The economic conditions in America have been steadily improving, but people are still struggling. In many cities, the cost of living is shooting through the roof, rent is up, and the most basic food items are more expensive. The job market has recovered as well, yet most of those jobs that have been resurrected are unskilled, low-wage positions. Simply put, life is still a struggle for a lot of people.
Recovery came at a sluggish pace and with little help from policy makers who, rather than passing any meaningful legislation, opted to gridlock Congress and even shut down the government for a short time. Despite those setbacks, the economy has crawled its way back to pre-recession heights. When things hit a wall in 2008 and 2009, large swaths of the middle class disappeared, and the pace of a widening income gap hit a full-on sprint. For many families, the struggles have only grown more intense.
One way to help middle and lower-class families back on their feet is through an increased investment in human capital, according to some experts. Human capital is a term used to describe an employee’s skills and ability to adapt. During a speech from early 2014, Jeffery Lacker, the president of the Federal Reserve Bank of Richmond, discussed how he thinks workforce development should not aim for short-term solutions, but be built as a long-term strategy for keeping people employed even in dark economic situations.
“Our research suggests that much of what we’re currently seeing in the labor market reflects structural trends rather than a primarily cyclical change in labor market behavior. That has prompted us to think about long-term strategies to prepare workers for the labor market. We’ve been thinking about workforce development at the level of the individual: What can be done to improve people’s skills and adaptability, what economists call ‘human’ capital?” he asks.
“This approach suggests that we may realize high returns from workforce development efforts, particularly those that encourage individual investments in skills starting at a young age. Workforce development should be thought of as more than just a short-term treatment — it also can work as a long-term vaccine that makes workers more resilient to changing labor market conditions.”
Rethinking workforce development
The process of retooling workforce development on a large scale is a massive undertaking. But ultimately, it’s something that’s going to occur as the economy and modern workplace evolve. Workers face a drastically different employment climate than they did twenty or even ten years ago. Many positions that were destroyed over the past six or seven years have returned as part-time positions, and even more full-time jobs have been moved to remote or telecommuting positions. For older workers, or even those without adequate access to computers and training, there are slim hopes of getting hired on for a job that requires telecommuting, or other technology they may not be familiar with.
For low-skill job seekers, automation is another issue that is beginning to rear its head. The threat of being replaced by robots is a real threat for many workers, and as labor groups fight for increases in minimum wage and better benefits, companies are going to be looking for ways to cut costs. It’s issues such as automation — which is now technologically feasible and cost-effective in many fields, and may not have been previously — that are leading to greater changes in the economy that are not simply cyclical. Over the next decade, many jobs will likely be replaced by automation technology, especially in industries like fast food and manufacturing.
There have always been ups and downs in the unemployment rate, which can typically be blamed on simple cycles in the economy. Markets bounce up and down, supply and demand stretches, and world events like natural disasters or war commonly cause dips and rises in the economy. However, the new changes in the workplace aren’t just your standard ebbs and flows; they are major trends that are changing our jobs and lives, and it doesn’t appear that things will be returning to ‘normal.’
These are issues that might not be helped by simple monetary policy changes, as Lacker explains. By rethinking the entire workforce paradigm, politicians and business leaders may be able to nip some problems in the bud, but monetary policy changes alone won’t be able to curb the economic issues we will face in the future.
“It is difficult for monetary policymakers to distinguish between cyclical and structural shifts in the labor market. But the distinction is critical, because monetary stimulus is unlikely to have much effect on unemployment that results from the latter,” Lacker says.
What about children?
If the assumption is made that monetary policy changes, which traditionally have been able to stave off problems resulting from high unemployment are going to be rendered ineffective, then what can be done? Since the changes to the economy are more structural than cyclical, the way we train and education our children must evolve as well. Lacker suggests educating children and students about the risks and rewards of multiple career paths, effectively increasing their human capital.
If human capital is a summation of a person’s abilities, especially when it comes to how well they can perform their job, then being trained in a multitude of skills makes individuals that much more valuable to prospective employers. This comes in contrast to the traditional approach to education, especially at the collegiate level, where students are encouraged to pick a subject in which to study, and train towards building the skills for an entry-level position in that field.
There are, of course, students who do take on double-majors, or study multiple subjects simultaneously. The Chronicle of Higher Education has explored how students double-majoring in their studies has increased in recent years, as many students are hedging their bets on the fact that they will most likely be required to take on more than one career path.
Changes to the education system would need to be made at an even earlier time frame for school-aged children, incorporating important training into curriculum that is not always available. Skills like personal finance, while imperative to maintaining a healthy adult life, are often skimmed across in high schools, leaving students vulnerable and clueless when it comes to things like building a budget, using credit responsibly and filing taxes.
Preparing for the future
Students will need to prepare now for an economic landscape that, at this point in time, no one can accurately predict. Graduates from the class of 2004 and 2005 are now working in jobs that did not exist at the time, and it’s probably safe to assume that graduates of the class of 2014 and 2015 will be doing the same in another ten years. By raising the human capital factor in today’s students, they will be better prepared to take on different roles that require multiple skills, not just the ability to complete one task — even if they do it well.
We know that education has a high impact on earnings, and a more comprehensive education should translate into a more valuable career for students willing to put in the work. New education methods will need to be devised, but creating and then implementing them across the entire country is where the true challenge lies. If we can have any reasonable expectation of a prosperous future for younger generations, it’s a challenge that legislators and community leaders are going to need to prepare to take on.
As Lacker says, if we can raise the value of our children’s education, and therefore their market value as employees for the future, we can raise overall human capital as a society. By ensuring each individual has a wide assortment of skills and abilities, it will be easier to find places to employ people in an uncertain future. There is a certain amount of risk involved, but the rewards should be more than enough to spur action.
“When we look at disparities in economic outcomes across our society, it is clear that differences in human capital accumulation play a large role,” Lacker says. “Doing our utmost to help the next generation of workers make the best use of their talents and opportunities will lay the groundwork for both them and their children to achieve their full potential and for the United States to achieve a more inclusive prosperity.”