The Workforce: Where Will the New Jobs Come From?

From Time |Mar 19, 2010 | By


Barbara Kiviat

Michael Kim landed his job as
HomeAway expands to meet growing demand for its online house-rental
service. (Jeff Wilson for TIME)

 

 

 

 

Later this year, a marketing manager will sit down for his first day of
work at HomeAway, a company that helps people rent their vacation homes
online. In the firm's sleek Austin, Texas, headquarters, a glass-wrapped
building decorated with travel souvenirs, the marketer will flip on his
computer and do his job - a job no one has done before. This, you see,
will be a brand-new job, one of the most coveted commodities of economic
recovery.

How this job will come to exist is at the heart of the most pressing
problem in the economy today. Since the start of the recession in
December 2007, the U.S. has shed 8.4 million more jobs than it has
gained. The unemployment rate hovers near 10%, and broader measures of
labor-market woes that include underutilized workers are as high as
16.8%. Go down the nation's list of economic problems - from mortgage
defaults to state-budget shortfalls - and joblessness lurks in the
background.
(See how some Americans are facing the prospect of
long-term unemployment.)

Even as other economic signals have started to turn positive, the jobs
situation has remained bleak. In February, the economy lost a net 36,000
jobs, which is leagues better than the 726,000 lost in February a year
earlier but points in the wrong direction all the same. Were the economy
to magically start generating jobs at a healthy clip - say, 200,000 a
month - it would still take 3½ years to return to where we were, never
mind the jobs we need for new entrants to the workforce.

This reality has triggered a nearly convulsive political response, given
that elections are won and lost over the state of the economy and the
mind-set of wage earners. That's why President Barack Obama, in his
State of the Union address, called jobs his "No. 1 focus" and proposed
repurposing bank-bailout money to lend more to small businesses, which
would then, presumably, generate jobs. On March 17, Congress passed a
job-creation bill that includes, among other things, an estimated $13
billion worth of tax incentives to coax companies into adding to their
payrolls.
(See 10 perfect jobs for the recession.)

The cold truth of the matter, though, is that there's not much
Washington can do to gin up permanent jobs on such short notice. The
federal government is a key player in engendering job growth in the long
term - by establishing smart policy in areas such as trade, education,
immigration, health care, energy, infrastructure and taxes - but over
the course of months or even a few years, there's little it can
effectively do besides hiring directly or stepping in as a buyer of
goods and services.

The great American job-creation machine always has been and will
continue to be private enterprise. The problem is that companies are
beat-up from the longest economic contraction since the Great
Depression. Plenty of economists think the worst is now behind us, but
firms are still plagued by uncertainty about how fast the economy will
recover. Nor can they plan responsibly without knowing the bottom-line
costs of the massive new initiatives out of Washington on health care
reform and carbon-emission regulation. Even companies that are
financially fit often don't feel like taking the risk of ramping up
operations and hiring more workers. There's been political pressure on
banks to lend, but the problem for some bankers, like Frost Bank CEO
Dick Evans, is that many businesses are debt-shy. "I'm aggressively
trying to make loans, but right now they don't want to borrow," he says.
"At this point," says Harvard Business School strategy expert Michael
Porter, "the No. 1 thing that will create jobs is the perception and
confidence that the economy will start growing again."
(Watch TIME's video "Austin Shows How to Make New
Jobs.")

The good news is the perception as well as the reality is improving in
some areas of the country. Just 12 out of 384 metropolitan areas ended
2009 with more jobs than they had at the beginning of the year, but more
recently, the numbers have been looking better. Over the past six
months (through January), 72 cities gained jobs, according to a Moody's
Economy.com analysis of data from the U.S. Bureau of Labor Statistics.
That may seem like a slow start, but it's a meaningful one to people
being hired in places like Flagstaff, Ariz., Augusta, Ga., and Lansing,
Mich.

