Behind America's 'Jobless Recovery'

In 1984, with the U.S. having emerged from a deep recession two years earlier, Peter Drucker observed that many people were scratching their heads and asking, "Where have all the jobs gone?" Drucker, however, had a 180-degree-different question on his mind: "Where," he wondered, "have all the jobs come from?"

"All developed industrial countries are losing jobs in the smokestack industries," Drucker wrote. "But only the U.S. economy is creating jobs at a much faster rate than the smokestack industries are losing old ones, indeed at a rate that is almost unprecedented in our peacetime history." He went on to praise "America’s entrepreneurial job machine," citing "midsize growth companies" as a particularly vigorous source of new employment.

Today, with the nation once again two years into an economic recovery, Drucker’s job machine is clearly on the fritz. Last week’s Labor Dept. report, showing that employers added a feeble 18,000 net new positions in June, underscored the great disconnect that has characterized this period: Businesses are earning lots of money, but they’re just not hiring.

Pundits have offered a variety of theories to explain this phenomenon, many of them freighted with political overtones. But Drucker, I think, would have singled out two reasons for the jobless recovery.


The first is that companies are increasingly figuring out how to do more with fewer hands. It is a trend that one can see most plainly in manufacturing.

Last week, President Barack Obama talked about the imperative of generating more jobs in the sector. "We have to be successful at the cutting-edge industries of the future, like Twitter," he said. "But we also have always been a country that makes stuff. And manufacturing jobs end up having … bigger multiplier effects. So one manufacturing job can support a range of other jobs—suppliers, and the restaurant near the plant, and so forth."

While the President’s statement was basically true, he left out an important proviso: Yes, America has always made stuff; in fact, we now run neck and neck with China as the world leader in doing so. We also make more than twice as much stuff (in inflation-adjusted dollar terms) than we did 40 years ago.

The rub is that, because of tremendous gains in productivity, it requires far fewer individuals to forge and fabricate all these products than it used to. What took 1,000 people to churn out in 1950—the dawn of a golden age for blue-collar work—now requires about 185, according to the Federal Reserve Bank of Chicago. In 1979, at the all-time peak, more than 19 million men and women in the U.S. were engaged in manufacturing. Today, fewer than 12 million are.

"The real threat to manufacturing jobs," Drucker wrote in Managing in the Next Society, "is not competition from abroad but the rapid decline of manufacturing as a creator of work."


Yet this is only part of the story. In 1985, a year after touting America’s ability to replace its disappearing smokestack jobs, Drucker put his finger on another trend: "We face a growing mismatch," he warned, "between jobs and available labor supply."

Exactly how much this problem is contributing to the current crisis is open to debate. But there’s little doubt Drucker was on to something significant. Narayana Kocherlakota, the president of the Minneapolis Fed, asserted last year that about a third of the nation’s joblessness results from a discrepancy between the skills employers seek and those of the workers available. The McKinsey Global Institute found that 40 percent of the 2,000 U.S. companies it recently surveyed have had positions open for six months or more because they haven’t found the right candidates to fill them.

"Skill shortages are not confined to engineers, scientists, and computer programmers," McKinsey noted. "Our interviews reveal a broad set of fields that require different levels of education—welders, nursing aides, nutritionists, and nuclear technicians—in which employers cannot find qualified workers."

A fix here won’t be fast or easy. We need individuals to take responsibility for acquiring technical and analytical knowledge, a tall order in a nation where more than a quarter of all public high school students don’t graduate on time.


New jobs demand "a habit of continuous learning," Drucker wrote in a 1994 article. Those who previously would have gone into manufacturing "thus cannot simply move into knowledge work or services the way displaced farmers and domestic workers moved into industrial work. At the very least they have to change their basic attitudes, values, and beliefs."

Despite a very mixed track record, we also need large-scale government investment in learning programs for all ages, a daunting notion during an era when politicians from both parties are set on slashing budgets. "The school can no longer be content to be a place that takes care of juveniles," Drucker advised. It must "be the partner of adults as well as the partner of their employing organizations."

And we need businesses to take a more aggressive approach to the issue. "Companies will have to both step up and considerably change their training," Drucker declared. "American business is already the country’s largest educator. But most companies have ‘training programs’ rather than a ‘training policy.’ Few focus their training on the company’s needs five years out. … Fewer still have any idea of what they are getting for all the money and effort they spend on training, let alone what they should be getting."

Although Drucker wrote that passage more than 25 years ago, it is hard to imagine that much has really changed since then. But, somehow, it’s going to have to change if we have any hope of getting the job machine cranking again.

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