Stieglitz.com

Business Consultant, Author and Motivational Speaker

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ECONOMIC MOBILITY

"We know many of our countrymen are wondering what will come of their hopes and dreams. Can we love America and not rest until each of them can reach as high as their God-given talents will take them?"
Ronald Reagan

Economic mobility is the vexing challenge of our time. Readers of this newsletter are likely to be on the positive side of the economic divide. But many Americans exist day-to-day just a broken-down car, serious sickness, or leaky roof away from economic ruin. They hear that the economy is growing, unemployment is dropping, and the stock market is at all-time highs, and ask: "Why don't I have good times?" The technology and globalization that enrich some Americans are impoverishing others. The U.S. must create shared prosperity by equipping all Americans to flourish. It's no easy task, but economic mobility is the heart of what is special about the U.S.

Fading American Dream. People are losing confidence in the American Dream - the promise that each generation leaves the next in better shape. Politicians see the trend but respond with partisan solutions that miss the importance of their rivals' ideas. Voters nostalgically recall the "golden years" when factories gave life-time jobs, babies filled maternity wards, and everyone shared in a post-war boom. But factories, furniture mills, and coal mines have closed in countries with widely varying labor laws and environmental rules. The root cause isn't a cyclical downturn that eventually will go away. It's an explosion in global competition and a tsunami of new technologies. Competition cannot be wished away - new ideas and hard work on everyone's part are required to succeed.

Appreciating New Technology. The introduction of new technology is usually painful. For example, the industrial revolution transformed the human condition with electrical power, engines and factories; but it forced people to leave farms and work near cities. Today's digital revolution is changing the workplace on a similar scale. So far, the pain has been felt mostly by low- and mid-skilled workers, while income for those whose skills complement computers has soared.

Raise Minimum Wage? Those who are willing to work for $8 an hour can easily find a job - but can't live on that wage. However, a higher minimum wage would just accelerate the replacement of workers by machines. The best thing governments can do to help is to raise workers' productivity and mobility. Education isn't just for the young - adults need life-long learning to stay abreast of technology. Also, better housing and public transportation would help people get to places with quality jobs. After the industrial revolution, it took governments nearly 100 years to deliver educations that enabled farm workers to thrive in an industrial era. Today's digital revolution requires a similarly bold, but swifter response.

Productivity vs. Jobs. Computers, robots and connectivity are creating new industries, but they also are eliminating jobs higher and higher up the skills ladder - yours may be next. Disruptions have swept through workplaces as diverse as publishers, seaports, travel agents, factories, and offices (have you seen a secretary recently?). Businesses increase profitability by reducing the workforce since workers' pay, health care, and retirement are a huge expense in good times and burdensome overhead in tough times. However, productivity advances aren't such a good thing in the view of unions and public officials desperate to keep their constituents employed. The government's goal of creating jobs and the private sector's goal of increasing productivity could be congruous if governments invested more in human capital, infrastructure, and basic research.

Why U.S. Is Falling Behind. High taxes, endless regulations, and a complex tax code are often blamed for the decline in U.S. competitiveness. But several other factors are equally significant. The first is human capital. Most new jobs require skills that our educational system doesn't routinely teach. Ten years ago the OECD ranked the U.S. first in percentage of college graduates - now we're 14th. The situation in engineering and science is even worse. The second factor is inferior infrastructure. U.S. infrastructure once was ranked at the top by the World Economic Forum - now we're 24th. Third, research & development spending as a percentage of GDP has declined steadily, and now is about half what it was in the 1950s. In summary, the decline in U.S. competitiveness is more fueled by declining investments in human and physical capital, and research than by regulations and high taxes.

Job Apocalypse. To avoid a job apocalypse, coordinated action is needed to build the future workforce. In the public sector, investments in education should start with pre-school and transition smoothly into continuous technical training for workers. In the private sector, companies must cooperate with local governments to offer apprentice programs and continuous learning programs. On a personal basis, since versatile employees are most likely to prosper, take action to cross-train yourself and your people...or you can retire like I did.

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January 2015

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