Most fear to even to use the word “depression,” but now is the time for corporate HR to begin thinking about such an eventuality. As most people know, there are two key economic drivers that impact our economy: 1) productivity (product and service output) and 2) employment.
The government has done a great deal recently to boost the productivity (output) of the economy through its trillion-dollar bailout and coordination of merger activity, but freeing up credit and keeping well-known firms alive have not halted job losses in many industries, including those in the housing, mortgage, and financial sectors.
Both government and corporate leaders have under-emphasized the role of the job market in the economic downturn to the point that in my opinion, the time has come that we must consider the real possibility that the job market will move from a recession into a depression.
I define a “jobs depression” as an unemployment or underemployment of 10% or higher.
Factors Impacting a Move Into a Jobs Depression
Most of the factors that have resulted in our increasing unemployment rate are well known. They include decreased sales and profit in major industries like housing, and large-scale layoffs in the financial services sector. Unfortunately, other negative factors that you might not be aware of will continue to drive the unemployment rate toward double digits. Despite record holiday sales at Amazon.com, most retailers reported results that were the worst since 2001. As a result, you can expect that many retailers will embrace large-scale layoffs, outlet closures, and delayed capital expansion plans as they work to shore up cash flow issues.
You can also expect a second round of mortgage failures as more and more homeowners walk away from homes so severely underwater financially that they actually make money by declaring bankruptcy despite interest rates being at an all-time low. Further complicating the economy are more local issues, namely significant reductions in tax revenues that will pressure many state and local governments into hiring freezes and layoffs.
At the global level, the strengthened dollar and economic instability in many global economies will likely slow growth in those markets, further cutting demand for U.S. exports. While domestic and foreign demand drop, the workforce will actually grow, fueled by aging boomers foregoing retirement and relaxed immigration rules. Despite increasing demand, you can expect that even the healthcare and high-tech sectors will be hunkering down.
What Makes This Unemployment Rate Surge Different?
Unlike previous periods of high unemployment, this time around there will be an abundance of people who want to work but who simply put just do not have the skills required for the jobs that are open. For example, traditional government work projects like the one planned by incoming President Obama have traditionally been used to offset manufacturing and construction layoffs, putting “pick and shovel” jobs in the hands of unskilled workers; however, even such low-level jobs have seen rampant innovation in recent years that has consequently raised the bar with regards to entry-level skills needed. This will make it difficult to place a large number of unemployed individuals from other industries in public work projects.
The next problem area that continues to be ignored is our retraining capacity. This time around, you can expect large-scale cutbacks at universities and educational institutions, which in the past have had the capacity to retrain the unemployed. With corporate grants, financial aid programs, and tax revenues drying up, many unemployed will find universities and even trade schools out of reach. The result will be the reduction or elimination of most retraining opportunities, so that when new jobs actually do open up, few will have the required advanced skills that will be required to actually do the job.
In addition, because there has been no decrease in worldwide competition and pressure to innovate, this time around the skill sets of the unemployed will also deteriorate so rapidly that few of them would even qualify for the jobs that they were laid off from only a year or two ago. The net result is that any “new jobs” are likely to go to states or countries that have maintained their skill development and retraining programs.
Unfortunately, we face a bleak employment picture where there is a surplus of individuals available to work but a shortage of the necessary skills that the market will require. This skill shortage will mean that individuals will remain on unemployment longer than they have in the past. This skill shortage will at the same time bid up the price and the competition for the remaining available well-trained workers in key positions.
To corporations, that means that there will be increased pressure to move available jobs to where the “skills are.” For governmental policymakers, the future competitive advantage of a country will not be the price of its labor or the number of individuals available to work, but rather the ability to continuously upgrade the skill sets of the workforce.
To individual firms, it means that the only alternative to offshoring most new high-skilled jobs will be the development of effective retraining programs that can rapidly and cost-effectively upgrade the skills of the unemployed. Unfortunately, retraining a large number of entry-level workers is not an area that most firms excel at.
For the first time in memory, a successful rebounding economy as a result of the government’s efforts might not be followed by an increase in the number of skilled jobs held by U.S. workers. Half of the economy (the output segment) might turn around relatively rapidly, while the other half (the jobs segment) might stagnate for a significant period of time. 2009 is looking too much like 1931 to allow anyone to think that another unemployment depression is not possible.