Deloitte Has New Ideas For Fixing Joblessness

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On Monday, following a disappointing August jobs report, Deloitte LLP, one of the big four national accounting and consulting firms, published a new set of recommendations on how to revive the labor market. It was the fourth in Deloitte's series of studies on economic issues.

What is especially interesting about the Deloitte recommendations is this: Whereas the usual explanation of the persistence of a high national unemployment rate is insufficient employer demand or high levels of taxes and regulation, Deloitte's emphasis is on talent competitiveness-removing roadblocks in the economy to raising skills of job seekers.

The timing of the Deloitte paper could not have been better. Last Friday the Labor Department announced that the economy had a net gain of 96,000 jobs in August, a mediocre performance and disappointingly weaker than earlier in the year.

The unemployment rate declined from 8.3 percent to 8.1 percent, but only because 368,000 people left the labor market, leaving the proportion of Americans who say they are in the labor force-either working or looking for a job-at 63.4 percent, the lowest labor force participation rate since September 1981.

What to do? The new report, entitled "Brawn from Brains: Talent, Policy, and the Future of American Competitiveness," written by Deloitte researchers Bill Eggers and John Hagel, takes a new approach to job creation-increasing America's "talent competitiveness." The report can be found here.

Eggers and Hagel write that "there is a significant and growing mismatch between the country's demand for talent and its current supply." The question they are posing is this: What policies will speed up the development of workplace talent and employment? Conversely, what policies will slow it down?

The authors offer suggestions to develop talent through changes in education, immigration, occupational regulation, foreign direct investment, unemployment insurance, and patent law.

Education. In the 21st century, jobs will change as fast as technology evolves. The era of the lifetime job is over, the era of lifelong learning is in. The authors calculate that specific job skills learned through a BA will last for five years, and will then have to be renewed. Students will be able to leverage their critical thinking skills to continue learning. It's essential that refresher courses be as easy and efficient as possible.

Many new forms of education are yet largely untapped, such as free online education from great universities. MIT and Stanford are just starting this approach to educating a wider audience. Google has a new open university, Udacity.

Traditionally, students have been forced into expensive classroom graduate programs that can last years (especially if pursued part-time at night) when they want to switch fields. For American high school students, apprenticeships and vocational education, common in other countries, are underused, although America's universe of community colleges has been expanding.

Employment Regulation. Many professions rightly require licensing such as law, medicine and dentistry. Applicants must pass stiff exams. Other vocations, such as interior designer and food truck driver, are licensed arbitrarily at the discretion of the state. These requirements present roadblocks to entrepreneurs that have been highlighted by groups as different as the Institute for Justice, National Public Radio, and First Lady Michelle Obama, who has called for relaxing licensing requirements for wives of service members. Two examples: A licensed hair braider in Utah needs to pay $16,000 and study for two years. A licensed interior designer in Washington, D.C. needs 2,000 days of study before taking an exam.

Eggers and Hagel propose reviewing licensing requirements to see if they unnecessarily constrict the supply of skilled or semi-skilled labor. They also call for licensing reciprocity between states.

Immigration. The battle for talent is global, and our immigration policies are hurting us. We educate foreign nationals, often at taxpayer expense, and then make it difficult for them to get visas to stay in the United States. In contrast, Canada proposed a new law in April that would allow employers to assess the credentials of visa applicants before the government awarded the visas, simplifying the process.

The Kauffman Foundation, which champions entrepreneurship, concludes that an average entrepreneur can create over 500 jobs in his lifetime-yet it's time-consuming for foreigners who would be entrepreneurs in this country to get visas, even if they have significant capital.

The Deloitte report recommends expanding numbers of H1B visas, the visas that allow employers to hire high-skill workers in technical occupations, so that American employers can harness the power of the foreign talent pool. Too many talented students, such as engineers and computer scientists, are returning to their countries of origin, such as China and India.

Foreign Investment. Washington's policies on foreign direct investment in the United States often exclude companies that want to invest here. The stated reason is to protect existing American business. But this is anti-competitive and often results in less investment going to America, and more going to other countries. America then loses opportunities for a transfer of knowledge and technology. President Obama's Jobs Council, headed by General Electric's chief, Jeff Immelt, proposed that America permit an increase of foreign direct investment to the levels of the late 1990s, 26 percent of the global share, compared to current levels of 20 percent.

Unemployment Insurance. Generous terms for federal-state unemployment insurance keep the unemployment rate high because some people wait until their benefits run out before accepting new jobs. Eggers and Hegal propose paying benefits in a lump sum, so that unemployed workers can afford to relocate or invest in training. That might also negate any perceived advantage to waiting to take a job.

However, I must note that there may be a downside. An improvident jobless person may burn through a lump-sum benefit, putting themselves and their dependents at risk. The authors do not address this.

Second, states could link unemployment benefits to job training. Some proportion of the benefits could be in the form of training rather than cash.

Finally, the government could follow the German model, and pay the employer for a short time if the employer does not lay off the worker. The authors do not say it, but this could result in moral hazard, as the firm gains subsidies from the government by threatening to lay off workers.

The Deloitte report offers a timely overview of ways to increase employment. One quibble-it relies unnecessarily on the Labor Department's projections of future occupations, which have been unreliable in the past. One doesn't need these projections to understand that future jobs will be very different from those of the present, and that lifetime learning and adaptability will be a characteristic of future employees.

The August employment report underscored the need for a broad, new approach to job creation. Whether Barack Obama or Mitt Romney wins the election, the Deloitte report lays out a smorgasbord of innovative ideas.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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