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Charles Wheelan, Ph.D. The Naked Economist

Charles Wheelan, Ph.D., The Naked Economist

Skills Deficit Makes 'Creating Jobs' a Pipe Dream

by Charles Wheelan, Ph.D.

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Posted on Monday, January 28, 2008, 12:00AM

I have a naïve request for the balance of the presidential campaign: I don't want to hear any candidate say one more thing about "creating jobs" or "bringing back jobs" or doing anything with the word "jobs" in it.

That might seem strange at a time when the economy is teetering on the brink of recession, and has eclipsed Iraq as the No. 1 issue on many voters' minds.

Here's my reason: Other than during the depths of the Great Depression, the government doesn't "create jobs." (World War II created most of the jobs then anyway, and I'm not sure that's the direction we should go.) Instead, a sensible government should help to create a skilled workforce and a decent business climate. If it does that, the jobs will take care of themselves.

Skills Gone South

To appreciate this distinction, consider two thought experiments. Here's the first one:

1. How many different jobs could you find in the next six or eight months if you had to? Not perfect jobs, but places where you could get hired and earn a salary reasonably close to what you're earning now.

I suspect this answer is going to vary widely among the people reading this column. For a star pediatric heart surgeon, the answer might be 10; every major children's hospital would love to have him or her on staff. For an unemployed autoworker in Michigan, the answer is zero -- or else he wouldn't be unemployed.

The crucial point is that unemployment and low wages are not a function of too few jobs, as most politicians would have you believe. They're a function of too few skills.

Joblessness in Context

We're used to hearing about the unemployment rate, which climbed to 5 percent in December. Even that figure is somewhat misleading, though, because there's extraordinary variance by education level. According to the most recent data from the Department of Labor, the unemployment rate is:

• 8.2 percent for high school dropouts.

• 4.7 percent for high school graduates with no college.

• 3.7 percent for workers with an associate's degree or some college.

• 2 percent for workers with a bachelor's degree and higher.

See the pattern?

Not Everybody's an A-Rod

Here's the second thought experiment, which gets at the heart of trade, outsourcing, and related causes of employment anxiety:

2. In December, the New York Yankees signed Alex Rodriguez to a 10-year, $275 million contract with a $30 million bonus if he breaks the all-time home run record. Why didn't the Yankees hire a Chinese or Indian worker who would take the job for $500 a year, with a free moped for breaking the home run record?

Because there's not a person in all of China or India (that we know of) who can hit a baseball like A-Rod. The Yankees can hire lots of people cheaper, but they won't get the job done. Rodriguez can command a unique salary because he has unique skills. The same is true everywhere else in the economy, albeit to a less extreme degree than in professional sports.

There's a crucial link between pay and productivity. Your job can't be outsourced if there's not someone in China or India or Vietnam capable of doing the same thing for less. Of course, the primary driver of productivity is education, broadly construed. That means everything from preschool education to highly specific skills learned on the job.

A Clear Distinction

That's why I find it both puzzling and frustrating to hear politicians talk so much more about jobs than skills. The sad fact is that if a modern automobile plant came to Flint, Mich., most of the unemployed workers there wouldn't have the right skills to get hired.

Could they write the software to run the automated assembly process? Do they have experience with hybrids and other green technologies that will be at the core of the next generation of vehicles? No one is going to get paid an above-average wage to screw bolts on an engine block. That's something that can be done cheaply just about anywhere else in the world.

This distinction between jobs and skills may seem like a semantic point; it's not. It's at the core of what constitutes good economic policy. Politicians who chase jobs tend to favor offering subsidies to attract or retain big employers. They favor making it more difficult to move jobs overseas and to buy foreign products and services. They view the world as having a fixed number of jobs that must be protected using government resources -- money that could otherwise be spent on programs that actually make workers more productive.

And that's just plain wrong. Remember, we decided that the star pediatric heart surgeon could find 10 jobs if he had to. And the unemployed guy in Flint couldn't find one. That's a skills problem, not a shortage of jobs.

Skillful Questions

So here are three things the presidential candidates (and any other politician) should be talking more about:

• Preschool education: The data are overwhelming that the economic returns on public investment in early childhood education are huge, particularly for disadvantaged children. If we teach three- and four-year-olds how to learn more effectively, then every subsequent dollar we spend on education becomes more productive.

As James Heckman, the 2000 Nobel Laureate in economics, wrote recently in an op-ed for the Wall Street Journal, "Early interventions for disadvantaged children promote schooling, raise the quality of the work force, enhance the productivity of schools, and reduce crime, teenage pregnancy, and welfare dependency."

