Saturday, March 27, 2010

Those Jobs Aren't Coming Back

Unemployment persists at levels above 10%. So, the economy isn't really recovering, right? We may be looking at a "new" recession or a "double-dip", right? Wrong. If your business isn't turning up already, it will be soon.

Look at productivity, particularly in manufacturing -- that's where the story is. Productivity in the fourth quarter of 2009 rose more than 6% over the 3rd quarter, and was also 6% better than the fourth quarter of 2008. Wow, a 6% increase in productivity in only one year! Remember the world of the 70's, when companies were struggling to increase productivity at all, and 1% or 2% gains were celebrated? Across all industries, information technology has continued to help companies do what they do better, faster, cheaper and with fewer people.

Of course, productivity is a measure of the result, not the cause. It turns out that every time manufacturing suffers a recession, jobs are lost. It's also true that when manufacturing recovers, many of those jobs don't come back -- ever. That's where we are right now. Manufacturing output is up, labor hours are flat, and the quotient, productivity (output/labor hours), tells the tale.

Most of those presently unemployed from manufacturing have been so for 6 months or more. Experts estimate that 40% of the unemployed, particularly in manufacturing, are permanently unemployable. Those people are in a world of hurt, as their skills (or lack of skills) are no longer in demand. Companies have figured out a completely different way to get that work done, either through redesigning products or manufacturing processes or by mechanization.

GDP growth surged over the past 2 quarters, as well. While some expected a slowdown in the first quarter of 2010, GDP is growing twice as fast as the recovery from the last recession. This will likely moderate in future quarters as inventories of all kinds of products, including housing, are replenished and the supply chain gets back to a more normal run rate. It's not likely to go negative (recession) any time soon.

So, what does this mean for your business? Depending on where you are in the food chain, you're either seeing a business upturn or you're just about to see one. Plan for that, particularly in the area of working capital. You'll need more inventory and more cash to support increased Accounts Receivable as your business grows. If your current bank has you capped on working capital, get your package together and go visit 6 or more banks. You'll need the money, and Chief Executive Boards International members have continued to report that if they call on enough banks they'll finally find one who wants some new business.

And what does this mean for our society? It means that those who have missed the knowledge economy boat are more at risk than ever before. People who don't have knowledge economy skills are finding themselves looking at no job prospects, not just fewer job prospects. Worse yet, our educational system is continuing to provide people similarly disqualified. High school dropouts are even less likely to find work at a living wage than before. Even those who graduate from high school at substandard levels of reading, math and science skills (a big number, taken all together) are unlikely to make it through technical or trade schools, let alone college, to acquire the skills they'll need to be employable in a knowledge economy.

So, persistent high unemployment isn't the result of something that's wrong with the economy or the recovery. It's the result of something that's wrong with the large segment of our labor pool that's not ready for the skill demands of a knowledge economy. It's a labor pool tooled for a past era where we paid people to do physical work requiring little or no education.

That's a bleak picture, and one that troubles me greatly. Actually, it's a nearly intractable problem. Our public education system is failing, and despite considerable effort doesn't appear able to fix itself. The single credible (and proven) idea I've seen that might work was proposed by Malcolm Gladwell in his recent book Outliers. The fix? Year-round school. More on that in a future article.

If you have ideas on how to fix this workforce readiness problem, please click "Comment" below and share them with others.

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Terry Weaver

Chief Executive Boards International

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it

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