Historically, economists generally emphasized the negative short-term and long-term impacts of significantly higher, broadly applied minimum wage increases. Studies in the 1990’s indicated that the negative effects of moderate minimum wage increases could be relatively small, so economists’ articles have been more balanced in the past 3 decades.
Some more liberal leaning economists have been actively suppporting minimum wage increases as the US minimum wage has continued to decline on a real, after inflation basis, US minimums have fallen compared with other developed countries and the US distribution of income has become more unequal and poverty rates have not fallen despite US economic progress.
Some economists even point to the self-serving benefits of higher minimum wages for corporations, including greater productivity, innovation and retention.
But, large corporations are increasing their own minimum wages and trying to position themselves as supportive of “common sense” public policy changes that do not impact themselves very much. Some critics say that this is because large corporations can absorb higher minimum wages through their economies of scale and pricing power, while smaller businesses cannot and will go out of business, resulting in further growth of power for large businesses.
Perhaps more importantly, large corporations in a variety of industries have voluntarily increased their minimum wages from the $12/hour to the $15/hour plus range in the last 2 years. (Out of self interest).
Wages for less skilled and less experienced positions are increasing – dramatically – in the USA – in the last 5 years, especially since the pandemic reduced the supply of labor, and going forward. Larger companies have seen the costs of higher turnover and decided that they are going to offer relatively higher wages and find ways to generate enough economic value added to justify these marginal (incremental) investments. Politicians in left-leaning and centrist areas have pushed through higher minimum wages. Lower experience and lower skilled workers are able to take advantage of this situation. This is “good news” for these individuals. It is also “good news” for the economy because it has prompted firms to find ways to restructure work, processes, tools, technology, etc. to add more value from each employee.
Ronald Reagan skewered Jimmy Carter with this taunt in the 1980 presidential debate. Joe Biden’s approval rating is falling quickly in recent months. US voters need to assess the true state of the US economy under Biden’s leadership after 2 years of a global pandemic, last seen in 1918.
Real Disposable Personal Income Per Capita
Real, inflation adjusted income per person continues to rise. In 2000, average income was just $33,000 per year. It rises quite significantly to $38,000 in booming 2007-10. It remains at this level through 2013. This is a 15% increase over 13 years, a little better than 1% per year. The economy adds another $6,000 in the next 7 years before the pandemic. That’s growth twice as fast, 2% per year during this boom time. Real income has grown another $2,000 to $47,000 in the last 2 years, 2% annually, after the pandemic. Very good news.
Employed Persons
US employment was typically 130M from 2000-2012. Great growth occurred from 2012 to 2020, reaching an unprecedented 152M. The pandemic dropped employment to 130M, an incredible 22M lower. Employment quickly rebounded about half-way to 142M during 2020. It has grown by another 6M in the last year. The employment growth from 2010-20 averaged 2M per year. The 2021 record is a very strong performance, reflecting a healthy economy that has robustly adapted to the challenges of a pandemic environment.
Unemployment Rate
Unemployment averaged about 5% during the first decade of the century, a generally good result compared with 20th century history. It doubled to 10% during the “Great Recession” and then slowly declined to 5% by 2015 and then even further, exceeding economists’ expectations, to 3% in 2018-2020. The pandemic rocketed it up to 15%, but it quickly recovered to 7%. It has since declined to less than 5%, which has historically been the typical definition of “full employment”.
Job Quits
From 2000-2008, about 2% of employees voluntarily left their positions in any given month. The quit rate dropped to 1.5% in the aftermath of the “Great Recession” (2010-13). It very slowly recovered to 2.2% during 2016-18. It increased a little bit to 2.3% in 2019-2020. It rebounded to 2.3% in 2020, and has since increased to an unprecedented 3%. This reflects a labor market where 50% more employees are making a voluntary choice to leave their current employer, apparently confident that they can find an equal or better position.
Job Openings
Job openings averaged 4M from 2000-2014. Openings fell to 3M in 2010-12 after the “Great Recession”. Job openings then grew to 6M in 2017-18 and further to 7M in 2019-20. Job openings quickly returned to 7M early in the pandemic and then began their climb to the current 11M level. Again, these are unprecedented levels, twice as many open jobs as in any time from 2000-15.
Unemployed Persons Per Job Opening
The 2006-7 baseline was 1.5 unemployed persons per open position. The “Great Recession” peak was 6 to 1, an incredibly different labor market, where many older people “retired”; new college graduates went to graduate school, accepted lower positions or remained unemployed; and mid-career professionals accepted positions at 20% lower salary levels. It took 5 years to return to the typical 1.5/1 ratio. This ratio declined a little bit further to 1/1 during 2017-2020 in a tight labor market. The ratio very quickly returned to the historical 1.5 baseline during 2020. It is now at an unprecedented 0.8/1 level. Fewer unemployed people than jobs, not 1.5 to 1, but 0.75/1, half as many potential applicants. This is the first “employees” labor market since the 1960’s.
