Why TPP isn’t the real problem for American jobs

With a final deal reached on the Trans-Pacific Partnership (TPP), prepare for another cacophony of protest in Congress that America is signing away jobs to other parts of the world. The naysayers will be overlooking one small fact. Even without trade pacts, America bled away hundreds of thousands of jobs over the past few decades.

And while trade deals undoubtedly play a role in the global topography of jobs, today many American jobs may hang in the balance based upon a completely different factor: the availability of skilled talent in America.  Clearing the malaise that has afflicted the domestic skills market is far more relevant to the future of American workers than potential job losses through expanded trade with other Pacific-rim nations.

{mosads}The long-term structural decline of American jobs began well before the Great Recession. Between the 1970s and 2000, the U.S. economy maintained a steady pace in job growth of about 2 percent a year. The U.S. labor force participation rate reflected that, growing robustly for the four decades from 1947 to 1997. Around 2001, both those indicators of the health of America’s jobs market began showing signs of distress.  America’s jobs growth rate steadily slowed and labor force participation fell dramatically. It currently stands at a level not seen since the grinding recession of 1980 to 1982.

It’s no secret that several tectonic changes have affected the composition of America’s jobs pool. Globalization, spurred by advances in communications and information technology and dramatic improvement in global logistics, fueled the outsourcing of jobs to emerging markets. More jobs disappeared as American companies opted for automation, which replaced labor with technology. Over time, the very composition of America’s jobs market changed substantially. Harvard Business School research shows that between 1990 and 2014, America’s ability to generate “traded” jobs—that is, jobs in industries exposed to international competition—stalled sharply. Instead job growth focused on “local jobs” that serve the domestic market, such as retail, healthcare, and construction—that is, jobs insulated from global competition.

Those changes have broken the back of America’s middle class in two ways. First, both trends put pressure on wages. They combined to set new benchmarks against which many American employers evaluated the economics of their workforces, effectively sentencing a majority of Americans to years of stagnant or declining wages.  In 2014, traded jobs paid on average $69,000 a year, while local jobs paid just $37,000 a year. With no net job growth in traded jobs over the last decade, fewer Americans could aspire to a more prosperous future.

Second, when jobs disappear, the skills of a workforce atrophy over time. That is especially true of the middle-skills jobs that require some post-secondary training but don’t require a college degree. With companies preferring to outsource or automate as their workforce ages, their skills “asset base” erodes, making the logic of relying on alternatives more compelling. That problem is compounded by the failure of many U.S. employers to cultivate relationships with local educators to help ensure that workers with the requisite skills are entering the workforce.

There’s plenty of evidence that the middle skills jobs crisis is really a skills shortage. Even as 8.3 million Americans were unemployed in July 2015, 5.8 million job postings remained unfilled—the highest number of postings since the Bureau of Labor Statistics began collecting those statistics in December 2000.  Burning Glass data show that demand remains strong for a range of well-paying middle skill jobs – from IT support staff to production managers to technical sales managers –and that many of those jobs remain open well longer than average, suggesting that employers are struggling to fill them. 

The extent of the skills shortage becomes clearer when one looks at the information related to specific positions. For example, across the production sector overall, there would seem to be no shortage of workers, with 19 current workers for each opening.  But in certain skilled production occupations, like electrical engineering technicians, there are only six employed workers for each opening. That suggests a tight market for employers, despite an average wage of almost $60,000. If employers can’t find the talent, those openings could move overseas—and take thousands of associated high-value engineering jobs with them.  Companies that might once have moved overseas to access low wage labor will likely in the future do so to access skilled workers. 

The irony is that jobs like these are exactly what we need to revive our middle class— but they will continue to prove elusive where we fail to align skills training to employer needs or emphasize job skills in public secondary education. These are the kinds of jobs that Americans would aspire to, if only they knew where scarcity existed, what the qualifications were for those jobs, and where to go to acquire the right credentials.

Tariffs or flimsy labor standards agreements will do nothing to ensure that America has the talent it needs. America needs to bring people and jobs together at home. Developing a playbook for equipping Americans with the right skills will be critical if America is to retain its competitiveness in an increasingly global economy. And it is the essential ingredient to restoring income growth to the two-thirds of Americans who will not earn a four-year college degree.

Fuller is a professor of Management Practice at the Harvard Business School and on the faculty team of the School’s U.S. Competitiveness Project. Sigelman is CEO of Burning Glass Technologies, a leading labor-market analytics firm.


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