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Where the Jobs Are: How to Reach Full Employment in the U.S. by 2015

HIPInvestor | Tuesday July 3rd, 2012 | 18 Comments

By R. Paul Herman and Tom Bowmer of HIP Investor Inc.

Job creation in the U.S. remains challenging. According to the Bureau of Labor Statistics (BLS), business and government employers only added 69,000 jobs in the last reported month (May 2012), continuing a three month trend of declining job growth that barely keeps pace with the 90,000 net job hirings monthly that are necessary to absorb the growth of the labor force. However, a closer look at the historical data highlights a bright spot in the employment landscape of the United States. Businesses and organizations that are solving society’s problems and making a positive impact on the world are the consistent engines of positive job growth.

 

The recent downturn is not like post-WWII recessions: A new approach to job creation is needed
When employment data is plotted on a graph, the differences between the Great Recession and every other downturn the U.S. has experienced since WWII are clear. Jobs were lost on a much greater scale during the Great Recession, and the subsequent return to full employment is moving at a glacially slow pace. After four years, the U.S. economy has barely managed to make a dent in the “jobs gap” (the number of jobs needed to return to pre-recession unemployment rates). By contrast, at this point in the economic cycle, every other post-WWII recession had managed to return to its previous jobs peak. A new approach, which recognizes where the jobs are in the 21st Century economy and how to design policies to stimulate further job creation, is needed.

The U.S. was only able to reverse the unemployment crisis during the Great Depression with President Franklin Delano Roosevelt’s New Deal policies – and later a gearing up of the war economy.

No U.S. agency collected official statistics on the labor force during the Great Depression, but estimates of the unemployment rate during the 1930s have been provided by economist Michael Darby. Although these numbers are not perfect, they provide a glimpse into Depression-era labor force patterns. The shift in the unemployment rate in the 1930s required drastic action and major economic shifts, and the same mentality is needed today to move the U.S. toward full employment and a vibrant economy.

U.S. data shows “positive-impact” sectors account for large share of U.S. jobs & outsized job growth
At least 3 of 10 jobs in the U.S. economy focus on building a better world.  These positive-impact jobs come from both the public and private sectors. Government jobs are traditionally considered positive impact, as they focus on providing citizens with much-needed education, infrastructure, and social services. U.S. government jobs accounted for 22 million of the 130 million non-farm payroll jobs reported in 2011 and made up just over half of the total jobs that helped to improve society. However, much of the positive impact in today’s world is increasingly the result of private industry innovations. In 2011, approximately 21 million of the 110 million jobs in the private industry positively affected society. This private industry contribution primarily came from the sub-sectors of health care, education, and social assistance services, but it also includes positive-impact sectors like utility system construction, environmental waste remediation, and grant-making institutions. (U.S. jobs data from the Bureau of Labor Statistics, combines both for-profit business and non-profit social-sector organizations under one category of “private organizations.”)

Furthermore, business and social sector organizations from the private sector that have focused on dealing with society’s problems and solving human needs have been adding jobs at a faster rate than the private sector in general over the past decade. According to HIP Investor’s analysis of annual jobs data released by the BLS between 2002-2011, jobs in the positive-impact subsectors of the U.S. economy have grown by 21% (2% annually) while total private industry jobs subtracting the impact sector have fallen by -3.7% (-0.4% annually). The “Annual Year Over Year Growth in Jobs by Sector” graph below shows the differences in annual growth of the impact sector, the government, and private industry (excluding the impact sector). Note that the impact sector is the only sector to have grown in every year, even during the Great Recession.

Businesses should partner with impact sector and fill “jobs gap” with high impact ventures
Organizations in the impact sector have come up with compelling solutions to society’s needs, but they often lack scale. Even though the impact sector job growth is impressive, it still employs far fewer people than the business sector as a whole.

A recent policy note written by Pavlina Tcherneva at the Levy Institute of Bard College advocates for full employment through a partnership between the government and social entrepreneurs. The government would give grants to nonprofit organizations, which would then use the money to fund social entrepreneurs who would apply market principles to solve social, cultural, and environmental problems. Tcherneva argues that the “objective of these social entrepreneurial ventures would be to put those individuals whom the private sector has declined to employ into socially useful projects that fill some unmet public need.”

This is a well-intentioned proposal. However, the government sector has been shedding jobs and reducing state and local funding since the beginning of the Great Recession. As Jonathan Cohen points out, “one obvious distinction between this recovery and that from the most previous recessions is the sudden and sharp downsizing of the public sector workforce. Instead of hiring more workers to boost growth and reduce unemployment, local and state governments have been laying off workers during this recovery.” The shrinking public sector cannot be relied upon exclusively to fund positive impact solutions, including those in education, where state and local governments are cutting jobs faster than the overall government average.