Home Values
The US Home Price Index was set to 100 in 2000. It increased to 180 during 2005-7. It dropped back to 140 in 2010-13, indicating that part of the rise before “the Great Recession” was a bubble. Prices climbed steadily from 140 to 210 (50% increase) from 2013 to 2020. Despite the pandemic, house prices have continued their climb, exceeding 260, another 25% increase in the last 2 years.
Mortgage Interest Rates
Mortgage interest rates averaged 8% during the 1990’s. They averaged 7% in the 2000’s. They declined even further to 4% during the 2010’s. They fell even further to 3% in 2020-21. The interest cost to finance a house is at an all-time low.
Stock Market
The US stock market averaged 16,000 points from 2014-16. It increased by 50% to 24,000 in 2018, and then climbed to 26,000 and 28,000 before the 2020 pandemic crash. Despite the real financial costs of the pandemic, the market quickly rebounded to 25,000 in the middle of 2020. It has since continued its climb to 36,000, 20% above the pre-pandemic level.
In 1992 James Carville claimed that “it’s the economy, stupid”.
If so, voters should provide some support to president Biden’s results. Real income is up 2% annually, a record level. Reduction in number of unemployed is 6M in 1 year, another record. Unemployment rate is at 4.6%, below historical “full employment” level. Voluntary quit rate is 50% higher than history, indicating tremendous worker confidence. Nearly twice as many job openings as the historical level, providing great options for job seekers to find their “best” opportunities. Mortgage interest rates remain at historical lows, supporting home purchases. House values have grown by another 25%. The stock market is 20% higher.
This is all at a time when the pandemic unfortunately continues to claim lives and greatly disrupt life and the economy. Overall, the recovery is proceeding at a rate far faster what anyone thought was possible during 2020.
Lots of press on the topic of a “new” labor market. Some of the experience seems to be genuinely new, some of the situation seems to be our old favorites, supply and demand.
Derek Thomson’s recent Atlantic article is a good one,
On the supply side, labor force participation is the big driver.
Focus on the core 25-54 age group to avoid the impact of various “mix variances” with changing enrollment rates and different retirement patterns. HUGE increase from 1950 to 1990, 65% to 84%, as women joined the US workforce across 4 decades. The rate stayed roughly constant for 2 more decades, through 2010, falling back a little to 83% in the late 2010’s.
Since 2006, we’ve had some modest changes. The rate fell from the relatively stable 83% rate through 2009 down to 81% in 2012. The recession knocked 2% of the population out of the workforce. For the next 4 years, through 2016, the participation rate remained at 81%. This is a variable that does not change quickly. People make long-term decisions, knowing that re-entering the work force requires very significant “effort”, investments, networking and accepting lower wages versus history. By the middle of 2016, almost 8 years after the decline that started in early 2009, the participation rate started to increase again. Note the many articles about the “jobless recovery” during W Bush’s time and Obama’s first term. The labor markets are not quite as responsive as desired. In the next 4 years, the participation rate returned to its prior level. That’s an increase of 0.5% per year during a prolonged economic boom period. Again, this measure of available supply does not change rapidly in normal times.
The pandemic dropped participation back to 81% in a short few months! In the last year, the participation rate has risen by a little more than 0.5% to 81.7%. We can expect to see this same kind of improvement for each of the next 3 years based upon recent history. But, even with all of the measures of underemployment and open positions, it is unlikely that the labor market will attract new employees faster than this rate.
The number of nonfarm workers employed reflects the results of labor markets. This is another measure that typically changes slowly.
The number of US employees stayed relatively flat from 2000-2004. The W Bush (jobless) recovery DID add 6 million workers. The “Great Recession” dropped the headcount by 8 million, back down to the 130 million level of the prior recession. Note that we had 11 years with essentially ZERO net job growth.
The economy found its footing in 2010 and we had 9 years or growth, adding 22 million employees, a truly remarkable period of prosperity. This recovery is remarkable for the steady pace of job growth, a constant 2.4 million per year.
By the end of the 2020 pandemic year, employment was down to 143 million, a decline of 9 million. This is similar in size to the “Great Recession’s” 8 million job loss. In the last year, the economy has added 5 million jobs, a pace TWICE the level of the prior recovery. We may be slowing down, or the job adds may continue between the 2.4 – 5 million annual rate. This is VERY GOOD news.