A rigorous study of Perry Preschool Program, an enrichment program for disadvantaged children similar to Head Start, followed students who were randomly selected for the program and compared them to a control group who were not selected all the way up to age 40. The benefits of the program exceeded the costs by a ratio of 8 to 1.

• The high school completion rate for African Americans and Hispanics: Nearly a third of Hispanic 16- to 24-year-olds have dropped out of high school -- triple the proportion for non-Hispanic whites. That's an alarming number given the large and growing Hispanic population in the United States.

The fraction of African American youths who have dropped out (13 percent) is twice that for whites -- a gap that was narrowing steadily during the 1970s and '80s, but then stopped narrowing at the beginning of the '90s. If you want to understand the lagging performance of U.S. minorities, start here.

• A plateau in the proportion of Americans getting a college degree: This is an odd one. The economic benefits of a college degree are huge and growing, but the proportion of American high school graduates who enroll in college has been stalled since the early '90s. In fact, the rate of college participation for African American and Hispanic high school graduates has actually been falling.

Other countries around the globe are narrowing the income gap with the United States in large part because they're sending an increasing proportion of their young people to college and we're not.

So here's my challenge to anyone who wants to be president (or governor, or mayor): You show me the skills, and I'll show you the jobs.

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  • Yahoo! Finance User - Friday, April 4, 2008, 9:33AM ET  Report Abuse

    • Overall: 3/5

    #1 - A-Rod is the product of *intense* job training! He is not unique among humans, but he does represents a huge investment, on his and his "owners'" parts, one that is now paying its maximum returns. "A plateau in the proportion of Americans getting a college degree: This is an odd one." -- Not at all, look at the price of college and the paucity of financial aid! Ever since Reagan, federal grants (as opposed to loans) have been cut & cut & cut, so that now there's very little student aid compared to the high cost. Not to mention the cumulative effect of constantly cutting the public education budget for 20 years (another republican constant). Bad public schools really expensive college = situation we're in now. You're right about job training and "re-skilling" being the important issue, tho. I happen to live in MI, right in the middle of tons of unemployed auto workers, and it's a painful thing to see so many people, many of them middle-aged, with virtually no options.

  • DonG - Tuesday, April 1, 2008, 2:50PM ET  Report Abuse

    • Overall: 2/5

    Hindsite is always 20/20 but what do you do with the over 50s, send them to school for 10 years?

  • StephenC - Friday, March 14, 2008, 8:18PM ET  Report Abuse

    • Overall: 5/5

    Just a quick thought on the puzzling drop in high school grads going on to college. When I was in school in the 80's, getting a Pell Grant, you could actually pay for tuition(in-state), your textbooks, and have money left over to improve your standard of living. That was before the Reagan years, at which point the Pell Grant program was gutted, and most students were forced to borrow to get by. You can argue the rationalization of the program cuts, and even listen to how the student loan program is so much more accessible now, but I say college is far less accessible than it in the pre-Reagan years, because the outright grant money is much lower than it once was. Thanks, Steve C.

  • James - Sunday, March 9, 2008, 6:34PM ET  Report Abuse

    • Overall: 5/5

    Thanks for saying what no one want's to hear but everyone knows. Denial is crutch and too many americans can not seem to walk with out one. Maybe you should run for president!

  • Rubbertech - Saturday, March 8, 2008, 2:33PM ET  Report Abuse

    • Overall: 4/5

    Chuck, My coworkers and I need an expert to mediate an argument. Is global wealth/std of living finite? In other words, as third world economies advance and thier std of living rises does ours have to drop? Are global resources ie. fuel, food ect. The new gold standard? Will the US ever see the bounty that our baby boomer parents saw growing up in the 50's & 60's?

  • James - Wednesday, February 27, 2008, 8:37PM ET  Report Abuse

    • Overall: 1/5

    You position is quite valid for the sports arena and most likely the hotel arena, as it’s quite difficult to provide towels from India. However, my assumption is that most IT professionals that have had to deal with the “so called” experts of India and China, that we steadily lose or IT jobs to would disagree. It’s been my first hand experience that it’s nothing more then a cost delta between the two regions of the globe. But, I do agree with your basic position that any of the presidential candidates will be able to do much to keep our labor force employed until we make the painful invest required for innovation.

