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Where Will the Jobs Come From?

Where Will the Jobs Come From?

For the last year, as I travel around, it seems a main topic of conversation is “Where will my kids find jobs?” It is a topic I am all too familiar with. Where indeed? Youth unemployment in the US is 17.1%. If you are in Europe the problem is even more pronounced. The basket case that is Greece has youth unemployment of 58%, and Spain is close at 55%. Portugal is at 36% and in Italy it’s 35%. France is over 25%. Is this just a cyclical symptom of the credit crisis? Much of it clearly is, but I think there is something deeper at work here, an underlying tectonic shift in the foundation of employment. And that means that before we see a true recovery in the unemployment rate, there must be a shift in how we think about work and training for the future of employment. This week is the first of what will be occasional letters over the coming months with an emphasis on employment. (This letter will print a little longer, as there are a lot of charts.)

But first, the staff at Mauldin Economics is furiously putting the finishing touches on your free Post-Election Economic Summit webinar, which will air tomorrow at 2 pm Eastern. They are distilling multiple hours of discussion into a fast-paced, thoughtful (and often lively) conversation about what is in store in our economic future. Panelists and guests include Mohamed El-Erian, James Bianco, Barry Ritholtz, Gary Shilling, Barry Habib, and Rich Yamarone. We also have a truly unique interview with the chiefs of staff of Majority Leader Harry Reid and Senator Rob Portman. While we excerpted part of that interview for the webinar, the entire interview will be made available. If you want to get a true feel for what is going on in Washington, I suggest you listen in. You can sign up to listen here. Now, let’s think about employment.

The Next Bubble

Let’s look at a few facts put forth by the Young Entrepreneur Council from their list of 43 (available here):

·  1 out of 2 college grads  – about 1.5 million, or about 53.6 percent, of bachelor’s degree holders age 25 or younger  – were unemployed or underemployed in 2011.
·  For high school grads (age 17-20), the unemployment rate was 31.1 percent from April 2011-March 2012; underemployment was 54 percent.
·  For young college grads (age 21-24), unemployment was 9.4 percent last year, while underemployment was 19.1 percent.
·  According to some researchers, up to 95 percent of job positions lost occurred in low-tech, middle-income jobs like bank tellers. Gains in jobs are going to workers at the top or the bottom, not in the middle.
·  More college graduates are getting low-level jobs, period. U.S. bachelor’s degree holders are more likely to wait tables, tend bar or become food-service helpers than to be employed as engineers, physicists, chemists or mathematicians combined  – 100,000 versus 90,000.
·  According to new U.S. government projections, only three of the 30 occupations with the largest projected number of job openings in the next eight years will require a bachelor’s degree or higher. Most job openings by 2020 will be in low-wage professions like retail sales, fast food and truck driving.

While there may not be a bubble in education, there is definitely a growing debt bubble in student loans. More than 1/3 of young Americans of college age went back to school because of the economy, and in doing so have contributed to the $1 trillion in student loans. People are clearly going back to school and taking out loans as a way to make ends meet. The average college graduate has $25,000 in debt. Default rates are up 31% in the last two years. Student loans are relatively easy to get. They are like the old NINJA subprime mortgage loans available toward the end of the housing bubble: “No income, no job, no assets.” And they are just as likely to end up in default. But Congress recently passed new bankruptcy laws, and unlike housing loans, student loans cannot be discharged in a bankruptcy. The law of compound interest means that borrowers, mostly young, will be paying back this debt for many, many years.

We have told our children that education is their ticket to a better life. And the data still shows that there is a clear advantage to having a college degree. But our recent experience suggests that not all college degrees are created equal.

Tom Friedman, writing in this weekend’s New York Times, highlights the problem of education and jobs. He quotes Traci Tapani, who with her sister runs a sheet metal company in Wyoming with 55 employees.

“About 2009,” she explained, “when the economy was collapsing and there was a lot of unemployment, we were working with a company that got a contract to armor Humvees,” so her 55-person company “had to hire a lot of people. I was in the market looking for 10 welders. I had lots and lots of applicants, but they did not have enough skill to meet the standard for armoring Humvees. Many years ago, people learned to weld in a high school shop class or in a family business or farm, and they came up through the ranks and capped out at a certain skill level. They did not know the science behind welding,” so could not meet the new standards of the U.S. military and aerospace industry.