In the long-run, the US economy struggles to reduce and hold unemployment below 5%.
In the post-WW II boom times, 4% was reached several times, but thereafter quickly increased back above 5%. The “stagflation” era of the 1970’s indicated that “full employment” might be as high as 6%. The boom periods of the late 1990’s and 2000’s drove actual unemployment below the presumed 5% unemployment rate, but always just briefly. The long and smooth 2010’s recovery broke the rules. Unemployment rates fell and fell down to an unexpected 3.5%.
By the end of 2020, the unemployment rate had dropped to a more reasonable 6.7% from the measured peak of 15%.
It has recovered by a very strong and quick 2% in the last year, reaching 4.8%. This is near the long-term level of “full employment”, where demanders must provide increasingly attractive offers to entice supply.
This recent disconnect between supply and demand is seen in the unusually high job openings rate.
From 2000-2014, the economy averaged a 3% rate of job openings to labor market participants. About 1 in 30 or 33 jobs were “open”. The “Great Recession” drove this ratio as low as 2%, with just 1/50 jobs open. Following the “Great Recession” this ratio of job market demand increased for a full decade, from 2% to 4.5%, where only 1 in 22 jobs were open. Note that this is more than twice as many as in the depths of the “Great Recession”.
The job openings rate snapped back to the recent 4.5% level in the second half of 2020. It has since grown to a record 7%, or 1 in 14 positions unfilled. This is a “loose” labor market of historic proportions. Demand is clearly exceeding the slow response of supply in the labor force participation rate.
The “quits” rate has attracted the most media attention as it is even more extreme.
The voluntary quits rate averaged 2% from 2001-2008, 1 in 50 workers. It dropped to just 1.5% (1/66) during the Great Recession. It slowly increased with the recovery to 2.3% in the heady days of 2018-19 (1/44). The quit rate returned to its recent level very quickly by July, 2020. It has since increased to 2.8% or 1 in 36 workers each month. On an annual basis, this is 1 in 3 workers voluntarily leaving their employment!
As we’ve seen with the supply chain bottlenecks, the labor market is currently unable to recover quickly enough.
The economy did employ 152 million workers before the pandemic. We need 4 million more to reach that level. Based on recent history, this is an achievable level, but it will require 18 months or more to achieve.
In the mean time, employers will raise wages and provide more flexible terms to attract marginal workers back into employment.
As the “great resignation” pundits say, the pandemic experience changed the expectations of potential employees. They have found that they can “survive” rather than accept low wage positions with poor work conditions. This will change their behavior for years to come.
I formally retired this Spring at age 65. I started working in 1966 at age 10 as a newspaper delivery boy. I’d like to reflect on the big changes in the economy during these 5 decades.
The US Bureau of Labor Statistics tracks the real output per hour in the nonfarm business sector, or “labor productivity”. The media reports this number as it has “real” and “political” importance. The average annual improvement has been 1.9%. That is a 95% increase in 50 years, nearly a doubling, on an arithmetic basis. However, productivity compounds geometrically, just like compound interest, so the 2020 worker is actually 159% more productive. Or, the 1970 worker was 39% as effective as the 2020 worker!!! The 2020 worker delivered 5 units of output for every 2 units of output in 1970!!! Expressed in these terms, it’s clear to see this is a really important measure.
The annual productivity increase has ranged from -1.6% (1974, when I finished high school) to 4.5% (1992). 3 times below 0% and 3 times above 4%. The measured productivity growth increases and decreases through time. From 1970-76, labor productivity grew by 2.4% annually, a very good result. This was the end of the post WWII boom period. Japanese and European competition, oil cartels, sleepy consolidated industries, environmental laws and stagflation disrupted this progress. The next 13 years (1977-89) were a time of transition (disco). Labor productivity grew by just 1.4% per year, despite the early positive effects of the computer revolution. 1% per year lower doesn’t look like much, but it means that output in 1989 was 13% less than it would have been if the country had maintained it’s early 1970’s productivity improvements. The impact of the “Reagan Revolution” in freeing American capitalism from regulations and taxation was not clear during his presidency. The next 8 years (1990-97) showed some improvement, to 1.7% annually, but not a true revolution that either Bush or Clinton could celebrate. The next 13 years (1998-2010) were the golden years for improved labor productivity, averaging 2.9% annually, DOUBLE the improvements from 1977-89. The later Clinton years and the whole George W Bush presidency witnessed these results. The next 6 years (2011-16) reflected the slow recovery from the Great Recession with labor productivity growing by just 0.7% annually, half of the poor 1977-89 time frame. Productivity growth started to recover in the last 4 years, averaging 1.7%.
