It’s the service economy, stupid

Steve Bruns, MPP, Staff Writer, Brief Policy Perspectives 

During the 1992 presidential election, James Carville, then an aide to candidate Bill Clinton, insisted the Clinton campaign focus on the plight of working people, coining the mantra: “it’s the economy, stupid.” Now fast-forward to 2016 and Carville’s advice still holds true.

Despite signs of a post-recession economic rebound under the Obama administration–a lower inflation rate, shrinking federal deficits, and significantly lower unemployment rates–post-election analyses show that, in 2016, many Americans still experience economic instability. A majority of those Americans voted for President-elect Trump. Trump defeated Hillary Clinton in areas of the country where job growth is slower and wages are lower. He also won in counties where more jobs are threatened by automation or offshoring. Specifically, counties with routinized jobs in manufacturing, sales, clerical work, and related occupations prone to automation or offshoring were far more likely to vote for Trump.  Partially due to a lack of adequate education and training, these workers are unable to adapt in the constantly evolving 21st century American economy.

Trump’s promise to revive America’s manufacturing sector and oppose free trade deals likely fomented support among these voters. However, because these proposals ignore the current economic climate, they aren’t likely to secure long-term economic stability for struggling workers. Rather, to ease the economic concerns that brought so many voters to the polls, the U.S. needs policies that prepare workers for participation in the United States’ growing service economy.

Despite policymakers’ best intentions, efforts to return manufacturing to the U.S. from factories abroad do not result in substantial increases in domestic employment. In recent years, partially due to rising wages in China, multinational corporations have already shifted production back to the U.S., but these repatriated factories are often heavily automated and employ a smaller fraction of workers than they did before. In fact, since 2009, manufacturing output has increased by more than 20 percent, while manufacturing employment is up just 5 percent. Clearly, simply increasing manufacturing in the U.S. will not solve the employment problem.

From a broader economic perspective, the U.S. has dramatically transformed from a manufacturing economy to a service-based one over the past two decades. In 1994, there were 3.5 million more Americans working in manufacturing than in retail, an essential component of the service economy. In 2016, this imbalance now favors retail and, overall, more than 80 percent of all jobs are in the service sector of the economy. In simple terms, the nature of work in the U.S. has shifted. Jobs now emphasize delivering specialized services, which requires high-skilled labor, over manufacturing goods, which demands relatively lower-skilled labor.

An economy that increasingly prefers skilled over unskilled labor is a disconcerting trend in a country where, according to Nobel-winning economist James Heckman, society is starkly divided between skilled and unskilled. Since 1970, the high school dropout rate has increased. Add to this the growing population of unskilled immigrants, and the number of unskilled Americans is on an upward trend.

Improving education and providing continuous job training is an obvious policy solution for improving the disparity between skilled and unskilled workers. Less obvious is the proper timing of such policy interventions. Recent policy proposals include the Obama administration’s America’s College Promise, which would make community college tuition-free, and Bernie Sanders’ proposal to use federal funds to make public college education free for in-state students. While promising, these and similar education interventions, such as public job training programs, show low economic returns.

These policies may fail because they wait too long to intervene in students’ lives. Evidence from early intervention programs indicate stronger positive outcomes. Early childhood education programs substantially improve cognitive skills, such as arithmetic and reading. Such skills are essential to high-skilled, good-paying jobs. These programs also improve non-cognitive skills, such as punctuality and social etiquette, that are helpful for job performance. Moreover, early interventions can improve the outcomes of later interventions. According to Heckman, “Skills beget skills and capabilities foster future capabilities. Early mastery of a range of cognitive, social, and emotional competencies makes learning at later ages more efficient and therefore easier and more likely to continue.”

As in elections past, economic well-being was a primary concern for a decisive portion of the 2016 electorate. To properly address this concern, policy options should recognize the service-based nature of the 21st century American economy and educate a workforce that is unprepared for this modern, service-based economy. Early education interventions show particular promise in closing the gaps in opportunity, skill, and success later in life. Beyond 2016, one can hope that future winning candidates will acknowledge this truth: it’s the service economy, stupid.

 

 

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