Austin lands on that list too. The central Texas city of 760,000 has a
few built-in advantages over other cities. The University of Texas and
the state government - Austin is the capital - provide some economic
stability. And as the Southwest's technology center, Austin is home to
many high-growth (though high-risk) companies. It is also a music mecca
and the gateway to Texas hill country, attributes that help it attract
desirable workers. For all these reasons, it hasn't been battered quite
as hard as other cities by the recession; the unemployment rate was
nearly 3 points below the national average at the end of last year.
Still, the metro area has seen big job losses from major employers,
including the computer maker Dell and semiconductor manufacturers like
Freescale and Advanced Micro Devices. It's not hard to find the
desperate stories here that you find throughout the rest of the country:
the woman laid off from book publishing two years ago who hasn't been
able to find a permanent job since; the interior decorator who used to
have a six-figure salary and now sells furniture for $30,000 a year.

Yet Austin also offers a model of hope. The city's surfeit of
computer-programming talent allowed a video-game outfit to hire 50
developers and designers in the past two months. A manufacturer is
building a new plant north of town to take advantage of the growing
commercial-lighting industry even as its construction-related business
falls off. A pharmaceuticals start-up is looking for new lab workers.
Some companies are expanding, and others - markers of the city's
entrepreneurial spirit - are starting from scratch. Austin is emerging
as one of the first pockets of the country where people are getting back
to work, showing that even in this dreary economic environment, job
creation can happen - and illustrating how it will eventually take root
around the nation.

One Created Job

To start to understand the process, swing by HomeAway's downtown Austin
headquarters. This is where, sometime in the next nine months, a
marketing manager will show up for his first day of work at one of the
economy's newest jobs.

The story of how this job will come to exist starts five years ago, with
one man's frustration at how hard it was to find and rent a beach house
for his family vacation. Brian Sharples, who was between jobs at the
time, didn't understand why he couldn't go to a single website - as he
would go to Expedia for airline tickets - to find a comprehensive list
of houses for rent. So, with a business partner, he started such a site.
Five years later, the company has $120 million a year in sales, employs
600 people in five countries and is ramping up its marketing push to
grow even larger. That's why it needs a new marketing manager in Austin.
(See "The Dropout Economy - 10 Ideas for the Next 10
Years.")

HomeAway is hiring for a very simple reason: people who own houses and
want to rent them out are happy to pay $300 a year to have the company
spread the word - which it did in a Super Bowl commercial. "Jobs get
created by providing a product or service that's better than what's out
there," says Sharples. "There was an existing market for vacation
rentals, and we've created efficiencies in that market. Now that it's
cheaper and more efficient, more people are doing it, and the market is
expanding."

In other words, to create jobs, start by creating something people are
willing to pay for.

That's not as self-evident as it may sound. There is no shortage of
theories about why companies aren't adding jobs faster. Banks won't lend
to enable them to expand. Extra workers are too expensive because of
taxes and health care costs. But the real clog in the nation's
job-creating machinery is much more basic: a lack of demand for goods
and services.

Just ask small businesses. American Express did that in a January
survey, asking, What would most spur companies to go out and hire? An
increase in customer demand, according to 42% of the respondents. Tax
credits and better access to loans trailed, at 11% and 5%, respectively.

(See pictures of retailers that have gone out of
business.)

To see that dynamic in action in Austin, cut diagonally across the
street from HomeAway and pop into the headquarters of Whole Foods. For a
decade, the upscale grocery chain saw sales grow at about 20% annually.
Last year, sales barely budged up 1% - and the 30 stores that
executives planned to open around the country were trimmed to 15. Those
15 stores added nearly 4,000 jobs - just half as many as would have been
gained had people kept buying organic peppers and salted caramels at
the same pace. "There's too much thinking about how to create jobs,"
says James Manyika, a director of the economics-research outfit McKinsey
Global Institute, "and not enough about how to create demand." (Comment on this story.)

Why is that? Well, focusing on demand is a tricky thing to do. For
decades, the economy's engine of demand has been American consumers - a
population now overindebted, underemployed and endowed with a newfound
sense of thrift. The explosion in credit-card and home-mortgage debt
before the recession tells us the demand that was there was never
sustainable. This is why the President now talks about doubling exports
over the next five years and the importance of passing trade agreements
with countries like South Korea, Panama and Colombia. If we can't sell
to ourselves, there is at least partial salvation in selling to others.