Economists tend to focus on the role of “capital” in driving labor productivity. In essence, if workers have more or better machines and computers, they will produce more per hour. In very rough terms, about one-half of labor productivity improvements come from better tools.
The economists who try to measure the output part of labor productivity (real GDP) try to be consistent and conservative. That means that they understate real GDP. They don’t include the value of reduced pollution. They try to adjust for the improved quality of goods and services, but count only the obvious benefits. In a world dominated by services, this is a major gap. They make no attempt to estimate the benefits of less time spent buying goods and services. They make no estimate of the value of shorter delivery times. They are unable to account for the benefits of transparent and deep markets for goods and services.
Finally, they do not account for the value of product variety, broader consumer choices and customized goods. The fact that modern products more exactly fit consumer needs adds no value to GDP. By the 1990’s firms understood the universal customer value framework (QSFVIP) outlined by Deming, Juran, Shingo, Schonberger and others.
Firms understood Marshall Field’s dictum to “give the lady what she wants” and pursued it with a vengeance in order to gain market share, fight imports and improve margins. Based on my experience, firms devoted at least as much time to delivering upon these “soft”, qualitative, unmeasured productivity factors throughout the last 50 years. Hence, true productivity growth may have been twice as high as officially reported.
What changed in 50 years?
Secretaries and administrative assistants disappeared. Managers and professionals learned to do their own “paperwork”.
Clerks disappeared. Fewer transactions. Lower transaction costs. Standardized transactions. Automated transactions. No data entry operators.
All processes were subject to measurements like Ford’s assembly line.
More “analysts” working to improve all functions. Not just chemistry and engineering specialists. Financial analysts, marketing analysts, pricing analysts, logistics specialists, forecasters, inventory specialists, brand managers, compensation analysts, trainers, quality specialists, process engineers, systems engineers, professional purchasing analysts, etc.
Documentation revolution. Policies and procedures. Standardization. Say what you do.
Quality/process/TQM/lean 6 sigma revolution. Every activity can be defined and improved. Do what you say. Improve.
Process management via Goldratt’s theory defined in “The Goal”.
Import substitution due to lower transport, finance and transaction costs.
Outsourcing and specialization. Finance, accounting, HR, engineering, IT, facilities, marketing, advertising, logistics, distribution, legal, labor, manufacturing, design, project management, testing, returns, maintenance, leasing, equipment rental, etc. Stick to your core functions.
New product introduction as a well-defined process that can be improved and outsourced.
Business viewed as a portfolio of products and channels and markets.
Competitive banking. Competitive equity markets. Venture capitalists. Bankruptcy processes. Leveraged buyouts. Asset based financing. Leases. Portfolio theory. International funds flows.
Reduced barriers to international trade. Tariffs. Regulations. Lower shipping costs due to containerization. Rule of law reducing costs like letters of credit. Fax machines. Reduced foreign travel costs. Japanese supplier partner concepts.
Improved suppliers. Supplier partnerships. Supplier measures. Contracts. Supplier improvement plans. Less bidding, negotiations or transactions.
Capital allocation/investment within firms. Basic ROI/NPV education. Portfolio of products. New products, new channels, new brands, process improvements, supplier improvements. Improved supplier opportunities. Acquisition value. Improved project management and risk management.
Jack Welch view: be number 1 or 2 or else. Walmart or niche service positioning, not JC Penney or Sears or Kmart. Firms dedicated their products to what customers would willingly buy.
Benchmarking to world class standards. Belief that reaching this performance level is possible and required.
Computerization of all processes. Transactions. Planning. Scheduling. Forecasting. Controls. Budgets.
Improved current and futures markets for all commodities and business inputs.
Reduced costs for transportation, agriculture, manufacturing, minerals and standardized inputs.
Reduced construction costs through design, standardization, sourcing, project management tools.
Greatly improved hiring frameworks and tools (fill the bucket). Management development training. Employee evaluation and feedback tools.
Social support for necessary “downsizing” at larger firms during economic downturns.
Basic productivity improvements from Microsoft Office tools: spreadsheets, word processing, publishing, web publishing, forms, database structure, queries, reporting, projects, etc.
Internal planning, analysis and control tools. Activity based costing. Balanced scorecard.
Much of the productivity improvements of the last 50 years have been due to improvements in “administration”. The lean 6 sigma quality revolution points to continued improvements in the future, perhaps with a lesser measured impact.
