May 19th, 2011
07:00 AM ET

A tale of two economies: How to save the American worker

By Fareed Zakaria, CNN

I have been thinking a lot about America's economy and American jobs lately, and have an essay on the subject in this week’s TIME Magazine.

As we emerge from the financial crisis, we are witnessing the extraordinary tale of two economies.

For corporate America, the picture looks extremely good. The 500 largest companies in America have posted nine quarters of successive growth. Many of them are back to pre-crisis levels of profit. They’ve got lots of cash on their balance sheets – $2 trillion or more.

But if you look at the average American worker, it’s a very different picture. What you see is a really deep problem of structural unemployment.

The number of unemployed people in the United States right now is officially 7 million. But a large number of people have stopped looking for work. An even larger number of people have taken part-time work. The average wage of somebody working classic part-time jobs in a restaurant or in a shop is $19,000 a year. That’s less than half the median income.

If you add all these categories together - people who are unemployed, people who stopped looking for work but don’t have jobs and people who have part-time jobs - the number is 24 million Americans. That amounts to a huge systemic crisis and it’s a crisis that we're not facing up to.

What’s causing jobless growth?

The single largest cause of this jobless growth is technology. If you look at almost every industry over the last 10 years, technology has completely transformed it. It’s easiest to see this in manufacturing. You go into an auto plant today and it employs far fewer people than it used to. General Motors, Ford or any of these places are able to produce many more cars with many fewer people.

Technology is transforming industries beyond manufacturing. Look at law. "Discovery” - a process that used to be done by young paralegals and lawyers - can now apparently be done by computers.  Across the board, technology is transforming industries and raising productivity, but lowering worker head count.

Then on top of technological change, you have globalization.  There are ready pools of skilled labor around the world that are willing to do some of the jobs that used to be done by Americans for a tenth of the price. American labor can't compete.

Working concurrently, technology and globalization have created a pincer movement pressing the average American worker.

With the bad, comes the good

Now, economic globalization is also having many beneficial effects. It’s helping anyone who has specialized skills or has access to and works with capital or technology. It’s helping the very poor because it dramatically lowers the cost of goods.

Indeed, the net effect of having very low inflation and very cheap goods is something that has benefited everyone. Everyone who has taken out a loan in the last 20 years has benefited from the fact that you have almost no inflation in the world because China and India - two global deflation machines - are pumping out goods and services at very low prices.

But the downside is felt in concentrated form by the middle of the American employment spectrum - the classic American worker who would make around the median wage, which is about $50,000 to $75,000 per year. The downside is being felt by people who had skills, but not highly-specialized skills; by people who had some training and education but not advanced education; those are the people whose labor has been either made obsolete by technology or commoditized by foreign labor.

Advice for young Americans

If I were talking to a middle school classroom in the Midwest today, I'd say, "Don't despair. Focus on where the jobs are." America remains a huge, dynamic economy and there are jobs.

Jobs are being added in healthcare. If you look at nursing, for example, it’s not only increasing in terms of jobs, but wages are growing and will likely continue to grow.

Tourism is another huge boom industry. And America is a world-class producer of entertainment in every shape, level and form. We produce enormous amounts of entertainment, consume a lot of it and export huge amounts of it. We are the world’s leading exporter of entertainment.

Read: Fareed Zakaria’s article on American jobs and competitiveness in TIME Magazine.

So there are big bright spots in the economy. People should focus in on those and ask themselves what can they do within them.

Obviously, the single best way to ensure that you will have a secure job for the future is to have training in science and technology. If you are an electronics engineer or a computer science engineer, you’re going to have absolutely no trouble getting a job – not just in this country but anywhere in the world.

Advice for U.S. government officials

The U.S. government needs to focus very hard on the problem of creating jobs.  U.S. officials need to recognize that we are in a unique situation where growth alone is not producing jobs. We can no longer say, "We’ll grow and somehow we’ll magically dispose of all our problems."

What we really need is a job creation policy. My cover story for TIME Magazine tries to detail exactly what such a policy should look like. Broadly speaking, the U.S. needs to hit job creation at five different levels.

1. Revitalize manufacturing in this country. Germany offers a powerful example of how to do this. They have managed to maintain high-end manufacturing in their country.