The most viable – and inspiring – option for job growth is spurring private industry to focus on creating positive impact through their businesses.   Solving human, social and environmental problems is much needed, and also compelling for employees.  More than 9 of 10 new graduates want to work for a company that “does good” in their daily operations.  Even during the “boom years” of 2002-2007, the impact sector outpaced the business sector in job creation.

Businesses have the widest access to capital markets, and can allocate it to untapped opportunities with remarkable speed.  In addition, businesses that partner with impact-sector organizations or pursue projects with the potential for positive impact can realize the value that directly flows from being able to effectively meet the pressing needs of consumers.

For example, Michigan Energy, Michigan Jobs, a bipartisan coalition of businesses, labor organizations, and health care advocates, is supporting an initiative to expand Michigan’s renewable energy production from the current rate of 3.6 percent to 25 percent by 2025. Studies suggest that “increasing [Michigan’s] use of renewable energy will create thousands of jobs for Michigan workers and attract $10 billion in new investments”. Forward-thinking investments like this have begun to provide a state that was hit especially hard by the recent economic downturn with viable solutions that have the potential to make a large impact. Almost 30 local companies have entered the Michigan market to produce solar panels and wind turbines. According to the American Wind Energy Association April 2012 report, the top ten wind energy states employ between 42,000 to 52,000 workers. Approximately, 10 percent of these wind energy jobs can be found in Michigan.

Business solving society’s problems: the potential path to full employment
Estimating the change in the national unemployment rate is difficult, because it is affected by so many factors. However, HIP Investor’s initial analysis suggests that if the private sector job growth continues at its long-term historical rate (approximately 1.25%), the U.S. economy will not reach full employment until 2020. However, if that growth is accelerated, applying the impact sector’s annualized job growth rate (approximately 2%), then the U.S. could reach full employment by 2015. On the other hand, if private sector jobs only grow at the rate that they did during the most recent expansion (2002-2007), then the U.S. could continue to stagnate and may delay full employment even more – the annual growth rate would barely be enough to keep up with the expansion of the labor force.

Going forward: an impact economy that can “do good,” create jobs and grow GDP
Every business person, policy maker, and politician dreams of strategies that will strengthen the U.S. economy and create employment opportunities. Solving society’s problems – either adopting a sustainability-oriented business strategy; or partnering with social-sector or government organizations – can be embraced by business leaders, CEOs and board members today to make a difference. If businesses focus on creating positive-impact products, solutions and ventures to solve pressing human needs, they have a greater chance of growing their revenue, attracting the best employees – and stimulating job growth at the accelerated rate of the impact sector.

In the next parts of this series, we will highlight business strategies, new products and services, and corporate ventures that both “do good” and “make money” at the same time. This approach to job creation can enable a U.S. led resurgence of the global economy, drop unemployment, and potentially recreate the export-led economy of previous generations.

R. Paul Herman is CEO and founder of HIP Investor Inc. Herman is the author of “The HIP Investor: Make Bigger Profits by Building a Better World,” published by John Wiley & Sons in 2010. Herman is a registered representative of HIP Investor Inc., an investment adviser registered in California, Washington and Illinois, and serving clients in Idaho, New York and Wisconsin.

Tom Bowmer is a Corporate Financial Analyst with HIP Investor Inc., a Phi Beta Kappa fellow from the University of California at Berkeley, and an MBA from San Francisco State University.

NOTE: This is not an offer of securities nor a solicitation. The information presented is for information and education purposes, and does NOT imply any investment recommendations. Past performance is not indicative of future results. All investing risks loss of principal. The author, HIP Investor Inc. and HIP’s clients may invest in the securities mentioned above, including in the HIP Portfolios. Details and full disclosures are at www.HIPinvestor.com


▼▼▼      18 Comments     ▼▼▼

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  • http://twitter.com/jomackjo Jo Mackness

    Paul–nice analysis–cannot wait to see the next in the series. One question: how do you define an impact sector job?

  • Realitycheck808

    It’s interesting that you don’t even mention the movement of jobs out of the US and into the foreign markets.  I’m sure that if you were graph that data into what you have currently, we would have a better idea of what’s really impacting the US labor workforce.  Until then, your graphs aren’t really measuring what’s actually happening.

