high school diploma (or less) can make a middle-class living in the manufacturing sector.

But there's a big problem here. Mr Scheiber wants a sector that pays high wages for unskilled work to increase its share of American employment. That doesn't add up. Employers have a major incentive to either shift those jobs to places where labour costs are low or to eliminate those jobs via automation. Mr Scheiber writes as if the decline of manufacturing employment is a tragedy because low-skilled manufacturing workers could earn a high wage, but in fact manufacturing employment has declined precisely because low-skilled workers were earning high wages. It's odd to imagine that wages could diverge from productivity over the long-term; that's simply not sustainable.

...

The trouble is not that the manufacturing sector is shrinking. It is that America is struggling to produce enough skilled workers. Bringing back manufacturing jobs won't fix that.

Thinking of wages as prices helps understand both why unemployment happens and how it can be solved. If there's a romanticized utopia of the American 1950's it's probably because A) it's exaggerated and B) was unsustainable. You can't expect to earn 10x more money than most people in the world with manual labor in a factory. If it happened in the past, it was good timing and luck, not the norm.

At the same time if you're wondering where new employment is needed, then look no further than the jobs which pay the most. Their high salaries scream labor shortage, or more precisely skilled labor shortage. There are tons of high paying careers in the U.S., which by their high salaries signal that they are undersupplied and need more people.

This doesn't mean that struggling Americans shouldn't be helped. It just means they should be helped in the right direction. To do otherwise is to create even worse unemployment problems in the future.

Read the extensive Free Exchange article here.
http://www.economist.com/blogs/freeexchange/2009/12/the_manufacturing_shibboleth?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+economist%2Fblogs%2Ffreeexchange+%28The+Economist%3A+Free+exchange%29&utm_content=Google+Reader