It's also the reason the job-creation bill passed by Congress includes
an accelerated tax break for companies buying equipment. Companies that
sell equipment need people to build it, and companies that buy equipment
need people to run and maintain it. Many firms outside of financial
services have surprisingly solid balance sheets, Manyika points out, and
might be wooed into investing sooner rather than later. That would drum
up sales for the firms they'd be buying equipment from.

That prime-the-pump logic is also behind the use of the government to
create demand - what we know as stimulus spending. Last year's $787
billion American Recovery and Reinvestment Act has received its fair
share of criticism for funds being dispersed too slowly and for not
doing enough to stem unemployment. But in Austin, Bruce Matous has a
different point of view. "This saved my family business," says the
president of Matous Construction.

Matous is referring to a $28 million contract to upgrade the Hornsby
Bend Biosolids Management Plant, a city-owned facility that recycles
sewage sludge and yard clippings into lawn fertilizer. The city
desperately needed to upgrade its 1980s-built anaerobic digesters (you
can see the foam insulation chipping off) and now has the money to do
so, thanks to a 30-year interest-free loan from the federal stimulus
package. To get the project funded, the city applied to the Texas Water
Development Board, which had been handed stimulus money by the
Environmental Protection Agency.

Driving around Hornsby Bend, Matous points to a group of half a dozen
workmen and says, "We would have laid off all those guys." The
construction industry has been brutalized in Austin, as it has been
nationally, and by the end of last year, Matous was looking at just a
few more months of work in the pipeline. Then he won the Hornsby Bend
contract. Now the company is fielding job applications from people 200
miles away and is creating business for other firms, from the equipment
maker Caterpillar to R&R Industries, a California outfit that makes
yellow safety vests and just sold a couple hundred of them to Matous.

Injecting money into the system - whether through consumer spending,
business investment or stimulus funds - is a short-term fix designed to
get the gears moving again. That re-establishment of momentum is an
important part of economic recovery. But getting things moving isn't the
same as keeping them moving. In the long term, there is only one way to
create enough jobs for the economy: innovation.
(See "Why the Economic Recovery May Be Disappointing.")

Start-up Nation

Twenty miles south of Austin, in a nondescript industrial park, sits a
bland, corrugated-metal building with a roll-up door. Inside the
building sits the future of the U.S. economy.

Or at least part of the future. Five and a half years ago, the lights
went on at Xtreme Power with half a dozen employees and a vision to make
wind power an easier sell. One of the big stumbling blocks in
persuading utilities to buy wind is its unpredictability. The wind
blows, and then it stops, while utilities' customers demand a constant
flow of power. Xtreme's solution: a shipping-container-size
power-management system that takes in energy from wind farms, stores it
and then smoothly releases an uninterrupted supply of it out the other
end.

That innovation carries real economic value. Wind-farm operators want to
sell more power, and they'll pay for something that helps them do that.
As a result, jobs are created. Xtreme, which employed 57 people at the
beginning of 2009, installed its first major system in Hawaii over the
summer and now has $100 million worth of orders in the pipeline. The
firm currently employs 105 people and is again looking to grow. Its plan
is to buy a factory in Wixom, Mich., that Ford shut down in 2007.
(See the best photos of 2008: "The American Economy:
Down and Out.")

It's the dream scenario of the green-technology revolution: a plant that
used to make Lincoln Continentals starts churning out the mechanical
apparatus of wind-power storage. Michigan autoworkers, knocked off their
feet by a collapsing industry, put their skills to use in the
quintessential "industry of tomorrow." Once those high-value
manufacturing jobs are in place and a group of workers has money to
spend, other jobs follow - at doughnut shops, hair salons, real estate
brokerages and law firms.

Green jobs are hardly the economic cure-all they are often made out to
be. They currently account for only about 0.5% of the U.S. workforce,
and plenty of the industry's job growth is likely to happen overseas.
China is already the world's largest manufacturer of solar panels. But
the model provided by green-energy players is the right one: create new
products and new markets, and watch new jobs flow. Without the personal
computer, we wouldn't have Google and its 20,000 employees. Without
everyday low-cost pricing, we wouldn't have Walmart and its 2.1 million.