2. Focus on retraining workers. We have a generation of people whose skills are not going to provide them with employment in the current global economy.

3. Focus on the growth industries like entertainment, healthcare and tourism. One of the simplest things to do in life is double down on things that are succeeding.

4. Promote small business. Small business creates most of the new jobs in this country. The single biggest thing the U.S. government could do to help small businesses is allow more skilled immigrants into the country.

We train the world’s best and brightest - often at public expense since they go to state universities or they get grants from the U.S. government - and then just at the point at which they’re about to start filing patents, making inventions, creating jobs and paying taxes, we kick them out of the country. It’s an incredibly counterproductive policy.

5. Invest in infrastructure today. The crisis is now and we know that a large number of unemployed people in America come out of the construction and housing industry. We also know we have a huge crisis in infrastructure. We have bridges falling down, highways that need repair and airports that need building. We’ve got to come up with some way to finance infrastructure that will allow us to employ hundreds of thousands, if not millions of American workers.

There are ways to do this that are not as costly to the public. We can develop infrastructure banks and forge public-private partnerships. America is one of the few countries in the world that doesn’t allow the private sector to participate in building and financing public infrastructure. Why shouldn’t we open it up so that we can get the capital we need, which will in turn create more jobs?

In short, we need to do all of these things because America faces a huge structural problem – a jobless recovery – and no single action will be enough to help American workers recover and prosper.

Read my full essay on this topic over at TIME Magazine.

soundoff (692 Responses)
  1. How

    He points out that technology has made the fortune 500 more efficient and therefore requires fewer employees. What hurts even more is that this technology comes from paying companies in India and China to build and implement it.

    The economy has lost its ability to sustain itself!!

    May 19, 2011 at 6:20 pm | Reply
    • rj

      Ideally fortune 500 companies want to sub out for everything. In a super efficient model, you would sub out all work except for book keeping, inventory management and strategic management. Lower level could be outsourced. That is efficient biz but sucks for everyone who isn't a stock holder.

      May 19, 2011 at 6:36 pm | Reply
  2. publus

    Fareed is nothing more than a filthy globalist. He cares not for the 'average' American worker. He only cares about the 'total' benefit from globalization. To him, it's better for average American's to receive lower wages so that others, outside the US, can have higher wages. This article is nothing more than globalist propaganda...

    May 19, 2011 at 6:22 pm | Reply
  3. Knucklehead

    If you have a little land, it's time to buy some vegetable seeds, and some chickens. Maybe a milk cow and a draft horse. It's time to pull ourselves out of the economy. Quit buying Ipods. Quit buying tvs. Quit buying anything you don't really need. It's time for an Industrial Devolution.

    May 19, 2011 at 6:24 pm | Reply
    • rj

      I suggest you read walden and run for local office if your unemployed. I haven't owned a TV in over 9 years.

      May 19, 2011 at 6:34 pm | Reply
  4. Mike S

    Right on!!! Michael Moore couldn't have said it any better.

    May 19, 2011 at 6:26 pm | Reply
  5. Pitdownman

    We need to look at the Universal Annuity System.

    May 19, 2011 at 6:27 pm | Reply
  6. American X

    Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power. Benito Mussolini ... We need investment in infrastructure – education – renewable energy – alternative fuels. Create jobs from innovation. If we would have spent half the money on a "space race" for alternative / renewable energy and ending our dependence on foreign oil – as we spent 3 Trillion on stupid wars chasing bogeymen – we would be much further ahead as a nation.

    May 19, 2011 at 6:38 pm | Reply
    • rj

      We are pretty close to the most facist place on earth literally. We have a 2 party system, that's 1 party above facist (single party). It also implies you delegate power to that 1 party to solve your problems. Just the party never receeds the power. So a 2 party system and the structuring so that 2 party get federal funds and 3rd party needs x% of the vote for an election means you put them off for 3 elections until you can be put in all 50 states without suing to be put on the ballot. A two party system plays off on each other like the roman empire. The parties are having problems because people realize its just a game to them. We aren't just 1 or the other. We are a bit of this and that. We had multi parties for years. It kept gov efficient and all. They merged because they realized that they wouldn't need to have concessions. So both went on a merging rampage went from 6 when we founded, to two. As long as independents can't vote in most primaries, is bs. So i hope the parties continue to get split apart because party politics isn't good for the country.