Breakthrough improvements in chemistry, biotechnology, physics, nanotechnology, DNA, plastics, materials, communications and energy may be required to drive productivity improvements in the next 50 years.
I’m an optimist. Science delivers opportunities. Profit oriented firms in competitive market find and apply these opportunities. Output per labor hour will be 150% higher again in 2070 (5/2 X). That means that workers in 2070 will be more than 6 times as productive as those in 1970!
The overall US labor force participation rate is the ratio of those employed plus those actively looking for work among the non-institutional (military, prison, etc.) working age (16-64) population. It rose a quite substantial 8 points, from 59% in 1950 to 67% in 1990, mainly due to increased female participation rates. It remained in the 66-67% range through 2007, before declining by 5% in the last 14 years, a quite rapid decline. Note that the years selected are the ends of business cycle expansions plus the current year.
The overall rate mirrors the White rate as White’s make up the largest share of the population and because other racial participation rates are similar to the White rate. Black labor force participation has followed the White pattern, but been 2-3% lower than the White rate for most periods. The Hispanic rate started just below the White rate, but exceeded it by 1990, growing to a 3% advantage in 2021 at 65% versus 62%. The Asian participation rate has matched the White rate, sometimes being 1% higher.
The decline in the White share of the US population, especially in new births and school age children has been highly publicized and politicized for 40 years. The White share of the population has fallen from 5/6ths to just 3/5ths since 1950. African-American share grew by 2% in the 50’s and 60’s before settling at 12%. The Hispanic population has grown rapidly, from just 2% to 19%, passing the Black share by 2001. The broadly defined Asian population has grown from less than 1% to 6%. This breakdown does not include multi-race categories, which now amount to 3%. For labor force participation purposes, racial composition plays a minor role in the total rate.
Male participation in the labor force has fallen by 20 percentage points, from 87% to 67%. The increase in the 65+ age group from less than 4% to almost 8% of the total population accounts for more than 4% of this 20% decline, but 3/4ths or more is due to other factors. Female participation rates, working against this same 4% reduction due to the mix of older residents, grew from just 33% to a peak of 60% in 2001 before declining by 4%, about half of the male decline from 2001 to 2021. The expansion of opportunities for women and their choices to pursue the opportunities in the US is well understood. The increased share of aged 65+ women accounts for almost 3% of the 4% female decline. The reduction in male labor force participation is the big story.
Women, aged 55+ averaged just 22% participation through 1990. Most of the increased labor force participation in these 40 years was among younger women. More than one-third (35%) of women aged 55+ are now active labor market participants.
Their male counterparts in this age bracket show a 21 point decline, mirroring the overall male decline, but starting at the lower rate of 67% and ending at 46%. There is a mix variance here, as 55-64 year olds made up 4% of the population in the first 50 years, but now account for 6%, while the 65+ age group started at 4% for the first 25 years and then grew to 8%, so the share of 65+ citizens out of the 55+ total has risen from 45% to 56%. The mix variance accounts for a 5% decline in the participation rate, but the other 16% is due to other factors.
Demographers refer to the 25-54 year age group as the prime labor force. Here, we see women double their participation rate from 1950 (39%) to 2001 (77%) before falling off a bit to 74%.
For prime age men, we see a 9% point drop, from a near universal participation rate (97%) in 1950-60 down to 88% by 2018.
The White women data follows the total. A majority of Black women were labor force participants in 1970, 10 points higher than White women. They increased their labor force participation by 14 points, to a peak of 65% in 2001, before falling back by 5 points to 60% in 2021. This generally matches the pattern of White women, except that Black women have averaged an extra 4 participation points. Hispanic women started between the other two groups, at 45% in 1970 and then climbing to 60% in 2001. Their participation has remained close to 60%. Overall, relatively minor racial differences in female participation. About a 25 point increase in the second half of the 20th century followed by a 2 point decline in the last 20 years.
White men make up the largest share of the male total, so their data is close to the total, declining by 18 points, from 88% to 70%: from 7 out of 8 in the labor force to just 7 in 10. Black men follow the same Total pattern, but are consistently 4% less active in the labor market versus White men. Hispanic men first appear in the data in 1970, with an 85% participation rate, just above the 83% White male rate. However, Hispanic males stay at this level through 2007, while the White rate falls by 7%. In the last 14 years, the Hispanic male participation rate has dropped by the same 5% as the White and Black male rates, ending at 79%, 9 points above the 70% White rate.
