Behind America's 'Jobless Recovery'

Increased manufacturing productivity and a dearth of qualified job applicants in all sectors present an economic challenge for the U.S.

By Rick Wartzman

In 1984, with the U.S. having emerged from a deep recession two years earlier, Peter Drucker observed that many people were scratching their heads and asking, "Where have all the jobs gone?" Drucker, however, had a 180-degree-different question on his mind: "Where," he wondered, "have all the jobs come from?"

"All developed industrial countries are losing jobs in the smokestack industries," Drucker wrote. "But only the U.S. economy is creating jobs at a much faster rate than the smokestack industries are losing old ones, indeed at a rate that is almost unprecedented in our peacetime history." He went on to praise "America’s entrepreneurial job machine," citing "midsize growth companies" as a particularly vigorous source of new employment.

Today, with the nation once again two years into an economic recovery, Drucker’s job machine is clearly on the fritz. Last week’s Labor Dept. report, showing that employers added a feeble 18,000 net new positions in June, underscored the great disconnect that has characterized this period: Businesses are earning lots of money, but they’re just not hiring.

Pundits have offered a variety of theories to explain this phenomenon, many of them freighted with political overtones. But Drucker, I think, would have singled out two reasons for the jobless recovery.

SOARING PRODUCTIVITY

The first is that companies are increasingly figuring out how to do more with fewer hands. It is a trend that one can see most plainly in manufacturing.

Last week, President Barack Obama talked about the imperative of generating more jobs in the sector. "We have to be successful at the cutting-edge industries of the future, like Twitter," he said. "But we also have always been a country that makes stuff. And manufacturing jobs end up having … bigger multiplier effects. So one manufacturing job can support a range of other jobs—suppliers, and the restaurant near the plant, and so forth."

While the President’s statement was basically true, he left out an important proviso: Yes, America has always made stuff; in fact, we now run neck and neck with China as the world leader in doing so. We also make more than twice as much stuff (in inflation-adjusted dollar terms) than we did 40 years ago.

The rub is that, because of tremendous gains in productivity, it requires far fewer individuals to forge and fabricate all these products than it used to. What took 1,000 people to churn out in 1950—the dawn of a golden age for blue-collar work—now requires about 185, according to the Federal Reserve Bank of Chicago. In 1979, at the all-time peak, more than 19 million men and women in the U.S. were engaged in manufacturing. Today, fewer than 12 million are.

"The real threat to manufacturing jobs," Drucker wrote in Managing in the Next Society, "is not competition from abroad but the rapid decline of manufacturing as a creator of work."

SHORTAGE OF SKILLS

Yet this is only part of the story. In 1985, a year after touting America’s ability to replace its disappearing smokestack jobs, Drucker put his finger on another trend: "We face a growing mismatch," he warned, "between jobs and available labor supply."

Exactly how much this problem is contributing to the current crisis is open to debate. But there’s little doubt Drucker was on to something significant. Narayana Kocherlakota, the president of the Minneapolis Fed, asserted last year that about a third of the nation’s joblessness results from a discrepancy between the skills employers seek and those of the workers available. The McKinsey Global Institute found that 40 percent of the 2,000 U.S. companies it recently surveyed have had positions open for six months or more because they haven’t found the right candidates to fill them.