      May 19, 2011 at 7:01 pm | Reply
      • rj

        When you have a 2 party system. One side will blame the other forever on why nothing gets done and you have polar opposite extremes. You can never have a real middle with a 2 party system. The middle is an illusion. So i hope candidates run just to steal the election monies. Then when elected renounce their party just to make a statement.

        May 19, 2011 at 7:03 pm |
  7. JohnArlington

    What you have been witnessing over the past 25 years is the robbing and pillaging of the middle class by multinational corporations who have NO loyalty or allegiance to America. If America falls because the middle class falls–as it is getting ready to do right now before our very apathetic eyes–they could care less because they know the world economy will support them as they continue to live in their 300 room castles on 1,000 acres of pristine mountain-view or ocean front estates and continue to drive their million dollar Aston Martins. The scumbags on this comment section deriding the unemployed and those FORCED to live off of government subsidies are nothing more than paid mouth pieces–corporate marks–who think they will get rich by being loyal puppets to their rich masters.

    The true radicals are the special interest lobbyists, multinational bankers, military-industrial bigwigs, the oil bigwigs, the Wall Street big wigs, the Banking big wigs, and their puppet politicians and judges. They are conservative when it comes to the government policies and the businesses that control the hiring and local economy in the collapsing middle classes world, but, they become very liberal when it comes to corporate welfare–NAFTA, public-private no-bid government infrastructure contracts, public lands, oil drilling, pollution, court cases against them, banking rules TARP, the SEC, military industrial contracts, bailouts, etc..– Isn't it amazing that if one lone person crying in the wilderness, thrown out of his or her home because of rampant, corporate greed-based unemployment, starts begging their Congressmen for more fair laws to enable them equality in court access, freedom from highway tolls, jobs, bankruptcy, property rights, taxation, insurance, etc..these same scumbag billionaires and their paid grass roots lap dog marks scream "NO MORE ENTITLEMENTS! TORT REFORM!! NO FED BUDGET FOR PUBLIC WORKS!! NO MONEY FOR SCHOOLS!! SLASH $12 TRILLION FROM ALL PROGRAMS THAT BENEFIT THE MIDDLE CLASS!! NO MONEY FOR THE SEC!! NO MONEY FOR THE FDA!! NO MONEY FOR EEOC!! ABOLISH THE ACLU!! ABOLISH UNIONS!! ABOLISH THE NAACP!! ABOLISH HUD!! etc..!!

    Yet on the other side of that coin these same scumbags want liberal policies when it concerns their interests– no windfall taxation, no government oversight on our food, drugs, and energy, no limits on oil drilling, no public recourse on the murders their toxic dumps cause, transform all publicly funded government activities into public-private partnerships where $2 trillion of the formerly tax generated public funding's $12 trillion yearly pie is magically transformed into corporate profit (corporate waste), and of course, the biggest big-wig liberal/radical demand of them all-limitless corporate welfare and bailouts and no jail time for big wig criminals who deposit trillions of stolen middle class dollars in Asian and Swiss banks.

    May 19, 2011 at 7:30 pm | Reply
  8. Roger E

    The underlying root of the problem in my opinion is that we are just not asking the right questions and we constantly are thinking along the same old lines that we have for decades. The mantra of "we have to focus on creating jobs" is hollow unless we really asl ourselves what jobs we need. There are so many people out there that are working in useless non-productive jobs that help no one while we complain about our inability to educate, our children, provide health care to seniors, and maintain our roads and bridges. If the job is not productive to society then what do we need it for? Job sharing, more vacation time, and working less hours has to be the answer. We have to realize that the most valuable commodity in the world is time. Time spent with our kids, our families, our friends, ourselves. We place more importance on things. This is the more difficult road to travel but the only one that makes sense when you consider environmental factors such as limited resources and pollution. We can come up with a solution and we have the answers that combines wealth, prosperity, health, education, energy, and environment. The only thing we can't seem to do is agree on anything and or cooperate.

    The other real question and real solution to it all is asking what exactly is cost? What is money? If we answer these questions correctly we will figure out we have all the money we need to do whatever we need. This is where the game is really rigged. The middle class and the American worker have all the power but they just don't realize it and they can't get together to make things better for themselves. Cooperation is better than competition but coperation is a lot harder to achieve.

