Milton Friedman was a Nobel prize winning University of Chicago professor and economic advisor to President Ronald Reagan. Countries interested in improving their standard of living through a free-market economy frequently sought his advice. On one of his trips to Asia, he was taken to see a massive government project. Thousands of workers were using shovels to build a canal. Puzzled by the inefficiency, Friedman asked the government official, “Why aren’t you using any excavators or mechanized earth-moving equipment?” The official explained that using shovels created more jobs. Friedman responded, “Then why not just use spoons instead of shovels?”
The US stock market has certainly recovered from the drop during the Great Recession, with the Dow currently reaching over 16,300 from its 6,548 low on March 9, 2009, but the jobless rate, while improved, continues to struggle in many segments of the population. According to the February 2014 report from the Bureau of Labor Statistics, the unemployment rate of 6.7% has been stagnant since December, and many people fear the US will lose its middle class if jobs continue to be scarce.
I grew up in Portsmouth, Ohio, and in the 1950s it was the fourth largest shoe manufacturing center in the country, and the largest manufacturer of fire and paving bricks in the entire US. Not one of the factories remain today.
Employment in US manufacturing has been falling for six decades as a share of employment, according to the US Department of Labor. In the 1950s, over 30% of all employed worked in manufacturing, while only 9% did by the end of 2011. While manufacturing jobs have increased since the lows during the Recession, this area is not likely to be the primary source of job growth. Today it takes far fewer workers to create the same amount of output, with manufacturing productivity up 40% since 2005, as factories have adopted new technologies and production processes.
Some see this change as a threat. But productivity, in the long run, is good. It’s the reason we have more material things and a better life than our grandparents, even thought we don’t work more hours.
It’s more likely that jobs will be created by new businesses and industries we haven’t even heard of yet. Many jobs today didn’t exist 15 or 20 years ago. That’s only possible when technology creates new businesses and makes workers more productive. In a prior blog, Fighting City Hall, we highlighted Uber, a company that connects people to transportation in ways that are convenient to customers. Before smart phones, their service wasn’t possible.
In Cincinnati today we’re fortunate to have a vibrant resource in The Brandery, a startup accelerator that brings together entrepreneurs and investors, and provides funding and brand mentoring to help make young companies successful. The company was recently named as one of the top 10 accelerator companies in the US, and it didn’t even exist until 2010.
The Ewing Marion Kauffman Foundation projects a record 92 million Americans will be 30 to 49 years old in 2030. According to research, individuals in this age bracket are the most likely to start new businesses, which account for a disproportionate share of job creation. Within this age group, people are more likely to have prior work experience, bank credit, and a spouse’s income to fall back on as they establish their company. I started TAAG when I was 28 years old, and used home equity and my husband’s job as a source of stability during the early years.
Change is not an easy thing. New jobs are being created but not at the usual pace and not fast enough to soak up all the unemployed, so things will be difficult for awhile. But those who are discouraged should look around at all the new companies and industries that are evolving. The best is yet to come!