Let’s start with the prime age labor force (25-54). From 1950 to 2001, we see a 19 point increase, from 65% to 84%. This is all due to the increase in female participation, which more than offset the significant decline in male participation. In total, from an economic point of view, this is great news. The total participation rate has slipped back a bit, from 84% to 81% in the last 2 decades, with men and women both falling back, but men falling faster. Aside from the distortion of the baby boom when it declined to 46%, the prime age group has typically been about 52-53% of the population. It has fallen by 1% in the last decade as the growth in older population groups has been faster than the decline in the childhood group.
The non-working age 0-15 year old childhood group reached a full 31% of the population total in 1960 and has since fallen to 19%. From an economic point of view, this too is good news, as the dependency ratio of non-workers to workers declines.
The teenager participation averaged 46% from 1950-1970. It averaged 55% in the mid-70’s to mid-90’s, but has quickly declined to just 34% in recent years. As teenagers make up 11% of the working age population, this drives a 2% decrease in the overall workforce participation rate. From an economic point of view, it is possible that the other activities of teens today are more valuable in creating human capital than the part-time entry level work that many more were performing in the 1970’s-90’s.
The labor force participation for young 20’s rose quickly from 64% to 77% by 1979 with increased participation by young women in the economy. The rate has declined to 70%. As this group accounts for 11% of the work age population, this has driven a nearly 1% point decrease in the overall work age participation rate.
The 55-64 year old group has a different pattern, averaging 61% in the 1950’s to 1970’s, decreasing 5 points to 56% in the mid-70’s through mid 90’s, before growing all the way back to 65% recently. The increased female participation rate did not impact this group significantly. During the 1975-95 time, more men took advantage of early retirement possibilities, some forced and some voluntary. This group increased from 9% to 12% of the total population. The 9 point participation rate increase since 1990 adds about one and one-half points to the overall participation rate, offsetting some of the 16-25 year old reduction.
The 65+ group pattern is similar to the 55-64 year olds, starting above 20%, falling down to 11% and returning to 20%. Economically, this recovery adds to the nation’s output, even if this group is not considered part of the work age population. This group has more than doubled as a share of the total population, reaching 15%.
With men and women combined, the total participation rate drops 5 points, from 67% in 2001 to 62% in 2021. The prime age group accounts for one-half of the working age population and shows a 3 point decline from 84% to 81%, with a one and one-half percent negative impact on the total rate. The significant declines in the 16-25 age group drives the rest of the 5 point decrease.
Data on labor force participation by educational attainment for ages 25-64 is available for 1970 through 2018. During this nearly 50 year period, the total participation rate increased from 70% to 79%, with a peak of 81% in 2001. Recall that the official total participation rate included the 16-24 year age brackets where participation fell significantly. We have only a 2 point decline from 2001 to 2018 rather than 5 points.
The big take-away is that participation rates for each group don’t change much through time. Those who didn’t complete high school average 61% pretty consistently. There are changes in the male and female participation rates and racial composition rippling through the data, but on average 3 of 5 people without a high school diploma participate in the labor market.
High school graduates average 76%, with a 3 point decline to 73% for 2018.
Individuals with some college classes have averaged 82% participation, except in 1970 when it was only 74%.
Those holding a college degree have averaged 86% participation, except in 1970 when they averaged 82%.
The proportion of citizens in each group has changed dramatically. Less than high school graduates dropped from 45% to just 10% of the post college working age population. College degree holders increased from11% to 35%. College attendees grew from 10% to 26%. High school grads started at 33%, increased to 38% and then declined to 29%. In total, the country shifted one-third of the population from non-high school education to college degree holders (BA and AA).
Given the consistency of labor force participation by level of educational attainment, the overall increase from 70% to 79% makes sense. Applying “typical” participation rates to each group (61.8, 74.5, 80.5, 85.7) produces an estimated participation rate for each year: 70, 73, 74, 77, 78 and 79. The 1990 and 2001 years stand out as having significantly higher actual than estimated labor force participation rates (+5 and +4). Perhaps some of the decrease in various rates since 1990 is due to there being an unusually high participation rate during this period as the economy expanded for relatively long periods with relatively mild recessions.
The prime age category is more than one-half of the labor force and contains individuals with the greatest earning power. Most attention has been focused on the 3 point drop from 2001 to 2021. It is also important to note the 19 point increase from 1950. We have data for men and women in this age group. Female participation essentially doubled from 1950 to 2001, before flattening out (down 2 points).
The male participation rate declines throughout the 70 year period, not just in the last 20 years. It falls from near universal 97% to 88%, meaning that 1 in 8 prime age males is not in the work force. As usually, the White rate matches the Total rate. Hispanic men have seen a 5 point decline from 1970-2018 while Whites fell 8 points. Hispanic men in 2018 had a higher participation rate than Whites. Black men started 7 points behind Whites at 90% and declined by an even larger 11% to just 79%. Whatever factors are driving prime age White men out of the labor force appear to be negatively impacting Hispanics and Blacks as well.