    • HIPinvestor

      Dear RealityCheck808, the US government jobs data does not appear to include jobs data from other countries.  You make a good point about where jobs are flowing, so if you can help us find a data-source for global employement, we’d be happy to analyze it for the changes in employment by country, industry and of course by impact.

  • HIPinvestor

    Hi Jo – thanks very much for the kind compliments. Next in the series coming soon.  Meanwhile, there are 13 components to the “impact sector” as we have defined, and are sub-segments of the jobs tracked by Bureau of Labor Statistics (BLS.gov).  the “private sector” includes both for-profit businesses and for-impact social-sector organizations (NGOs/non-profits), and the ones we include are: 

    Educational
    Services

    Health care Services

    Social Assistance Services

    Construction – Utility System
    Construction (CEU2023710001)

    Construction – Highway,
    street, and bridge construction (CEU2023730001)

    Wholesale Trade – Recyclable
    Materials (CEU4142393001)

    Utilities – Hydroelectric
    Power Generation (CEU4422111101)

    Financial activities
    - Credit unions and other depository credit intermediation (CEU5552219001)

    Professional and business
    services - Environmental consulting services (CEU6054162001)

    Professional and business
    services - Remediation and other waste services (CEU6056290001)

    Leisure and hospitality
    - Museums, historical sites, and similar institutions (CEU7071200001)

    Other services
    - Grantmaking and giving services (CEU8081320001) 

    Other services - Social
    advocacy organizations (CEU8081330001)

  • HIPinvestor

    Today’s jobs report for June disappoints again (only +80,000 net new job growth; +84,000 added to private sector, -4,000 cut from fed/state/local governments; seasonally adjusted) and fails to keep pace with the ongoing growth of the US labor force — we need a deeper commitment to positive-impact firms and jobs which support jobs, revenue and GDP and build a better world (especially since -14,000 jobs were cut from local education in June) — Business needs to focus more on solving human, social and ecological solutions!

  • ssj12

    Article is 100% factually inaccurate.  Unemployment is NOT calculated the same as it was during the great depression otherwise we would have a 23% unemployment rate.

    You also cannot base anything on government or private sector jobs as government never reports real numbers, and businesses are getting smart with paying under the table.

    We need GOVERNMENT OUT OF THE MARKET. Reduce regulation, reduce taxation, and end all tariffs.

    • Randall Cosby

      What exactly are you talking about? The general thrust of the article stands up just fine. You seem to be saying we can’t calculate the numbers at all, then your’re criticizing the numbers. So which is it? spare me the rant about government, but I you want to talk numbers then maybe you’ve got a better source?

      • ssj12

        I’m stating it is impossible to compare statistics that are fundamentally different. If unemployment was calculated the same we’d have real numbers to compare.

        http://shadowstats.com is a great place to start. Also Mises.org is a great website to get a better grasp on the economics and logical failings of our economy created be multiple presidents including Clinton, Bush, Obama, Carter, etc to make the numbers look better than they are.

        • HIPinvestor

          First, the facts are accurate, as the feature states that the Great Depression statistics are estimated, as the Govt did not publish jobs data before 1939:   ”
          No U.S. agency collected official statistics on the labor force during the Great Depression, but estimates of the unemployment rate during the 1930s have been provided by economist Michael Darby. Although these numbers are not perfect, they provide a glimpse into Depression-era labor force patterns. The shift in the unemployment rate in the 1930s required drastic action and major economic shifts, and the same mentality is needed today to move the U.S. toward full employment and a vibrant economy.”

          Second, ShadowStats is an excellent resource, and is valuable for seeking to estimate the gaps in many government-sourced numbers, including unemployment and money supply.

          Third, at Mises and the Austrian school of economics, there espouses a belief that no modeling of economics or human behavior is possible.  However, even so, living in a society with no rules, no governance, no boundaries would lead to a free-for-all that most of us would not choose to live in.  All species have adapted to some form of common governance – to balance individual innovation and collective benefit. The only societies without government “interference” are those in war-ravaged areas like Sudan, Congo and rural Afghanistan.

          We can always seek more comprehensive and more accurate numbers.  We can also empower people to innovate and discover.  However, human nature shows that we need some form of collective governance and common rules to balance self-interest and group-interest – and to maximize our civilization’s and species’ survival – and thriving going forward.  