“They could make beautiful welds,” she said, “but they did not understand metallurgy, modern cleaning and brushing techniques” and how different metals and gases, pressures and temperatures had to be combined. Moreover, in small manufacturing businesses like hers, explained Tapani, “unlike a Chinese firm that does high-volume, low-tech jobs, we do a lot of low-volume, high-tech jobs, and each one has its own design drawings. So a welder has to be able to read and understand five different design drawings in a single day.”

[She ended up training her new potential employees and eventually was able to train someone to train welders.] But even getting the right raw recruits is not easy. Welding “is a $20-an-hour job with health care, paid vacations and full benefits,” said Tapani, “but you have to have science and math. I can’t think of any job in my sheet metal fabrication company where math is not important. If you work in a manufacturing facility, you use math every day; you need to compute angles and understand what happens to a piece of metal when it’s bent to a certain angle.”

Who knew? Welding is now a STEM job  – that is, a job that requires knowledge of science, technology, engineering and math.

Employers across America will tell you similar stories. It’s one reason we have three million open jobs around the country but 8 percent unemployment. We’re in the midst of a perfect storm: a Great Recession that has caused a sharp increase in unemployment and a Great Inflection  – a merger of the information technology revolution and globalization that is simultaneously wiping out many decent-wage, middle-skilled jobs, which were the foundation of our middle class, and replacing them with decent-wage, high-skilled jobs. Every decent-paying job today takes more skill and more education, but too many Americans aren’t ready. This problem awaits us after the “fiscal cliff.’”

A Hollow Powerhouse

There is a continual complaint that US manufacturing has been “hollowed out.” Where manufacturing jobs once were tickets to the middle-class lifestyle, there are now fewer and fewer such jobs available. Indeed, the next chart shows that manufacturing jobs are down almost 40% from the peak in 1978 and back to roughly where they were during World War II.

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Yet the number of manufacturing employees doesn’t tell the whole story. The US is still the number one manufacturing country in the world. We are an export powerhouse. Indeed, the growth of exports in the last 20 years has been nothing short of phenomenal. Exports have doubled and then doubled again. Total manufacturing in the US has almost come back to where it was prior to the Great Recession. Productivity in the last 20 years is up over 50%. We are producing as much as or more than we did in the past but with far fewer people. Taken alone, US manufacturing would be the ninth largest economy in the world. See the next three charts:

The chart below shows the average growth in productivity over various periods during the last 65 years. Note that after the postwar boom productivity growth fell and then began to increase again, up until the Great Recession. Greenspan was right to call it the Productivity Miracle.

We’ve Seen This (Manufacturing) Movie Before

At the dawn of the 19th century, farmworkers were somewhere between 75% and 80% of the entire labor force ( That number was still over 50% in 1860. It was not just the Industrial Revolution that increased the number of manufacturing workers in the US, it was an agricultural productivity revolution that allowed more food to be produced by fewer people. Even so, productivity growth was not all that exceptional in the first 60 years of the 19th century.

But that was then and this is now. Today the percentage of the labor force employed in agriculture is less than 2%. Agricultural productivity is up some 16 times since 1880, but we barely have more than two million people working on the farm, about the number working in agriculture in 1820. Take a look at the charts below:

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This latter chart is from

The Industrial Revolution and the shift to a manufacturing economy was clearly disruptive to employment. Yet who would advocate going back even 40 years to when the farm labor force was three times the relative size it is today? Especially if you had to be the farm labor? Been there, done that. Not interested in hoeing spuds.

A Manufacturing Renaissance

Just as agricultural output per worker has increased dramatically over time, I think that in the next 40 to 50 years we will see massive gains in manufacturing output without an accompanying large increase in manufacturing jobs. Companies are beginning to bring manufacturing back to the US because automation, robotics, and other new technology make it cheaper to manufacture products locally than to use inexpensive labor in other countries. I am told that Foxconn (in China) is beginning to use robotic manufacturing lines. When Foxconn is turning to robots rather than cheap labor, you know there is a revolution in the offing.

Yet even the manufacturing jobs that are left will not demand a “college degree.” They will require serious skills and technical know-how, but that is different from the typical college degree. That is not to say college education will not be useful, but it is increasingly going to have to be an education that has a focus and goal of a marketable skill.