The overall participation rate for work age individuals (16-64) increased from 59% in 1950 to 67% in 1990 and has since dropped to 62%. The prime age group (25-54) increased from 65% to 84% before sliding back to 81%. For various age groups, the female participation rate doubled from mid 30 percent to high 60 percent range between 1950 and 2000 before slipping back a little. This drove the overall participation increase through 2001. The male participation rate for ages 16+ fell from 87% to 67% between 1950 and 2021. The prime age male (25-54%) rate dropped from 97% to 88%. Similar declines were seen for all races. The Obama white paper above (CEA) provides relevant details. The IBD article below is a good summary of this situation.
STEM degrees awarded at the bachelors, masters and doctoral level continue to increase in response to market demands from 2011 to 2019, increasing by 54% in total and by 45% for U.S. residents. Most of the increase has been at the bachelors level, from 255,000 to 379,000 degrees (+49%). Masters degrees have increased from 53,000 to 72,000 (+36%). Doctoral degrees have increased from 14,000 to 17,000 (21%).
African-American degree earners have increased by 46%. Hispanic Americans have increased by 137%. Asian-Americans have increased by 57%. White Americans have increased by 28%, from 224,000 to 287,000 (+63,000).
US resident male degree earners increased from 210,000 to 297,000 (41%). Female degree earners increased from 112,000 to 171,000 (52%).
By contrast, the US population increased by just 5% during this period, from 312M to 329M.
I don’t find many news stories highlighting this very good news. In a world that requires technological innovation, application, maintenance and understanding, the US is quickly increasing the number of graduates with these skills. Women and minorities are increasing their relative share of the graduates in these subject areas, which historically have been well paid.
There is room for improvement. Women and minorities are still underrepresented. They graduate at lower rates than white whites. Non-residents earn a significant (19%) share of US degrees awarded.
Bottom line: US residents are earning about one-half million STEM degrees each year. This is double the one-quarter million degrees awarded in 2000. Note that compounding of 31% and 54% growth yields 102% total growth, not just 85% (a core STEM skill).
Apologies to Richard Nixon for paraphrasing his famous Keynesian quote.
Two years after starting a mid-career search, I remain impressed by the greatly increased emphasis on perfectly matching an individual’s professional and industrial experience to an open position. Hiring managers, recruiters and HR managers have all adopted this approach. This is partly because of the abundance of candidates and partly due to the risk averse environment caused by the slow economic recovery. It is also due to the improved results of the “fill the bucket” approach to hiring where specific requirements are listed and then proven from actual experience and multiple interview responses.
However, I think there is something deeper involved. Professional and industry specialization has continued to increase through time. The discussion of outsourcing, virtual project teams and individual agents has died down, but these innovations have become a growing reality. Successful firms increasingly focus on smaller niches of product, geography and comparative advantage. Increased industrial and professional fragmentation is required for success. The trend will continue.
How did I miss this? As usual, paradigms act as blinders. In high school in the 1970’s I was taught it was important to be “well rounded”. At a liberal arts college, I learned that great minds and thoughts were academic, abstract and universal. In business school, I learned that an MBA provided the necessary skills for a lifetime of career success. I later discovered the competitive advantages of being a “general manager” from John Kotter’s influential work.
My teachers were correct in promoting the personal and professional value in developing broad knowledge, thinking skills and a professional base. They did not foresee the modern world of global competition, where firms are forced to specialize and make economically rational decisions far beyond those envisioned by Adam Smith and David Ricardo who outlined these principles long ago.
“General Managers” are now merely a declining specialization. Some top-end MBAs with broad consulting experience can move from industry to industry and be successful. A few individuals can specialize as “strategic advisors” to presidents. But even in these fields, the trend is toward specialization. Firms will pay for experts in a narrow tax, legal, technical or IT field only when in-house experts do not exist or others cannot complete a project well enough.
Professional services firms have always paid lip-service to industry focus. In the last two decades, led by IT firms, they now specialized by industry and technology equally. Clients expect staff to understand their business.
Industrial and professional specialization will be required for future employment. Individuals, firms and universities will adapt to survive.
Anyone who has searched for work in the last decade has learned about the importance of the 15 second elevator speech and fine-tuning their personal brand.
Many have rejected this sales and sound-bite oriented approach to career progress as being undignified, unprofessional and personally demeaning. Most have learned that this approach is required for even a scrap of success.