  • JTurn - Wednesday, February 27, 2008, 6:11PM ET  Report Abuse

    • Overall: 4/5

    One of the reasons we're not sending more people to college is the incredible rise in the cost of a college education, and less help from the government to pay for it. We need to invest not only in preschool education, but also in college education. We still have the best schools in the world, but like everything else in the USA, the high cost make is less accessible. My state (NC) has some of the best moderate-cost public universities (UNC, NCSU), but even they have raised tuition so much in the past 10 years that many people can no longer afford even in-state tuition.

  • Dorsey - Thursday, February 21, 2008, 11:44PM ET  Report Abuse

    • Overall: 5/5

    So true. We should focus on education more in this country and then we would not need to rely so much on importing highly educated people to do a lot of the high skilled jobs that keep the economy growing.

  • Yahoo! Finance User - Tuesday, February 19, 2008, 4:01PM ET  Report Abuse

    • Overall: 3/5

    Part right and part wrong. You could just as easily write a counterpoint article using highly educated scientists who could not find jobs when the space race ended. It's not easy for a rocket scientist to transition to pediatric heart surgery. Personally I have found that most of my technical education goes unused at my engineering job.

  • gritts - Monday, February 18, 2008, 3:21PM ET  Report Abuse

    • Overall: 1/5

    Getting a good job is a function of competent job skills or ability to learn and the network of people you are associated with. There of plenty of good people out there that don't know the right people. In this day of automation less jobs actually require high level skills as one may believe.

  • john - Monday, February 18, 2008, 11:57AM ET  Report Abuse

    • Overall: 1/5

    If the rest of peoples lives are tuned out and only their level of education is taken into account, sure somebody could say more education is the answer. Real story is more personal responsability is the answer to remaining employed. A good name will keep most people employed.

  • CJ - Monday, February 18, 2008, 1:39AM ET  Report Abuse

    • Overall: 3/5

    Only saw one other person make this point going back to 2/2/2008, so I thought I'd bring it up again. The author does take too simplified of an approach, but it's a short article, and he can't discuss it all. Most people who outright disagree with the article's points claim that the reason jobs have left is purely because of costs. They're right, but implicitly assume that the people who take over the jobs at least have the skill sets to do the job. I won't address quality of the work, although I agree with other posters who are tired of the racism associated with that issue--America has made crap, too. The author should have stressed the most important skill anyone can learn, and one that college especially teaches, though not everyone picks up. That skill is the ability to keep learning autonomously. If you want to keep a job, learn skills in your field (it doesn't matter which one) that can't be done remotely. Those skills probably won't be the ones taught in college. Entitlement doesn't exist, but global competition sure does.

  • Yahoo! Finance User - Friday, February 15, 2008, 11:50PM ET  Report Abuse

    • Overall: 1/5

    Sounds nice, but it has two false assumptions: 1. Everyone is capable of becoming highly skilled. Sorry. Not everyone can be a heart surgeon, even if they stayed in school for 22 years. 2. Everyone should go to college. No. If EVERYONE graduated from college, then everyone would be equally "educated" and there would be no employment advantage for having a degree. Still, good education provides a basis for economic opportunity...let's put our investment there.

  • Kellee - Tuesday, February 12, 2008, 12:17PM ET  Report Abuse

    • Overall: 5/5

    Excellent article-I couldn't agree with you more! Education is the key to keeping this country on track. The current system just isn't working, how much more proof of this do we need to act? Schwarzenegger (sp?) tried to reform schools in California and got his butt-kicked by the Teachers Union. We need to pay quality teachers more, but not for nothing-there must be accountability. My teacher friends tell me there is no way to accurately compare teachers b/c of the differences in social environments with each student, i.e. poor vs rich, black vs white, etc... Bull!!! There is always a way to find a common denominator. Introduce competition between schools for vouchers and you'll see results for the kids and higher pay for the teachers who deserve it.

  • Yahoo! Finance User - Monday, February 11, 2008, 3:39PM ET  Report Abuse

    • Overall: 1/5

    Nope. You missed the boat entirely by thinking too narrowly. It's not a lack of skills that we're faced with - it is a glut of skills in an international market that is pricing them accordingly. We're likely to be in a bit of a fix if those skills deteriorate from disuse in the US and we need to be able to produce locally, someday.

