The Agenda

A Grim Yet Plausible Projection from McKinsey

Robin Harding of the FT reports:


The US will still face high unemployment in 2020 except in “the most optimistic scenario for job creation”, according to a new report to be published on Friday.

America needs to create 21m new jobs to keep up with population growth, say analysts at the research arm of consultancy McKinsey, but that will only happen if the economic trends of the last decade are reversed. …

A strong economic recovery is a precondition for full employment, said Susan Lund, director of research at the McKinsey Global Institute in Washington, but productivity gains that complement rather than replace lower-skilled workers in areas such as healthcare, a slowdown in the movement of manufacturing jobs overseas and a recovery in new business start-ups will also be needed.

So in the optimistic scenario, technology allows nurses to do the work of doctors, manufacturing returns to the U.S. as China’s cost advantage erodes, etc. 

I’d suggest that Casey Mulligan’s take is important to understanding the two-track labor market:

Another set of theories say that high-paid employees are replacing low- and middle-income employees. This replacement might come from employers’ attempts to cut personnel during the recession, rather than payroll spending. For example, employers might have worried about health insurance and other employment regulation whose costs are proportional to the number of employees they have. In this view, the bank bailout did little to prevent layoffs.

That is, the fixed costs of employing people are quite high. And this in turn will encourage firms to rely more heavily on machines. I’d suggest that reducing the fixed costs associating with employing people is of urgent importance, i.e., that we need less labor market regulation and not more.  


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