Modern recruiters and counselors advise that “it’s not about you”. It’s about what a hiring manager or screener are seeking. A generalist brand, multiple professions, multiple industries or a complex story are deal-breakers. Hiring agents are seeking an exact match. A Swiss Army knife has no perceived value.
Job seekers are well-advised to network broadly, but to focus on opportunities with a clear match of experience to requirements. Hiring managers want to be sure that professional skills and experience are solid. Degrees, majors, certification and prior job titles provide 90% of the evidence. It is a rare recruiter or hiring manager who will really dig deeply into technical skills. Interviewers also know if they are seeking a specialist or generalist within a profession. Candidates should tailor their resume, cover letter and answers to one or the other. A state and local tax specialist is hired for very different reasons than a division controller.
Most businesses strongly prefer candidates to demonstrate mastery of a single profession, even for entry-level positions. General management majors are handicapped in the job search.
In addition to being technically proficient, most firms want applicants to be dedicated to and knowledgeable about their industry. There are many reasons. Learning industry jargon, technology and the basis of competition takes time. Industry veterans truly believe that their industry is different and special. Sharp managers understand that turnover is lower for industry specialists. Most industries have a well-established culture and a leading function (merchants, scientists, deal-makers, architects). Like most clubs, they prefer to hire familiar faces.
A wide range of professional, industry and project experience is of great value within a firm. Unless an individual is able to sell very specialized technical skills or are seeking work through a consulting firm, they must stay focused on a simple story line when searching for a new firm. “Cost accountant – heavy manufacturing” sells well. “Management accountant with project success in various industries” sends vague signals.
A specialized industry and professional brand is required today.
Companies are well-advised to temper their desires for a perfect professional and industry match in the hiring process.
For each opening, decide if a professional specialty is required, preferred or unimportant. A senior avionics research engineer requires an exact match. A senior process engineer might have a six sigma black belt, or not. An entry-level tax accounting position could be filled by any accounting of finance graduate.
If a position has a clear technical career path, the specialty is more important. If a position often leads to a manager role with broader responsibilities, the specialty is less important.
If the firm competes in a large industry like medicine or distribution, an industry experience screen makes business sense. If the firm is in a niche industry like timeshare swaps, association management or oil drilling services, the larger candidate pool from a broader range of industries may be wiser.
Within a firm, some functions require more industry experience for success. Product managers, product engineers and sales managers need to be experts in their field. Support functions like IT, HR, accounting, legal and facilities may not require industry experience. Most entry-level positions can be filled by trainees who are eager to learn.
If the firm is in a new, fast growth industry, then hiring from other industries may be a necessity.
If the firm is struggling to compete in an industry undergoing change, hiring from another industry may be required to insert world-class experience and lead that change.
In general, organizations have found that specialized professional and industry experience are good predictors of hiring success. Adding a pinch of common sense will reduce the search cost and provide superior candidates in some situations.
There has long been a divide between liberal arts colleges, research universities and institutes of technology. The gap between traditional four-year colleges/universities and commercial or technical schools generally remains.
In a fifty year period of growing enrolments, our major public universities have become larger and more complex. They have added colleges and majors. They have increasingly focused on winning research dollars. They have learned to compete for students. They have nearly all adopted the same brand strategy focused on “academic excellence”. The college ratings game essentially focuses on the ranking of entering student SAT scores. To succeed, universities have improved their facilities, increased financial aid packages and developed programs that attract high SAT students.
State universities secure alumni and corporate funding so that they can compete with other highly rated schools. State universities that were once positioned as teachers colleges, normal schools, agricultural and technical or urban universities all compete for the same academic rankings, investing in research labs, notable faculty and sports teams. Some clever universities specialize in a few niche colleges like insurance, architecture, entrepreneurship or media. They use brand excellence in a professional school or two as a substitute for higher rankings in the more prestigious arts and sciences.
Given the business world’s strong preference for industry specialization and experience, a more satisfying strategy for their students might be to specialize in a single broad industry. Charter and magnet schools do this at the secondary school level. Community/technical colleges often merge industry and professional skills into technical programs. A few older colleges like agriculture still produce ag communications, ag business and ag engineering majors.
A university could adopt a broad industry like medicine, distribution, trade, communications, government/NFP, manufacturing, agriculture or financial services. Professional and associate/technical degrees could be offered. In addition, degrees in support fields like business, marketing, communications, finance, IT, engineering and science could be offered. Courses could be developed to provide an industry overview, highlight industry firms, describe international opportunities and teach industry terminology.
If state universities want to contribute to state level economic development, they could make an immediate and lasting impact by specializing by industry.
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