Where Are The Jobs Going To Come From? By Brent M. Eastwood, PhD brent@goeastwood.com 505-917-4264 BrentEastwood.

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The United States has a jobs deficit that is looking insurmountable. Associated Press Correspondent Christopher S. Rugaber reports on May 23, 2010, that an estimated 8.2 million jobs have been lost during the recession.

Other economists estimate that there are now 15.3 million people who are unemployed and about half of those have been looking for work for 27 weeks or more. The AP's Chris Rugaber notes that the "percentage of the labor force unemployed for six months or longer is 4.3 percent." We haven't seen a rate that high since 1948, concludes Rugaber.

President Obama has already pledged that the U.S. would add 3.5 million new jobs by 2010. He is woefully short on that promise. America added 290,000 jobs last month, but to reach that 3.5 million plateau, we would need 24 straight months of at least 300,000 new jobs each month. That rate looks to be a long shot even by the most optimistic analysts. While 290,000 jobs in April is good news, the AP claims that 805,000 people re-entered the labor force to look for jobs again, which sent the unemployment rate to 9.9 percent.

Anyone can predict the pattern. For each job created, another person without work who had previously dropped off the rolls will return to the job market. This will make the unemployment rate stuck around 10 percent indefinitely. Is 10 percent the new normal or the new natural rate of unemployment?

It appears likely. Even if the country adds the promised 3.5 million new jobs by 2012, we would need another 24 months straight of at least 300,000 new jobs each month. That would maybe move the needle down to perhaps seven to eight percent unemployment by 2014. This falls in line with many economists' estimates that it will take at least five years for the job market to recover.

Unfortunately, this does not even count the folks who are underemployed or who are part-time or temporary workers. How about minority groups? Unemployment for AfricanAmericans is about 16 percent. You would think Obama would make relief for AfricanAmericans a priority. Maybe he thinks he will get their vote anyway so why bother? And another dreadful statistic, unemployment for Iraq-Afghanistan veterans is 14.7 percent as of April 2010.

Where are the jobs going to come from? Let's take a look at the micro-level and examine the actions and thinking of an individual firm. The average firm in 2010 has already trimmed payrolls, laid workers off, cut costs, frozen wages, and cut benefits. The individual firm has seen difficulty in securing credit and financing for investment. The average firm is leery of job-killing legislation coming from Washington such as Obamacare and expensive environmental over-regulation for the chimera of so-called climate change.

Can you blame firms for not hiring? Productivity has grown 6.3 percent in the last 12 months, according to the Labor Department. Everyone is doing more for less. Employers may be hiring temps, part-timers, and unpaid interns. But it's risky and expensive to hire someone full-time. Just make the workers you have left do more and cover for the positions that were eliminated.

Neither political party nor policy-maker has an answer. Most point toward Keynesian stimulus spending, which does not work, or tax cuts for corporations and individuals that add to the budget deficit in the short-term. Federal stimulus proponents say the government must prime the pump. Anecdotal evidence says Obama's stimulus funds meant for job programs were gobbled up by local governments to plug their own deficits.

Tax cut adherents think that maybe the job creation from a tax cut will eventually bring more tax revenue to the government coffers. That's a big maybe. We already have as loose a monetary policy as we can get. And now it looks like deflation may be a problem.

So who out there has answers for the employment deficit?

My economic policy research, printed in various books, reports, and articles tests

different economic development theories and practices. I examined job growth and total personal income growth in several hundred U.S. metropolitan statistical areas and concluded that cities with high levels of "economic liberty," tend to create more jobs. Economic liberty means fewer government regulations; a judicial system that encourages rather than penalizes economic growth; a welfare system that does not crowd out incentives to work, invest, and start new businesses; and smaller governments that get out of the way and let free markets create jobs.

I also found that cities with high scores on Richard Florida's "Creative Class Index" have better employment records than cities with lower scores. Creative Class can most simply be defined as locations with high levels of talent, technology, and tolerance. For example, creative cities have people with high education levels, high-tech industries that register many new patents on a regular basis, and cities who welcome the legal immigrants who are innovative entrepreneurs. Think Google's Sergey Brin. I realize that these ideal conditions cannot be created overnight.

But look at the states with high levels of economic freedom and those that have good scores on Florida's Creative Class Index. South Dakota is a great example. The state finished first in the 2008 Economic Freedom Index from the Pacific Research Institute and Forbes (I co-authored this report). In April of 2010, South Dakota's unemployment rate was 4.8 percent. Almost every state in the top 12 states for economic freedom has lower unemployment rates than the national average.

