Real Solutions to the Jobs Problem

It is tempting to think that all the nation’s economic troubles – slow growth and high unemployment – can be traced to the financial crisis and the recession that started in 2007-2008. But this would be a mistake. Some of the challenges the country faces predate the financial crisis. And understanding these challenges holds the key to getting the American jobs machine humming again.

Consider a new report by McKinsey and Company, “An Economy That Works: Job Creation and America’s Future.” The researchers at McKinsey point out that “from 2000 to 2007, employment grew by just 7 percent. In contrast, employment grew 15-25 percent in every ten-year period from 1960 to 2000, despite at least one recession in each of those decades.” In other words, America’s jobs engine has been broken for some time. Temporary stimulus is unlikely to fix this problem.  We need to find answers elsewhere. Jobs will be found in those sectors of the economy where demand is rising much faster than productivity. These sectors today include health care and education.  While other sectors of the economy are important and deserve our attention, these sectors are where we should expect to see robust job growth over time.

The problem is both health care and education are hamstrung by bureaucratic inefficiencies. McKinsey notes, “in some sectors, job creation is held back by outdated regulations over how services are provided and by what type of worker. For example, scope of practice laws that delineate how health care services are delivered vary across US states… Without sacrificing the quality of care, revising such laws could open the door for rapid growth of middle-skill jobs in health care.” What goes for health care goes for education, too. Both sectors need entrepreneurs who can use the existing labor pool to push innovations and new technologies into the marketplace. But licensing and other labor market regulations make it more difficult for entrepreneurial dynamism to emerge and upend the status quo.

My colleague, the economist Arnold Kling, and I coined the term New Commanding Heights to refer to those economic sectors, like education and health care, that are emerging as key battle grounds for policymakers in the 21st century. To solve the jobs problem in the United States, we need to recognize the barriers to entrepreneurship and job creation in these, some of the fastest growing sectors of the economy. That’s the first step on the road to recovery.