02

Persistent jobless growth

Larry Summers

Charles W. Eliot Professor, Harvard University. Harvard University is a member of the Global University Leaders Forum.

Former Treasury Secretary Lawrence H. Summers is one of America’s leading economists. In addition to serving as 71st Secretary of the Treasury in the Clinton Administration, Dr. Summers served as Director of the White House National Economic Council in the Obama Administration, as President of Harvard University, and as the Chief Economist of the World Bank.

The term ‘persistent jobless
 growth’ refers to the phenomenon in which economies exiting recessions demonstrate economic growth while merely maintaining – or, in some cases, decreasing – their level of employment. The scale and significance of this problem is evident in the high placing of this trend, an increase even over last year’s report, when persistent structural employment was ranked as the third most concerning trend.

The transformations and job displacements associated with technological progress are happening faster, and may even be more dramatic in their impact than anything we’ve experienced before, and the task of providing a meaningful, substantial role for everyone is going to be hugely important. But I believe that this presents us with a huge opportunity to take advantage of current low costs of borrowing and under-utilized labour resources, and embark on large-scale projects to build and repair essential infrastructure in our developed and emerging economies.

How great a problem does a lack of employment opportunities pose in your country? Source: Pew Research Center Global Attitudes Project, 2014

If we look at the data on workers aged 25 to 54 – the group we think of as a backbone of the workforce – the percentage of those who are not working has risen by a factor of more than three over the course of my lifetime, and that trend seems inexorably upward. If current trends continue, it could well be that a generation from now a quarter of the middle-aged demographic will be out of work at any given moment. Even China, which has enjoyed unprecedented growth in competitiveness and exports, has seen manufacturing employment decline over the last 20 years, thanks to its rapid industrialization and use technology and automation. This is a long-term trend and we are likely to observe these phenomena across the world, even among emerging economies as they travel the well-trodden path of industrialization. The robotics and 3D printing revolutions could accelerate this trend still further, as the comparatively low entry cost for these disruptive technologies makes them widely accessible to everyone, including developing economies.

The task of providing a meaningful, substantial role for everyone is going to be hugely important.

Automation is certainly the biggest single contributing factor. Technology can, of course, help with the creation of jobs – but I don’t think there is anything automatic about the process. In United States history, the two Roosevelts and Wilson recognised the challenges and brought about a transformation in the role of the federal government in addressing the needs of average and less-than-average income workers. Influential factors ranged from the creation of the Tennessee Valley Authority to the pervasiveness of electricity, from the building of interstate highway system to fibre optic networks. They all contributed to making progress possible.

If we consider the totality of it, we are much better off thanks to technological progress. But if we do not act, we run the risk of enjoying fewer improvements in the standard of living and more people will be left behind. There could be a greater sense of loss of legitimacy and confidence in government, greater recourse by political leaders to nationalism and surlier and angrier populations, who are more likely to turn on minorities within, and perceived enemies without. This is likely to be one of the reasons we see many of these interconnected issues appearing in the remaining global trends.

What are the top solutions to persistent jobless growth? Source: Survey on the Global Agenda 2014
How do you expect the economic situation in your country to change over the next 12 months? Source: Pew Research Center Global Attitudes Project, 2014

I don’t think any of us fully know what kind of policy our governments should be undertaking – I’m not sure that this era has yet seen its Bismarck or its Gladstone, someone who will rise to this challenge and transform government policy to meet the needs of this age. Among the key areas that will have to change is education, so that our schools, colleges and universities place a premium on doing the tasks that machines cannot do: collaboration, creation and leading. And at the same time, they must place less emphasis on the tasks that machines can do: the monitoring, calculation and execution.

Global unemployment trends and projections 2003-2018 Source: ILO, Trends Econometric Models, October 2013

The upside of this trend is that those losing jobs due to increased productivity will be freed up to do things in other sectors. There is, for example, a huge opportunity here to use this period to remedy infrastructure deficiencies. On the one hand we have decaying infrastructures across the West – airports, rail systems, pipelines and systems of telecommunications. And on the other hand, we have record low interest costs of borrowing, near record high levels of construction unemployment and unused resources.

Ultimately I’m an optimist, but I’m a believer in optimism through raising the alarm. I don’t take a position that is automatically optimistic, because I believe history teaches us that complacency is a self-denying prophecy.

Top photo: Employees work inside a milk factory in Beijing, China © REUTERS/Stringer