    May 19, 2011 at 8:17 pm | Reply
  9. Mike

    "The single biggest thing the U.S. government could do to help small businesses is allow more skilled immigrants into the country."

    Fareed, this will in no way help the 24 million Americans who are working. Not to mention the fact that small businesses make up alot of the "part-time" work you included to get the "24 million" figure.

    You also forgot to mention that we must CLOSE WALL STREET !! Allowing the wealthy to make more money off the backs of workers here in America, and around the world !! The only way a company can "focus on profits for our investors", is to under-pay their workers. Those who actually "work" to make money for the company!

    If you like what I said, please friend"or like "Save America End Wall Street" on Facebook

    May 19, 2011 at 10:45 pm | Reply
  10. Joe The Chemist

    Well this is what the last 30 years of trickle down economic philosophy has done for this country. We have established a system where about all we can do as the American middle class is grab our ankles for our corporate overlords as we continually throw every cent we have to the rich and pray that they decide to help us. Any rights we have as workers (Scott Walker anyone?) or any ability to stop corporate interests from doing whatever they want have disappeared. Lobbyists are now the most powerful people in this country after Citizen's United. Democratic or Republican philosophies don't truly matter anymore as they will both screw you for the benefit of corporations with the only difference being that the Democrats will kinda feel guilty about it. Manufacturing was once the base of the American middle class and we have allowed globalization and corporate profits to pull that foundation from under us. America has possibly even lost its classification as a capitalistic society with the prevalence of blatant monopolies and the philosophy of privatizing success and nationalizing failure. America is going to wind up looking like a third world country soon unless something drastically changes.

    May 19, 2011 at 10:56 pm | Reply
  11. B

    "The single largest cause of this jobless growth is technology." I stopped reading here because it demonstrated an astounding ignorance that didn't deserve reading further. Jobless growth is due to one thing, government meddling through the monetary system, bailouts, regulation, etc and so forth. New technology means new jobs in a free economy. But we don't have a free economy. We have one where government picks winners and losers.

    This concentrates new technology, what smaller amount of it that comes about, in the businesses government has declared to be winners. The businesses that have an inside track. So much of today's technology should be liberating people to have their own businesses like never before. But instead the regulators, the courts, and so on are there to stifle it. To keep the old order intact artificially. To prop it up, to bail it out, to restrict the growth of the new.

    Government meddling in the monetary system, various uncertainties about new taxes and regulations, plus all the government induced complications of hiring/firing people makes hiring new people very risky until the existing employees are simply buried in work to the point they can no longer cope. Hiring is a risk and government makes hiring more risky and thus less likely. If overworked employees can't cope and can't get help, they want machines to increase what they can get done in a day. A machine is easier to justify and far less risky.

    Sometimes the government just exterminates existing jobs that would continue well into the future. Case in point: Incandescent light bulbs have essentially been banned from our future, all that automated equipment turned to junk by government edict. All the jobs running it and maintaining it? Gone. Where are the new CFL bulbs made? China.

    May 19, 2011 at 11:43 pm | Reply
  12. Chris Bennett

    Fareed, you are a smart guy, but you appear to have some economic blind spots.

    For example, you refer to US companies having lots of cash as a good thing. I assure you, it is not. If they could find a way to invest the cash for a good return they would do so. The fact that they haven't means they can't. I can also tell you they are scared of this facade recovery turning (as indications are starting to show) and/or another liquidity crisis, so they are quite content to sit on the cash if they can't find ways to grow their businesses. Expect to hear news of more hiring freezes in the coming weeks.

    Also, you repeat the oft stated mantra that we are emerging from the financial crisis. Nothing could be further from the truth. GDP is indeed positive, but this is absolutely meaningless in context. As you know, government spending counts toward GDP and what you probably know is that it is almost entirely government spending that is preventing GDP from dropping to what economists would otherwise recognize as depression levels. The part that you either do not know or are just neglecting to mention is that gaming the GDP higher with government spending may make for positive sounding headlines, but it does not necessarily improve the economy. In fact, since the government tends to be worse at allocating resources than individuals, the higher the percentage of government spending that makes up GDP, the less confidence you can have that a positive GDP number actually means the economy is improving.