  • binderzz - Sunday, February 10, 2008, 5:59PM ET  Report Abuse

    • Overall: 1/5

    But the pediatric heart surgeon will be getting fewer customers as more and more of his patient's parents are unemployed American autoworkers who can't any longer afford the insurance/high medical fees. Economists like Mr. Wheelan will, no doubt, conclude this is only proves the wisdom of free markets. Economic Darwinism!! While the doctor will demand gov't subsidies to maintain his business and lavish lifestyle. I've often wondered what real skills most economists present to the world. Mr. Wheelan seems to be an "expert" on everything from human resouces to traffic safety. When I was in engineering school, I always thought economics was the last stop failing students made before they drifted into the sociology department. WW2 didn't create any jobs. Most of those jobs were created by the US gov't in response to WW2. Around here, as was typical of the times, the US Army came to town and threw up a bomber plant. Local vocational schools turned to its training needs and equipment was ordered from all over the country as the plant was planned and built up. On completion, the plant was turned over to North American Aviation and soon thousands of B-25s were taking to the air to beat the Nazis, only months after the effort began. If Mr. Wheelan had been around to advise FDR, he would have probably recommended a different course. He would have, no doubt, advised FDR to take advantage of free markets and go overseas where all the skilled labor and facilities were. Of course, he would have been going to Germany to have his B-25s built but ... who can argue the wisdom of free markets?!! Of course, we'd all be speaking German today. Mr. Wheelan reminds me of Lt. Milo Minderbender. Call me Yossarian.

  • El Peso Nuestro - Saturday, February 9, 2008, 12:42PM ET  Report Abuse

    • Overall: 5/5

    Great article. I used to work on automotive industry and I could not agree more about the lack of skills. The industry has created high paid unskilled workers, unable to compete outside in the real world. This is a really sad thing.

  • JimO - Thursday, February 7, 2008, 5:22PM ET  Report Abuse

    • Overall: 1/5

    Sorry, Charlie. How did the human race survive the last 10,000 years without pre-school? Pre-school is a fetish, a panacea among liberal ideologues that are trying to find an excuse for the dysfuntional state of primary and secondary education. If you want to improve education, use vouchers and send the bureaucrats, union bosses and patronage workers packing. Good old freedom of choice and competition would wipe out bad schools. And it wouldn't cost a nickel extra. Now that's incentive..!!

  • Yahoo! Finance User - Thursday, February 7, 2008, 4:45PM ET  Report Abuse

    • Overall: 1/5

    Education works only for those who have the capacity to absorb it. We will always have workers with low skills (unless we sterilize people of low intelligence and low motivation, which I do not advocate!). Free trade will always favor third-world low skill labor until other countries catch up with us. The only answer for us is jobs in the service sector for low tier workers. Free trade is the biggest reason for the growing disparity between rich and poor. These cheap goods are creating a social problem that must be addressed somehow.

  • Yahoo! Finance User - Thursday, February 7, 2008, 1:35PM ET  Report Abuse

    • Overall: 5/5

    This article is dead on. Our educational system, our politicians and our own laziness are destroying the fabric of our labor market. I have a masters in information systems from a state school and I can pretty much work anywhere I want.

  • Yahoo! Finance User - Tuesday, February 5, 2008, 11:59PM ET  Report Abuse

    • Overall: 5/5

    Our politicians are to busy being bought to focus on anything of substance.

  • Jennifer - Tuesday, February 5, 2008, 3:26PM ET  Report Abuse

    • Overall: 1/5

    His commentary is nonsense. If everyone had an MS or PhD then you'd abolish the scarcity and thus bring salaries down. Education is a solution so long as everyone does not pursue it. Plenty of unemployed engineers, computer scientists and chemists out there now anyway. The current CEO business plan is to bus in as many lower cost foreigners as possible. This undercuts wages for professionals. My guess is every society has a limited number of resources to divvy up. Who gets their piece of the pie depends solely on scarcity rather than education. Our current immigration policy allows for unlimited numbers of foreigners to enter this country. Since 'regular' immigration brings in one million a year, this alone dilutes salary potential. This guy is looking in the rear view mirror. We need balanced free trade agreements and a rational immigration policy to secure all those 'education jobs' the writer covets. And yes, there are several billion people in the 'rest of the world'. They 'rest of the world' will always produce more scientists and engineers than the US.