For a full list and samples of my publications on economic policy, go to BrentEastwood.com.

Unfortunately, many states and cities still subscribe to the old technique of "chasing smokestacks," those feeble attempts to attract industry with byzantine inducements of tax cuts, tax credits, job training, and even old-fashioned bribery. Some also build sports stadiums and casinos with little economic gains to show for their efforts. Other states and cities have been fortunate to attract film and television productions, but the costs are high. Hollywood producers demand much in terms of monetary incentives before they green light a production in another state. And fewer high budget blockbuster movies are being made in the first place.

A survey of the current literature on economic policy and economic development yields few original ideas or solutions. President Obama's 2009 Job Summit was pretty much a

joke. For example, one idea was to support urban renewal with Community Development Block Grants (CDBG). Are you kidding? CDBGs have been used since 1974 with little success! Not really a new or novel idea.

And of course the "Green Job" mantra is the siren song of the left. But if gas costs $2.50 a gallon and your electricity bills are fairly low (mine was $30 last month for a 1900 square foot house), please tell me why we should switch to Obama-mobiles and solar and wind power. Coal-fired power plants and gasoline-powered cars work just fine. Oh sure, carbon discharge and pollution is bad, but is cutting carbon emissions worth the cost? We have been trying these alternative and renewable fuels since the 70's, and they still have not provided the answer. So where are these green jobs coming from?

More to the point, where are any jobs going to come from?

Let's take a look at some economic sectors and you'll see how each sector in America is failing to deliver jobs.

Manufacturing. Come on get real. America produces few major integrated end items. In other words, U.S. manufacturers do not create products from the ground up any more. The global supply chain reigns supreme now. Workers from many countries contribute to the I-Phone or I-Pod. Name one product that is consistently made in America with 100 percent American parts and labor? Obama calls for more exports, but just what are we going to export?

Theoretically, if China and other Asian countries let their currency float, our goods and services would be cheaper in those countries. Asian products would become more expensive in world markets, making it easier for U.S. goods to competitive. But just what are all these "Made in America" products that people in other countries want? And who knows about European demand for American goods and services. The decline of the Euro makes American goods more expensive in Europe and austerity plans in the EU are also going to sap demand for imported goods from America in the future.

The U.S. Retail Sector will take a long time to recover. Everyone knows that consumers account for about 70 percent of the economy. American consumers just don't have the same amount of cash and credit these days. Everyone is cutting back on discretionary spending. As a result, fields such as advertising suffer. Fewer people are needed in that industry. Anyone can put an ad on the Internet. The days of a large workforce making

traditional ads for TV, print, and radio are over. Residential and commercial construction and all jobs related to this industry are down and out. As a friend likes to say, "We don't manufacture anything so the only thing left was to build houses and now we don't build houses, so what's next?" What's next indeed?

I'll quickly run through some other sectors of our economy.

Agriculture. For decades, we decided to grow corn for ethanol and that hasn't worked. The textile, tobacco, and sugar industries are kept on life support by the government. Most Americans just do not want to work on the farm.

Financial services and banking has been decimated by the credit crisis. It will take years for those industries to recover. Defense and aerospace has bright spots such as remotely-piloted vehicles and UAVs, but it is still not cost-effective, efficient, or practical for American defense manufacturers to produce a major end item and bring it to market with American workers only. Moreover, many defense contracts are in information technology and these can always be outsourced.

IT has its bright spots as well, but not many. Application developers and programmers for mobile phones are in great demand and we do a good job here, but again, we do not produce the end item - the mobile phone itself or the personal computer.

Health care is in a flux because of Obamacare, Medicare, and Medicaid. Doctors have trouble practicing when they must pay high premiums for liability and malpractice insurance. They are at the whims of government for delayed payments from Medicare. Who knows when they will get paid by services delivered under Obamacare? Many of the jobs in demand in health care are mundane, boring, and don't pay much. Do you really want to transcribe medical records for nine dollars an hour? Some have no choice and would take that job in a minute. The good jobs such as registered nurses and dental hygienists, among others, require specialized education and experience that many people are unqualified for.

Education has always been seen as a safe bet. You have all heard or maybe thought, "Well I can always teach." Think again. School districts across the country are running out of money because of lower property tax revenue. More K-12 jobs are not being filled

as school districts decide to lay off or not fill positions. Class sizes can always be enlarged and existing teachers can be expected to teach more with less.