    Further, the toxic mortgage debt is still toxic and still hidden, but rising to the surface slowly but surely. The economy does indeed depend on confidence, not the least because it is currently a con, built upon fraud on fraud, with regulators still looking the other way. Nothing has been fixed, and in fact the leverage and fraud problems that caused the financial crisis have grown even worse.

    It is nice to see you using your intellect to offer solutions on how to help workers, but I would trust your advice a bit more if you demonstrated a better understanding of the economic reality first.

    May 20, 2011 at 1:51 am | Reply
  13. Mahsheed

    I certainly agree with your last point on investing in infrastructure. It can work well for the third world countries as well if their governments are not corrupt. A very good example again could be Germany between thr two world wars. They got the economy growing by their thorough investment in infrastructure. A great deal of Dubai's success was their focus on this issue. It needs lots of laborers with limited skills wgich is good for the very current economic problems and the rate of unemployment. Also, it boosts the economy and provides the means for training new skilled workers. This is undoubtably a grat idea.

    May 20, 2011 at 7:05 am | Reply
  14. Dick

    May 20, 2011 at 10:54 am | Reply
  15. obbop

    "There's class warfare, all right, Mr. (Warren) Buffett said, but it's my class, the rich class, that's making war, and we're winning."

    May 20, 2011 at 11:45 am | Reply
  16. KJ

    We're going to slide into becoming a second or even third world nation if we don't watch out. Education? I've got two bachelors' degrees, one in tech. Experience? I've got years of tech experience. But after being unemployed most of last year I'm now UNDERemployed, making 40% less than I was, barely covering my bills. And I'm not living extravagantly. I've gone back for more training and school, but that costs money also. And there's nothing good in my future that I can see, other than years of scrabbling for work. I'll never be able to afford to retire.

    May 20, 2011 at 2:10 pm | Reply
  17. Greg

    KICK THEM OUT OF THE COUNTRY? No – we deny them citizenship Faruz / Fareed or whatever your name is. And while we're at it – why don't you go back to Pakistan. You're not the "brightest" – and we can take someone of similar caliber and have him pontificate on the news. A real American.

    May 20, 2011 at 8:08 pm | Reply
  18. jrt1098 that you have been exposed for the fraud that you are !!!
    You can give your boy Barack aid and comfort after a TRUE statesman like Netanyahu, made him look, well.......SMALL !

    May 21, 2011 at 9:50 am | Reply
  19. Girish

    Government needs to invest in small business more than it has been. That will create more jobs.

    May 21, 2011 at 4:22 pm | Reply
  20. Chris

    I wish Mr. Zakaria wouldn't be so intentionally vague about certain issues. He describes the cause of unemployment to be structural unemployment, when a lot of respected economists and statesmen have stated that the problem is a lack of demand in the economy. Many of the solutions outlined in the article are about bolstering demand in the economy, like investing in infrastructure to stimulate construction jobs, have nothing to do with structural unemployment. I agree that we have a long-term structural problem in our economy. However, to say that the reason our middle class is suffering right now is because of structural unemployment is to ignore that real problem of low demand. This is extremely disingenuous and the type of thing that Mr. Zakaria does often to avoid appearing too liberal. Another example of this is constantly interviewing conservative economists about tax cuts and government spending, and also when he encourages America to become more like Europe, only without the higher taxes that make the whole thing possible.

    May 21, 2011 at 9:32 pm | Reply
  21. Darrell Hill

    So, it's beneficial to send our jobs to China so the poor can afford enough plastic things that nobody needs. That's a good reason for taking jobs away from Americans, killing the middle class, and supporting repressive regimes? Try again.

    May 22, 2011 at 5:32 pm | Reply
  22. Brandon

    I think that our government's unemployment system is hurting our economy in jobs as well. People ride on unemployment as long as they can and this is a waste of government funds. The government could be using this money to create more jobs and at the same time this would force unemployed people to actually try to get out there and find a job (referring to those on this income for over a year). THe government shouldn't give people unemployment income for such a long time. People might actually try to create those small businesses that were discussed in the article if it wasn't so beneficial to ride on unemployment income for 5 years.

    May 22, 2011 at 11:03 pm | Reply
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