Wednesday, February 9, 2011

Unemployment in a recovery

The White House, in a recent address by the President, called on corporations to use the $2 trillion in cash to resume hiring. Indeed, the pressure for corporations to hire workers is increasing because markets around the world are recovering.  TATA Consultancy reports that it needs to hire more than 1000 workers this year to meet growing demand for their services.  However, the jobs report released last week combined with the continuing rise in corporate revenues and profits point to a complicated and long term problem.

U.S. corporations are adaptable, quick on their feet, and aggressively competitive. To compete in the global economy, they have had to migrate up the value curve in terms of human capital value added.  However, corporations find themselves turning to the global market for labor because they are unable to find all the workers with the technical training and education they need in this country.  To the extent that tight immigration rules prevent the hiring of foreign skilled workers, corporations find themselves setting up shop in other countries.  The rub is that these divisions are increasingly doing high value added functions such as design, research and development.  As these functions move to foreign locations, the domestic demand for workers with these skills will diminish over time, leading to the permanent hollowing out of the corporate headquarters.

Going forward, we see that the jobs returning to the economy bifurcate into two categories (very low skilled jobs such as food service workers; and very high skilled jobs such as information security experts). Low skilled jobs, which accounted for much of the jobs created in the last quarter, tend to be location bound.  High skilled jobs are portable and these have been slower to return because there is now a global labor market for them.  The only way out is for the overall skill level of the economy to increase, which will require tough minded education reform and a very light hand of the government on the economic engine.

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