        • ssj12

          Still doesnt mean the statistics are estimated similarly. Based unemployment numbers were based off the total population unemployed at the current timeframe of the estimate. It did not exclude those who “gave up looking” or only those affected in a six month span. Today’s numbers exclude those who stop or fail to report they are unemployed, like me, or have been unemployed for over the last six month reporting period, again like me. You cannot compare these numbers as they are estimated entirely differently. This is why shadowstats is useful. It reports estimated based of logical estimations that does not exclude those that should be included.
          “The only societies without government “interference” are those in war-ravaged areas like Sudan, Congo and rural Afghanistan.” Typical Republicrat response there. I guess you fail to realize the CIA and US Government is the one that decentralized all of those.

          And you’re argument breaks down to that you believe humanity cannot evolve into a basic understanding of individual freedom and self-governance is absurd. What do you suppose the US Constitution was meant for? The US founding fathers SPECIFICALLY stated the constitution will be of use to the people until it’s power is either destroyed by tyrannical ambition that distort what the original intent and mean is OR when society can manage without it within a peaceful co-existence controlled by our natural rights and natural law. Apparently you have not noticed the FreeStateProject and its success at peaceful co-existence.

          Also, Mises and Austrian economics is based off the idea that a market is based off the needs and wants of the people within the market. The market should not be controlled by outside influence; ie mercantilism aka neo-capitolism aka corporatism.

          I suggest you take up reading and start with “Economics in One Easy Lesson” by Henry Hazlitt, followed by Murray Rothbard’s America’s Great Depression, and Hayek’s Road to Serfdom. Then once the economic lesson is over, read War Made Easy by Normon Solomon, and finally Common Sense by Thomas Paine.

    • just_a_soul

      Which government is in the market? Are you talking about the lobbyists or the actual government? What regulation exactly do you want to reduce? How about a few arguments?

      • ssj12

         Government bureaucracy in general. The FDA, EPA, FCC, FTC, FBI, CIA, DHS, IRS, DoI, DOE, DoE, etc. All regulation. The federal government is only supposed to manage what is allowed to be managed based off the constitution. None of the agencies listed above are constitutional, let alone should exist. The ones that does should be state level organizations controlled by the people of the states who then control what and how much they manage within their state.

        • Axel

          Dude, that is pure libertarian fantasy. Even if it were true there is zero chance you’ll ever get there. Zero. So it totally a moot point. Call back from earth.

        • ssj12

          Most of our founders were classical liberals. Libertarianism is just classical liberalism. It is Jeffersonianism. You ignore history. A libertarian society is just constitutional republic with more freedoms and control against government tyranny brought on by understanding our and the world history since 1787.

          If the founders created the first federalist government, a new freer government is far from impossible to achieve.

        • Randall Cosby

          I can roll with most of that *in principal*, but at the end of the day most folks calling themselves libertarians these days are essentially utopians.  I mean, I love most of their ideas but, the market just isn’t actually fair or free.  Eliminating government would actually make it worse.  For all its faults, I think the government has a more active role to play than many people currently ranting about it believe.

          Dont’ get me wrong, I’m all for cutting waste and things like the war on drugs, patriot act and other mistakes, but most of the acronyms above are things I’m generally glad we have.

          Anyway… aside from the suggestion that the government has a role to play, I think the gist of the article above is about “impact ventures” and the idea that doing something positive for society is not only a good thing to do but would lead to full employment quicker.  Seems pretty logical to me actually, and most of what’s implied above is very much private sector, unless I missed something?

        • ssj12

          But all those alphabet agencies already have state level branches. California has way stronger environmental laws at state level then the federal EPA. It can work, easily, at state level.

          Free market economics existed before. Research the south before the civil war sometime. They had no tariffs, open trade, and a booming economy compared to the high taxation and tariffs of northern ports.

          And government support for “impact ventures” are a massive issue. Giving companies money freely, or with extremely long loans, gives companies way to much power over rivals which can lead to competing impact ventures to go out of business. And also allows for mismanagement of the stimulated organization which can lead to the death of that company as well once the funds run out. We have a number of solar companies I could easily mention that attest to this.

        • Axel

          THe south before the civil war had slavery man. There is no defending that system.

        • ssj12

          And? Lincoln was wrong to go to war. I will say that the south had a right to peaceful emancipation like hundreds of other countries did. Not have 80% of all cities burned, civilians starve to death, and mass theft by northern soldiers. There is no defending the worst president we have ever had, Abraham Lincoln. The south was well on its way of freeing its slaves. Many slaves were buying their own freedoms, and slave ownership was losing profitability against technological advancements. Was slavery wrong? yes. Did the south deserve peaceful emancipation and their legal right of succession, yes. Was what happened to Lincoln overly deserving and a great lesson on blowback, hell yes.