What is going to be needed is the creation of brand-new industries, as well as the unleashing of the entrepreneurial skills of the younger generation. Small business is the engine of growth for jobs. It seems that all politicians can do is talk about the need to create jobs, yet the reality is that government doesn’t create jobs. It can create the conditions in which jobs are created, but it is up to the individual businessman (or, increasingly, businesswoman) to make a decision to hire additional workers.

My friend Bill Dunkelberg is the chief economist for the National Federation of Independent Businesses. He’s been doing regular surveys since at least 1974. His latest monthly survey shows that businesses are not terribly optimistic in terms of their plans to increase employment, which should be no surprise. The number one problem? Uncertainty.

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Let’s hope that our political leaders can give us a little more certainty and that it will not be the certainty of a recession.  David Krone (Senate Majority Leader Reid’s chief of staff) felt, in our interview for the Summit tomorrow, that it was only 50-50 that a deal would be done to avert the fiscal cliff. He was rather adamant that they would rather go over the cliff than kick the can down the road on the deficit. Not that it couldn’t be fixed later – but I suggest you listen to at least that part of the interview we’ll post tomorrow. I should note that both congressional chiefs of staff acknowledged they have been working for weeks prior to the election to come up with solutions to the cliff. These are the guys (along with their counterparts) responsible for much of the detail that will come out of the negotiations. They don’t get interviewed often, and that is a shame. It makes you feel better about the country to know there are people who care enough about our future to work with each other responsibly, even if they don’t agree on the path we must take.

A final scheduling note: On December 4 I will be doing a special live conversation with Dr. Lacy Hunt and my partner Jon Sundt of Altegris. Lacy is expecting a recession next year. The question now is how deep a recession – and what can investors do about it?  Lacy and I both anticipate a bumpy few years ahead as we stare into the teeth of a rolling global deleveraging recession – the Endgame, as I’ve called it.  The decisions that we make in the next couple of years about how to handle our budget deficits – here in the US, in Europe, in China, in Japan, and elsewhere – are going to be absolutely crucial.   If you are an accredited investor or a financial professional and have already registered with the Mauldin Circle (and are in the US), you will shortly be receiving an invitation to attend. If you have not, I invite you to go to and register today, so you can hear Lacy, Jon, and me discuss the direction of the economy, the Endgame, and ways for investors to navigate the landscape in 2013. (In this regard, I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA.) Thanks.

Bismarck, Scandinavia, Greece, Geneva, and Writing Schedule

It is time to hit the send button. It is going to be a busy week, as I have so much stacked up in my “inbox.” And of course Thanksgiving will be here in a few days, and that means an afternoon of going to the local fresh food market to purchase all the needed victuals and spending the next day cooking and getting ready. Thankfully, none of my culinary creations call for Twinkies, so I don’t have to worry about the shelves being empty. It is rather sad to note that 18,000 people will be losing their jobs this season as Hostess shuts down. That means we need to create at least 4,000 new small businesses to make up for those lost jobs.

I have read numerous reports about the bankruptcy of Hostess and was planning to comment on that debacle, but there is not enough space and time. Both sides of that argument can share the blame. One of the ironies is that the unions are vilifying the private-equity company that owned Hostess, and yet the owner of the PE firm is a certified big-time Democrat and sought out opportunities to find unionized companies to buy. And while the unions seemed to have a death wish, management simply had no clue. They were in a shrinking business (even if they made you personally fatter) and did not adapt. Side bet: Someone will buy them, move them to a non-union state, and produce the same amount of goods with fewer workers. Not that the people at Hostess didn’t work hard; they just had crazy rules and hundreds of conflicting contracts no sane business could compete with. Management so loaded the company up with debt that there was no money to advertise or create new (and healthier) product lines. It was truly bizarre.

Note: This was one of those times when a private-equity firm simply lost money. They bought the company out of bankruptcy, and it was already laden with debt. Then commodity prices soared, and unfunded pensions that exceeded the total assets of the company were a drag. Pensions like that cannot possibly make their targets when the Fed is keeping rates so low, and that means companies go deeper in the hole. Now, the pensions of the union members of Hostess will have to be taken over by the Pension Benefit Guaranty Corporation, which is itself massively underfunded. Union members will only get a fraction of what they think they should get. And we taxpayers get to fund the PBGC losses. Sigh.

