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.

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