  • Yahoo! Finance User - Tuesday, February 5, 2008, 2:56PM ET  Report Abuse

    • Overall: 5/5

    Here's why America will be a second rate nation in 50 years, just like another sunset empire, Great Britain. Ryuta Kawashima, the researcher behind Nintendo's Brain Age series of games for the DS portable system, would rather be working than enjoying $11 million in royalties he could have earned from his creations. Under the terms of his agreement with his employer, Tohoku University in Japan's north-east region, Kawashima was entitled to accept half the Brain Age royalties personally. Instead, he used the proceeds to help fund $6.5 million in construction projects on Tohoku's campus. "My hobby is work," he said. "Everyone in my family is mad at me but I tell them that if they want money, go out and earn it." While you're playing games America, Asia designs the games. But you wouldn't even be able to understand the mathematics behind a coordinate system transformation or ray tracing involved in a video game because you can't even understand the concept of an adjustable rate mortgage because you took Art History instead of Calculus. But maybe the concept will dawn on you when the couch you're sitting on while playing your Nintendo Wii is reposessed from under your fat ass.

  • Yahoo! Finance User - Tuesday, February 5, 2008, 2:08PM ET  Report Abuse

    • Overall: 5/5

    100 years in Iraq could sure train hundreds of thousands, and fund college education of hundreds of thousands! Change National priorities, stop the waste, and jobs could follow using the hundreds on mollions saved for training and education

  • Yahoo! Finance User - Tuesday, February 5, 2008, 11:10AM ET  Report Abuse

    • Overall: 5/5

    Question: Whose going to pay for higher education?. This from a collage graduate.

  • Yahoo! Finance User - Tuesday, February 5, 2008, 10:08AM ET  Report Abuse

    • Overall: 5/5

    Outstanding analysis. Unfortunately, education promises only DELAYED gratification and does not fit with too many of our "gotta have it now" voters and our "power at any price" politicians.

  • Yahoo! Finance User - Tuesday, February 5, 2008, 9:07AM ET  Report Abuse

    • Overall: 5/5

    thank you... someone had to finally say it.. If American families focused on educating their kids, instead of pampering them, and sending them to football practice, we'd have a stronger GDP. amen

  • Gregg - Tuesday, February 5, 2008, 8:12AM ET  Report Abuse

    • Overall: 5/5

    On target. Production requires ability. Self-esteem is a smoke screen. When challenged some people curl up in a ball and cry; others rise up to be so much more than they ever thought. This is not to say we do not need everyone. It is to say we need all to get out of our selfish little worlds and come to together to encourage and challenge and grow. The alternative we can wither, whine and perish. Stand Up America! You acheived great things in the past, you can again. The road has never been, nor will it ever be easy. Don't listen to the smooth talkers who will tell you that it is quick, easy and painless. Yet take confidence in that you can rise up, you can meet the challenge, you can come together, you can be a beacon of goodness in the world! Most of all we must totally renounce the "get rich quick" mentality and the "I got mine" selfishness culture we know all too well. It is a cancer that eats at the very sole of service before self and the unity our nation needs to do that which is good and great.

  • Yahoo! Finance User - Tuesday, February 5, 2008, 8:10AM ET  Report Abuse

    • Overall: 4/5

    I would add that this country is lacking in disciplined workers. Our schools are turning out hundreds of thousands of undisciplined kids all the way from K through college. Of course, though, this starts in the home. In my long experiences at work, I saw too many people who had no allegiance to their employer. This was due, in large part, to the lack of discipline.

  • Yahoo! Finance User - Tuesday, February 5, 2008, 7:13AM ET  Report Abuse

    • Overall: 1/5

    The point has been missed. While I agree with the lack of skills issue, the reason for a lack of skills is not even reviewed here. The author has not ventured to resolve the root cause issue for a lack of skills. I will assist here. 1)Lack of funds for a college education 2)Poor quality of home life (divorce, etc) creates undue strain on young people that impact their ability to succeed. 3)Sub-standard poverty level living creates a low self esteem among our youth. If all people, regardless of income, had a reasonable place to live, they wouldn't look at themselves as failures. Heck, maybe if real estate was controlled, we wouldn't have this problem. THE REAL FUTURE AHEAD The author takes a typical republic view that it's the fault of the unemployed for being where they are. The educated middle class of this nation may soon enter a relm of poverty because of continued Corporate America take-aways of benfits for their own profit. When this occurs, plan on seeing the political and social economic elements of Dr. Chivago resurrected in a real life. Plan on a US Social Economic War spured in alliance to a socially end econimically dissaffected ARMY. This coming war will result in the replacement of our "free" election based system to something potentially unspeakable. When those that pass the laws to make the wealthy wealthier and the poor poorer will eventually be replaced. Hopefully with an improvement of the system. Hopefully not, with communism.

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