I do have a few personal flights to make in the next month, but other than a speaking engagement in Bismarck, North Dakota, I will mostly be home until I leave for Copenhagen, Oslo, and Stockholm in early January, to speak for Skagen Funds. I have to be in Geneva a week later, so I will stay in Europe. I plan to visit Greece and perhaps one other country, to try to get a feel for the mood on the ground and what is likely to happen. It was not so long ago when we were “All Greece, All the Time.”

I will be working with Bill Dunkelberg on a book on the future of employment over the next few months, hoping to finish it shortly after the first of the year.

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As luck would have it, the Mavericks are playing three games this week while I am home. I really do enjoy watching NBA basketball and have had season tickets for almost 30 years. My first tickets were $2 a game on the very top row in the corner at the old Reunion Arena. It was all we could afford back then. Times have changed, and my seats are now much better, as over the years I have been able to move over and down. Given that the Mavericks are not likely to overawe me this season (though I have this dream that Dirk will come back better than ever), I just enjoy watching B-ball. I will admit to not having the same patience for the Cowboys. If they aren’t winning, I’m not watching.

Have a great week. I will do my own part for the employment numbers this week and make a job offer to a new potential associate.

Your trying hard to imagine the future analyst,

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Nov. 24, 2012, 7:38 p.m.

Agreed. This is a nice article. Engineers are what is truly needed across the board in terms of job growth.  However, in the case of the US, defense spending to protect the world has infringed upon both education and health care to the American public.  This can not continue. Both and the US credit worthiness will continue to erode like that of Europe. And with an overbearing student debt burden, students come out of the gate at a loss.

Ronald Nimmo
Nov. 23, 2012, 12:18 a.m.

This letter contains vitally important ideas which need to be understood by our leaders. Too many, especially among Democrats, continue to prattle on about the importance of getting any kind of college degree.
However the datapoints cited in the following series appear to contradict each other.

·  1 out of 2 college grads – about 1.5 million, or about 53.6 percent, of bachelor’s degree holders age 25 or younger – were unemployed or underemployed in 2011.
·  For high school grads (age 17-20), the unemployment rate was 31.1 percent from April 2011-March 2012; underemployment was 54 percent.
·  For young college grads (age 21-24), unemployment was 9.4 percent last year, while underemployment was 19.1 percent.

The first data item states that college degree holders under 25 suffered 53.6% combined unemployment and underemployment while the third data item states that for 21-24 year college graduates unemployment + underemployment totals 28.5% (19.1% + 9.4%). Since these two groups are virtually identical, how can there be such a huge difference between them in combined unemployment and underemployment?

Walter Clayton
Nov. 21, 2012, 9:44 p.m.

Why on “earth” would American “free enterprise” companies who exist to maximize profits for their shareholders be moved in any way to do anything to advance the cause of “America.”  That idea is now oxymoronic, and expressly in terms of “free-enterprise” and in light of recent politics of “free markets?” “Elementary, my dear Watson…” Is not Adam Smith’s treatise all about the “invisible hand?”  So I hear it said, repeatedly, CNBC and many other places.  If so, then the providential guide of land, labor and capital, has directed “free enterprise” to the very four corners of the compass, no more to USA, except to benefit from “sales and profits.”  Indeed, “profits” being the sole measure, then why continue anymore but “sales” for larger “profits” and then move on as “other” markets become the “consumer” nations?  Does “free enterprise” have a “flag” or “loyalties” or “homeland?”  I think if you reckon the recent politic, we see the answer, “Certainly not!”  But then I recall Sir Smith’s treatise, it’s title is cunning… The Wealth of Nations… not rich individuals, or the “providentially” fortunate few, or the opulent oligarchs?  In the end, does Smith relish the Randian ideation of the successful survive and the lessors, only serve??  Could Smith have meant that the “wealth” belongs to the nations, and those who benefit from the formulation of ideas, land, labor and capital “benefit” rather than run away with it all???  My son, a candidate for a doctorate in Finance, said, “America has it’s royalty, not by blood but by privilege and bank account.”  To wit:  Can you be capitalistically “good?”  Or is the idea of “goodness” the game for dolts?
Nov. 21, 2012, 4:14 p.m.

