In the past, outsourcing wasn’t done because U.S. worker productivity more than justified the higher labor costs. This is no longer true in a number of industries. And the rapid development of many countries — including China, India and Brazil — and their labor forces is helping to create enormous global competition. As long as U.S. companies can profitably relocate business to other countries, they will do it.
Government jobs have declined largely because state and local governments are facing enormous budget shortfalls and, as a result, aren’t able to hire much. More broadly, U.S. voters want more state and local government services, but they’re going to have to consider what they are willing to pay for them, and how they will pay. Government can certainly become more efficient, but at some point voters need to understand they can’t have it both ways: more services and no tax increases.
How has unemployment differentially impacted workers?
Education level is a major differentiator. Workers with high levels of education and training — those with bachelor’s degrees and beyond — have very low unemployment rates, about 4 percent. In contrast, those with no post-high-school education and very young workers have unemployment rates of more than 20 percent. The message is very clear: A good career starts with a solid education that includes training beyond high school.
Low-skilled and unskilled workers were hit very hard by the recession and continue to suffer. Is anything going to change for them?
This again points to education. Many of these unemployed have only a high school degree or never graduated from high school. These workers are, for the most part, no longer competitive in the global economy. Many may not be competitive even at current minimum wages, and some probably wouldn’t work for minimum wages. Fundamentally, they need to retrain in order to successfully re-engage in the labor market.
Another issue is the long-term unemployed — those who have been out of work for more than six months. It seems that new jobs are going to people who have just entered the workforce or to those who were unemployed for a short time. What’s going on here?
Long-term unemployment is at a record level of nearly 50 percent of the unemployed. The market value of these workers is very low, because many simply don’t have the specific skills required to compete in today's economy. It becomes the problem of retraining construction workers to become health care workers. It can’t be done overnight, but this process needs to move forward. Those construction jobs aren’t coming back anytime soon. Reforming unemployment insurance to include retraining funding would be useful.
What is your view on the retirement age in the U.S.? Is it too low, too high or just right?
The retirement age is now, depending on what year you were born, between 65 and 67 for full benefits. This will almost certainly rise in response to dealing with the upcoming shortfall in Social Security associated with baby boomers [more than 70 million of them ] who are now approaching retirement. The aging of the baby boom cohort will increase the share of the population who is 65 and older from its current level of 13 percent to about 19 percent of the population. This will put enormous pressure on the underfunded Social Security system — so get ready for a gradual increase in the full retirement age.
At the very least, will the job situation improve for younger workers as baby boomers retire?
While some of the boomers will continue to work past retirement age, the large forthcoming retirement wave will open up a number of jobs for younger workers — but that’s no guarantee that all will have jobs. Younger workers will succeed provided they are well-trained, particularly in technical areas. Right now, jobs requiring science, engineering and mathematical backgrounds continue to remain open due to a shortage of qualified workers.
This is an election year. How might the economy impact the fall elections?
For the last 50 years, one can almost perfectly predict the outcome of presidential elections based on how fast the economy is growing, the current rate of inflation and how long the incumbent party has been in office. Extrapolating these historical patterns, if the economy continues to improve, and inflation remains low, then it is likely President Obama will be re-elected.