Covid-19 has shaken up the U.S. economy. Millions of jobs have been destroyed, many permanently, as businesses and consumers adapt to the changes caused by the pandemic. People of all political stripes are calling for more workforce development programs to help workers gain the skills they need to succeed in our increasingly automated economy. Several businesses and non-profits are rising to the challenge, but too many proponents of workforce development fail to recognize how government policies undermine their efforts.
The threat of rampant automation is arousing many people’s newfound interest in workforce development. Recent studies conclude that robots and other forms of artificial intelligence (AI) will not only continue to replace people in rote tasks, such as assembly line work, but also in traditional white-collar jobs. In her new book, Hire Purpose, Guardian Insurance CEO Deanna Mulligan notes how AI could become better than people at diagnosing diseases and broken bones via X-rays and MRIs, making radiologists obsolete.
Fears of AI rendering human labor obsolete are not new, but so far humans have been able to successfully adapt. Since the Industrial Revolution technological progress has created dozens of new jobs for each one destroyed, as demonstrated by the rapid growth in employment over time.
Incomes haven’t suffered either. Many lament income stagnation among the middle-class, but a careful examination of the data shows that U.S. median personal income increased by 47% between 1984 and 2019 when adjusted for inflation. Median real hourly wages by birth cohort have shifted up each generation since the Silent Generation (born between 1928 and 1945), meaning Millennials, and more recently Gen Z, are earning more per hour at a given age than any generation before them.
The middle class is shrinking, but it is because more people in the middle class are moving up, as economist Mark Perry repeatedly emphasizes. In 1967, only 9% of U.S. households earned $100,000 or more (numbers adjusted for inflation, see figure below). By 2017, 29% of U.S. households earned at least $100,000. Meanwhile, households earning $35,000 or less fell from 37% to 30%. So, the loss in the middle is due to movement to the top.
Even though automation has not decimated the labor market, despite claims to the contrary, better workforce development programs are still a good idea. In Hire Purpose, Mulligan notes that AI often complements workers. Actuaries use machine learning and cutting-edge software to find trends and relationships in health data, but it still takes people to make sense of those trends and draw out useful insights. This type of symbiotic relationship between AI and workers will become increasingly common, and people need the right skills to help them work with machines. This is where workforce development comes in.
Mulligan writes that companies like Guardian, AT&T
But what about people who cannot access internal training programs at large companies? There are some government training programs, but studies show that current federal job-training programs are not very effective. Participants often fail to complete them, and when they do finish, the training seldom leads to a better job or a higher income.
What America needs is a marketplace of training programs provided by a plethora of for-profit and non-profit entities. This would generate the wide-scale experimentation required to figure out what works and to serve a variety of people with different talents and interests.
Unfortunately, innovative training programs are often stymied by government rules and regulations that hinder experimentation. Mulligan writes about a program called 12 for Life in Carroll County, Georgia. Carroll County had a low high-school graduation rate which made it difficult for local companies, such as Southwire Company, to find skilled employees. To address this problem, Southwire partnered with the local school district to create the 12 for Life program.
Students in the program spend part of their day in classroom instruction and the other part at the Southwire factory getting real work experience. But to get off the ground, the program needed a waiver from the Georgia Department of Education since the work part of the work-study program was during school hours, not outside of them like typical work-study programs.
The 12 for Life program got the waiver, and though the program is not perfect, it is an example of the type of small-scale experimentation needed in workforce development.
Younger, less experienced people are especially burdened by labor market regulation. In her book, Mulligan quotes Laurie Dien of the Pinkerton Foundation, “Every New York City high school student should have an internship before they graduate. How do you know how to work until you work?”. Good point. Teenage work experience is undervalued in America and this is manifested in policies like high minimum wages.
Supporters of a high minimum wage claim it helps workers who need to support families. This may be true for some workers, but most workers who earn minimum wage are young and work part-time, like teenagers who live with their parents, and research shows that higher minimum wages reduce teen employment. If we want more teenagers to get work experience, we should stop preventing them from entering the labor market via high minimum wages.
When I was a teenager, I worked at Burger King, among other jobs, and on weekend afternoons almost the entire staff was composed of me and my high school buddies. We made the federal minimum wage ($5.15 at the time)—maybe a bit more depending on experience—but that was OK because like most teenagers we lived with our parents. None of us worked out of necessity, except of course the necessity of getting our parents off our back about getting a job.
I can already hear some saying the minimum wage job in food service or retail is not the kind of work experience teenagers need. Instead, people praise office work or manufacturing as jobs teens can be proud of. Frankly, this is silly. All employment provides opportunities to learn and grow. In addition to making hamburgers in my youth I assembled cars at a GM factory, and neither job felt nobler than the other. Teenagers need more work opportunities of all types, and regulations like minimum wage get in the way.
America’s workforce is one of the most productive in the world, but it could be better. More experimentation and competition among training programs would enable people to upskill through the program that is best for them. Government also has a role to play, of which the primary part is removing the regulatory barriers that prevent experimentation and competition. Ultimately, fewer barriers would lead to better training programs, a more skilled workforce, and a stronger economy.