Labor shortages in manufacturing

Op-ed in today's WSJ about the problems manufacturing companies are having with keeping up with demand.  A Deloitte survey finds that 5% of all jobs are unstaffed because companies cannot find qualified, trained workers.  Even though unemployment continues to be over 8 percent, skill shortages persist.  Great quote from a community college president in my home state of Kentucky: "In the 1980s, U.S. manufacturing was "80% brawn and 20% brains, " but now it's "10% brawn and 90% brains."

Funny how neither political party is talking about this.  Low hanging fruit in an election year. 

Do private equity buyouts destroy more jobs than they create?

Fascinating new NBER working paper by a team of economists that includes Chicago Booth's Steve Davis and Harvard's Josh Lerner.  They put together a data set of 3200 firms and 150,000 operating establishments that were targets and match them to comparable establishments (to serve as a control group).  In the establishments that were taken over, employment fell by 6 percent more over five years after the buyout compared to the control group.  Job losses were concentrated in retail and service sectors.

Sounds like the answer is yes.  But wait.  The authors then ask about the creation of new establishments and find that buyout targets were more likely to open new ventures than the controls.  Once this is taken into account, the net job loss becomes less than 1 percent.

The study also looks at the process of job creation and destruction in the target and control firms and finds that the overall churn level is 13% higher in the target firms.  This is consistent with the "creative destruction" theory of Austrian economist Joseph Schumpeter, who in essence argued that you have to break some eggs to make an omelet.

NYT columnist takes field trip to NC

Joe Nocera has a NYT piece today about his factory field trip to Charlotte and Winston-Salem to visit new plants built by Siemens and Caterpillar.  The most interesting takeaway is that these two companies decided to build in NC instead of China because (1) NC technical colleges do a great job partnering with industry to provide training; (2) for skilled labor, the cost differential between the two countries is not all that large; and (3) shipping costs for the types of products Caterpillar makes play an important role in plant location decisions. 

Is there a manufacturing renaissance on the horizon?  The good news is that construction of new plants has picked up.  The less good news is that the new plants are very capital-intensive and generate modest numbers of new jobs: 800 in Charlotte and 500 in Winston-Salem.  Cat is getting $14m in state and local incentives for those 500 jobs, a tidy $28k per job -- a much better bang per buck than the President's jobs bill, as I noted recently on this blog. 

Bill Clinton on increasing employment

Cover story in this week's Newsweek.  Interestingly, most of this (better training programs, cut red tape, subsidizing energy-savings projects, more loans for small businesses) overlaps with President Obama's Jobs and Competitiveness Council covered in a blog post last week.  Clinton adds these ideas: paint rooftops white, more state-based incentive plans, cut corporate tax rates, enforce trade laws.  He also mentions in passing that we should raise tax rates on high income brackets to pay for this. 

WP columnist Robert Samuelson chimes in on the difficulties many companies are having filling certain types of positions.  Even with 9% unemployment, qualified electricians, CAD/CAM operators and the like are hard to find.  Companies have cut back on basic training programs, shifting their attention to firm-specific skills.  But now we have a catch-22 situation in the labor market, Samuelson argues, where firms will not hire workers without experience and workers cannot get hired to get that needed experience.  

Obama talks job creation in Durham

The President breezed through Durham on Monday, talking about new ways to promote job creation.  According to the N&O, Obama said, "The sky is not falling."  Obama met with his Jobs and Competitiveness Council to get their perspective.  Two of its members (GE CEO Jeff Immelt and AmEx CEO Ken Chenault) posted the Council's findings to date in a Monday WSJ op-ed.  Among the ideas being offered:

• Quickly form partnerships between the private sector and community colleges to make sure training programs match today's hiring needs
• Eliminate red tape that delays construction and infrastructure projects
• Streamline the tourist visa process so that foreigners can come here to take advantage of the dollar depreciation and shop til they drop
• Make small business loans more readily available
• Change the tax code to make it profitable to do energy efficiency retrofits

Hard to see how any of this would make a big dent in our current unemployment rate of 9%.  On the training front, there has been a perpetual mismatch between employer demand and vocational school/community college supply.  The schools are highly decentralized and need time to develop new programs.  Much of the red tape is dictated by state and local governments, an area where Obama and the Council have little leverage.  More tourist visas would help, but the big boost in job creation would come from allowing more highly skilled immigrants to locate in the US (make them buy a home, too).  The Small Business Administration is but a small part of the credit markets in the US; as long as banks are not lending to small and medium sized businesses, we have big trouble.  And do we really need more tax gimmicks to get companies to commit acts that are otherwise economically irrational? 

To be fair, these are meant to be quick fixes; the Council will issue some recommendations for longer term growth in September.   In the meanwhile, Mr. President, I suggest you not put all of your re-election eggs in this basket. 

Lazear on the job market blues

Former Harvard classmate and chief Bush 43 economic advisor Ed Lazear has a WSJ op-ed this week that takes a more careful look at the job market.  Most news reports focus on the change in employment from month to month, which is mistakenly interpreted as the number of new jobs (if employment has increased) or the number of jobs eliminated (if employment has decreased).  Actually millions of jobs are created and destroyed each month.  Lazear notes that employers hired four million workers in February 2009, a time when the labor market was thought to be in the deep freeze.  Guess how many workers were hired in March 2011?  Four million!  Employment grew by 200,000 two months ago because there were 3.8 million job separations (layoffs or quits).  Employment plummeted by 700,000 in February 2009 because there were 4.7 million separations.

For the job market to get healthy, Lazear estimates we need to have hiring return to the pace of 2006 and 2007 of 5.5 million jobs per month.  With 13.7 million unemployed workers, it will be hard to bring unemployment down without a sharp uptick in hiring.

Two different takes on job creation in NYT

I was struck by two different columns that appeared Tuesday in the Times about job creation.  The first sentence in David Leonhardt's column tells you exactly what to expect: "One of the political mysteries of the last year is why the White House and Congress have not been even more aggressive about trying to put people back to work."  Leonhardt seems to believe that job creation depends on tax and spending policy in DC, along with a little help from Ben Bernanke.  He thinks we really need another stimulus package -- as if the 2008 and 2009 stimuli worked so well.  Another quote: "the Fed has taken no recent action to spur the economy."  Hello!  Hasn't lowering short term rates to zero been enough?  Do we start taxing people's cash balances so that we get negative interest rates?  End of rant. 

Tom Friedman's "A Gift for Grads: Start-Ups" column focuses on encouraging entrepreneurship and innovation.

We need three things: start-ups, start-ups and more start-ups.

Good jobs — in bulk — don’t come from government. They come from risk-takers starting businesses — businesses that make people’s lives healthier, more productive, more comfortable or more entertained, with services and products that can be sold around the world. You can’t be for jobs and against business.

Friedman suggests that we provide green cards to foreign students who graduate from US universities and change immigration rules to make it easier for entrepreneurs to enter the country.  As Alan Greenspan suggested, make them buy a house as part of the deal.

Two columnists for the same paper: one who thinks government creates jobs and another who thinks government needs to get out of the way.