US unemployment rates remain high and a major issue in the US presidential campaign. This post seeks to explain with simple math where the jobs went as a first step in understanding how unemployment might be reduced. The math is simple, and it helps to show how most debate over economy and employment miss what actually matters most – and that is innovation policy.
In December, 2007 the US economy employed about 138 million people. In February, 2012 that number had shrunk to about 133 million (data). Where did those jobs go? Two recent studies provide some important insight to this question.
Last month, Georgetown University's Center on Education and the Workforce published a study looking at job losses from 12/2007 to 2/2012 (hence my use of those dates) by economic sector and educational attainment (here in PDF). The Figure below shows their overall results.
The graph shows that for those who attended some college, or with more post-secondary education, employment had recovered to December 2007 levels by February 2012. The balance of “lost” jobs was among those with secondary (i.e., high school) education or less.
A longer view, beyond the time frame of the recent recession, shows that all job growth in the US since 1989 has come from those with some post-secondary education, with a 14% drop in those employed with a secondary degree or less. Thus, the recent recession amplified trends that were already in place and part of the ongoing structural change in the composition of the economy.
The Georgetown report also looked at job losses by economic sector by educational attainment. This is shown in the figure below, which shows the dramatic loss of jobs by those with the least education in construction, IT, manufacturing and financial services. Together, these four sectors account for the loss of 5.6 million jobs from December 2007 to February 2012. Within those sectors 3.7 million, about two thirds, of the job losses were among those with the least education, secondary or less.
A big part of the loss of jobs of course is the nature of the recession itself, originating in the finance industry and the housing bubble – hence the large loss of jobs in construction and financial services and the bubble burst.
The loss of low-skill jobs in manufacturing and IT (and other sectors in the economy) is arguably the consequence of industries in these sectors trying to maintain productivity growth to remain competitive by shedding the lowest skilled jobs at a rate faster (slower) than the decline (subsequent rebound) in output. These numbers are borne out by looking at productivity data.