In your article you mention the metal fabricator not able to find qualified staff and that 1 in 2 grads are either unemployed or underemployed.  Is it possible that these grads have degrees (buggy whip making) that have no economic/employment value?

Gordon Davis Jr
Nov. 20, 2012, 4:03 p.m.

The phenomenon of low volume high skilled demand for labor in manufactureing is transitory and does not signal a trend. Advances in technology will soon obviate the need for high skilled manual labor with “math skills”. Technology will bring manufacturing back to the US, but not the jobs. There will be demand for some well educated, skilled workers, but not in manufacturing, which will be dominated by computer directed machines.
Nov. 20, 2012, 3:59 a.m.

“U.S. bachelor’s degree holders are more likely to wait tables, tend bar or become food-service helpers than to be employed as engineers, physicists, chemists or mathematicians combined – 100,000 versus 90,000.”

Well golly, perhaps that’s because so many bachelor’s degree holders have only acquired an “education” that qualifies them to wait tables and/or tend bar, probably for those who have actually studied chemistry, engineering, etc -

With degrees in engineering, chemistry and physics, I can attest to the fact that studying these disciplines is both difficult and humbling, with many setbacks along the way. 

A generation attuned to easy gratification is not well-served by an educational system that too often promotes self esteem over the substantially more difficult task of actually learning something of value, nor by parents that don’t make their kids get out there and struggle and fail and recover and learn what it actually takes to do something.

I’ve personally hired and trained kids with backgrounds ranging from high school to technical doctorates - they all take a fair bit of work to spin up, typically the biggest hurdle is getting them to understand how hard one must work to actually achieve something, and that this can’t be done while surfing on the iphone

In a global economy, if you don’t bring something to the table, then you shouldn’t be surprised to wind up waiting the table.

Nov. 19, 2012, 11:46 p.m.

Just like labor eliminating machines in agriculture the same thing occurs in all walks of manufacturing.  Machine civilization,  combined with corporate consolidation and job offshoring are the roots of our economic catastrophe.  Why would non contented capitalist pay $12.00 per hour to stuff boxes and turn screws at home when they can get it done for a buck overseas? 
The idiot elite can’t see that the box stuffer and nail driver he oppresses builds his upper seat and and keeps his slop trough and wallowing hole full.  It will be a great day when they both run dry.

Frank Blangeard
Nov. 19, 2012, 10 p.m.

You write that ‘the reality is that government doesn’t create jobs’ and that small business people create jobs. Your prime example however is a small business that needed welders who could ‘meet the standards of the U.S. military and aerospace industry’. Welding armor on Humvees was one of the tasks needed to be performed. Are these not jobs created by the U.S. government?

Fritz Rosendahl
Nov. 19, 2012, 9:49 p.m.

No doubt you considered this but central to solving the problem posed in your piece seems to me to be that the higher education system must change to keep pace with the real world. This is not a new call. When, many years ago, I was taking a degree in what was then called Liberal Arts much air was expended debating the value of this course of study. Things have changed as you so succinctly point out. Education must follow. Preferably lead. But that may be asking to much.
Nov. 19, 2012, 7:55 p.m.

Is this an implicit argument for the German education system? 

Germany has relatively low young adult unemployment, but their education system divides pupils into three tracks at a very young age.  While tracking a child for life at the age of 10 would be anathema to most Americans, the results are hard to dispute.

The way I understand it is that one track is for the top students, who are university-bound and could choose a number of paths at university, though likely a profession (law, medicine, teaching, etc).  There’s another path for highly-skilled engineers, who bypass the ivory tower for hands-on apprenticeships.  It may be a throwback to the medieval way of doing things, but it remains relevant.  Indeed, the relevance may be even stronger in light of current manufacturing trends, as John illustrates.  The final path is for everyone else.

So, perhaps that’s what we need to do.  Ironically, we have the tools in place to achieve this: our nationwide system of land-grant universities are particularly poised to be the leaders in such a shift.  Let the flagship schools and liberal arts universities keep sending graduates into the professions.  The land-grant schools, such as Auburn, Texas A&M, Clemson, Virginia Tech, or even (yes) MIT, are perfectly poised to educate our next generation of highly-skilled engineers.  The pieces are in place.  Time to make it happen.

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