Higher education is in the same boat. The tenured "job for life" as a university faculty member is becoming more and more difficult to get. Colleges and universities are increasingly hiring part-time adjunct faculty without benefits. The for-profit education sector is growing and teachers for these institutions are in demand. But many of these teaching jobs require you to teach several online classes at once. They usually don't pay well and they require lots of work since your students can contact you 24-7.

Publishing and journalism is, of course, a section of the economy in huge transition. Many traditional media outlets and book publishers are going away. This has to do with new technology and reduced sales and advertising revenue. The old media business model may be long gone.

Get the idea? Is anyone hiring? Recruiters and employers complain that the jobs they do need to fill get tons of unqualified applicants. That is not to say those who are unemployed are not qualified in their previous fields. There are hundreds of thousands of quality workers out there; they just don't have experience for the jobs they are applying for. Many people say that they can offer x, y, and z but employers are looking for people who can do a,b, and c for a lower wage and fewer benefits. It's difficult for the unemployed and businesses to find a match that fulfills mutual need.

The U.S. News and World Report recently released a list of 50 Best Careers of 2010. I'll list some of the top ones. Meteorologists, computer software engineers, RNs, X-ray and MRI techs, physical therapists, veterinarians and pet services, urban planners, firefighters and police, government workers (federal, state, and local), accountants and auditors, computer security, home security, satellite and cable TV technicians, water supply and waste management specialists.

All of these career fields require very specialized education and experience. You need to start out your initial career in these fields and then work in that sector for a number of years. It is difficult to make a transition from a job that is not in demand to a job in one of those "quality" career fields. These coveted jobs often require a newcomer to first volunteer or serve as a unpaid intern, not to mention the requirement for more educational degrees and training certificates, which cost time and money. Some just collect unemployment checks and ask "What's the point of re-training?"

For new graduates, a general liberal arts degree is not going to cut it. Look for the return of apprenticeships and for vocational training to increase. But again, which trades are hiring and how much are they paying in these trades? Unions and their uncompromising demands have priced many trade jobs out of reach for employers to hire.

State and local governments face huge budget deficits, even the most needed professions such as police and firefighters, are facing hiring, pay, and benefit freezes. Good luck getting a federal government job. They are hiring, but anecdotal evidence says there are usually 60 applicants for each federal job opening. And applying on USAJobs online, the federal jobs portal, is a royal pain.

Anybody have any ideas? Business incubators and micro lending have been shown to be efficient ways to create jobs. However, incubators and micro lenders serve microbusinesses. These are usually sole-proprietorships or mom and pop shops. They are not going to be able to hire the numbers required to solve the unemployment deficit.

Remember science and technology parks and technology transfer from research universities? Politicians like to point to these success stories. But the success is limited and these projects are not always an efficient distribution of capital. Many need a Congressional earmark to survive. Angel and venture capital funding is hard to find. I tested that technology park theory. I found no significant relationship with a city that has a tech park and positive job growth.

I hate to keep pointing back to my research, but the best thing governments can do is create an environment in which entrepreneurism can thrive. This means increasing economic liberty and building a creative and knowledge-based workforce that can solve problems in the 21st Century. State governments in California, New York, and Michigan are in such deep holes that they will never be able to enact the necessary reforms that favor job-creating environments. And cutting the size of government and entitlements is the politics of pain and no politician likes painful decisions, even if they are the most prudent solutions, like cutting government services to save taxpayer money.

The last employment crisis this country faced was under Carter and Reagan with unemployment peaking over 10 percent in the early 80's. Reagan supply-side economics with tax cuts and a huge defense build-up were able to pull us out of recession that time. However, in addition to the high deficits it caused, that was a much

different economy. It was possible then to get a decent-paying manufacturing job right out of high school. That kind of job growth will not happen now. We came out of recession in the early 90's with the advent of the Internet and the tech bubble. Baby Boomers were in their peak earnings age and we had a good run of low unemployment in the late 90's, but then the tech bubble burst. Low interest rates and loose lending practices led to a housing boom after 9/11, but you know the end of that story.

Whether you subscribe to Keynes, demand side, rational expectations, or supply side economics, creating jobs nowadays is like chasing ghosts.

This report on jobs is admittedly gloomy. Many households in America used to have two paychecks. Now one or both wage earners have lost their jobs. Unemployment checks are keeping some households afloat. What happens when unemployment insurance runs out? What happens when local and state government pension funds and Social Security becomes insolvent?

And worse, are governments releasing accurate and truthful data? Are they fudging on economic statistics? Maybe things are worse than we know. These are questions that are really the most alarming.

And if you noticed, I did not answer my original question. Where are the jobs going to come from? My best answer is - I don't know.