The monthly report on the state of the labor market released June 3 by the Bureau of Labor Statistics was unsettling, enough to lead numerous domestic and international agencies to lower their forecasts for U.S. economic growth in 2011 and 2012. Job creation in May was only 54,000, compared to the 100,000 level consistent with maintaining existing employment. The unemployment rate rose a notch to 9.1 percent.
This setback generated a number of conflicting interpretations. President Obama called it “a bump on the road” reflecting a recent sequence of adverse one-time events — e.g., the rise in crude oil and gasoline pricing, the devastation exacted by the tsunami in Japan and tornadoes across the U.S. However, several economists and business analysts view it as a longer-term phenomenon, pointing to a higher “new normal” rate of structural employment. If they are correct this has profound implications for job creation across all manufacturing industries, including the plastics industry.
Recovery in the labor market historically lags behind recovery in the production of goods and services in the wake of recessions. Yet, whereas recovery of output has proceeded for two years, we have only managed to recover 1.2 million of the 8 million jobs lost during the recession of 2008-09. The unemployment rate has only declined 1 percent from its 10.1 percent peak in October 2009. Compared to the 4-5 percent full employment or structural rate of unemployment prevailing in past decades, some labor economists believe the new normal rate may be 7-8 percent.
In April there were 13.7 million people looking for work. At the same time, the number of job openings, many of them in manufacturing, increased to the highest level since 2008. This connotes a mismatch between the skills of school-leavers and those required in modern manufacturing operations. Yet college graduates applying for jobs in other sectors of the economy aren't faring much better.
If the skills-mismatch hypothesis is to hold up there has to be some explanation for the fact that this factor played a less-prominent role in the past. Over the second half of the last century, the U.S. economy transitioned from the industrial age to the information age. There were several recessions over the period. Yet somehow we always managed to bend the unemployment rate back to around 4 percent — even in 2000 during the dot-com crash.
There are several factors contributing to the recent high rate of unemployment and low rate of job creation. Successive administrations contributed to this calamity — raising the minimum wage, which raised the cost of youth employment; extending unemployment benefits to 99 weeks, which raised the number of long-term unemployed and eroded their skills; and imposing regulations that raised the total labor-cost burden, sowed uncertainty and stifled hiring. Yet there are two other far-more fundamental forces at play, both of which have been apparent since the 1970s.
The first force, globalization, is beyond the control of the plastics industry. Since the emergence of China as “the workshop of the world,” manufacturers in the U.S. and other developed economies have elected to cede labor-intensive, high-volume production of commodities of all types to China and other labor-abundant, low-wage economies. What they have elected to retain — quite rationally — are capital-intensive production of high-value-added goods in demand in developed economies, and ultimately in their developing-economy trading partners.
At the same time that this bifurcation of production has been taking place, the U.S. educational system has failed to adapt to this new industrial revolution. Relative to the needs of the evolving post-industrial economy, U.S. educational attainment peaked in the 1970s. This may not be true in absolute terms; it is certainly true in relative terms, based on the steadily declining international rankings of U.S. students in math and science — skills absolutely essential for modern manufacturing workplaces.
What can the U.S. plastics industry do — what must it do — to address this skills mismatch? Incoming Society of Plastics Engineers leadership points with pride to the fact that since 1997, $1.6 million has been provided in scholarships and grants to students and institutions. With 15,000 members, SPE needs to find a way to provide this amount annually — not only through increased scholarships and grants, but also through aggressive advocacy for our industry at high schools, community colleges, colleges and universities. Individual schools offer polymer science programs. We need to coordinate these programs to make them more effective in raising enrollment numbers.
The point I've made in recent conference presentations is that with the retirement of the “boomers” from our industry we need to create a whole new generation of “plastics fanatics.” We can't rely on the educational system to make the changes required. We have to find ways, and the financing, to promote the advantages of careers in the plastics industry to students at all levels. It cannot be left to individual SPE divisions to undertake this mandate. It calls for a concerted and long-term, industrywide commitment.
Mooney is president of Advance, N.C.-based Plastics Custom Research Services.