Austin provides a useful lesson in how to stay on top of the innovation
game. Start with an educated population (43% of Austin residents have a
bachelor's degree or higher), mix in a robust venture-capital scene (one
of the best outside Silicon Valley), add a supportive community of
peers (groups like Bootstrap Austin band together hundreds of
entrepreneurs) and wrap all that up with a state government unafraid to
throw money at companies that need a little help getting off the ground.

Over at the University of Texas, the nonprofit Austin Technology
Incubator houses fledgling firms, plying them with business-plan advice,
contact with financiers and lots of coffee over which to share ideas
and solve problems. The incubator's 20-year record: more than 200
companies and thousands of jobs created. "Companies don't start unless
they're resourced," says Rob Neville, who launched one company with the
help of the incubator and is now scaling up another, Savara
Pharmaceuticals, in anticipation of support from the Texas Emerging
Technology Fund.

These new companies are key to job growth. People talk about small
businesses being such great generators of jobs, but a more precise
assessment is that young businesses are. John Haltiwanger, an economist
at the University of Maryland, has been studying government data for 25
years and has determined that about a third of all new jobs created come
from start-ups. Furthermore, young companies add jobs faster. From 1980
to 2005, the typical 15-year-old firm added jobs at a rate of 1% a
year, the typical three-year-old firm at a rate of 5%. "These are the
rocket ships of the economy," says Haltiwanger.

Of course, young firms are also more likely to flame out and vaporize
their jobs - but job destruction is, perhaps surprisingly, par for the
course no matter what the size of a company. Even in the recession,
about 4 million people a month have been landing jobs. We just don't
feel the impact of that because more people have been losing them,
leaving us with fewer employed people overall. That constant churn can
be jarring for individual workers, but it represents one of the key
strengths of the American economy: flexibility. That's certainly true
for established companies too.

To see why that matters, stop by Ringdale, a company in the northern
Austin suburb of Georgetown. One of Ringdale's main business lines used
to be security systems, but as the construction of new buildings has
remained depressed, so have sales of things like the ID-card readers
that go inside them. Ringdale's response: throw more resources,
including employees, at its burgeoning line of light-emitting-diode
products, for which it holds a number of patent applications, thereby
answering increased demand for low-energy commercial lighting. "We've
redeployed," says CEO Klaus Bollmann, whose firm will open one plant
expansion in a few months (accounting for an additional 10 to 15 jobs)
and a second, larger one next year (120 more jobs). As the economy
shifts, reinvent.

That good advice isn't just for companies.

Rewiring the Workforce

In northwest Austin, in cubicles packed with toys and rock-band posters,
people in T-shirts and jeans are hard at work creating a video game
that someday will be played online by thousands of people at a time. It
takes years to produce such a complex game, representing a major
investment for California-based Electronic Arts. Why is this happening
in Austin? Simple. "The talent pool is here," says local BioWare studio
co-head Gordon Walton.

In the national job-creation discourse, jobs often start to sound like
things that companies one day decide to hand out. In reality, job
creation is also a function of the labor supply. It's not just about
firms wanting to hire but also about having people they can usefully
employ. There are only four or five cities in the U.S. where Electronic
Arts would be likely to develop such a complicated product. Austin is
one of them partly because it has a tech-savvy population and a history
of fielding such work - and also because it's an easy place for people
to train for the profession, with local colleges offering courses in
game design and programming.

In a down economy, plenty of people assume responsibility for
reinvention. Lindsey Spratt lost her job as an assistant audio engineer
and is now studying to be a chef at the Texas Culinary Academy. Rob
Carruthers was laid off from a job as a project manager at a software
company and is putting his dual engineering-business background to use
as a consultant to tech start-ups and schools.
(See "How to Know When the Economy Is Turning Up.")

Austin also illustrates a systematic approach to making sure people have
the right skills to match what companies need. For the past two years,
Workforce Solutions, a government-funded not-for-profit, has been
partnering with businesses and local schools like Austin Community
College to develop a series of training courses to help people upgrade
their skills and earn certifications. The modules are built to be
accessible to people well into their careers - recognizing that a
40-year-old isn't likely to have two or four years to return to school
full time - and focus on Austin's up-and-coming industries, like
biotech, renewable energy and video-game development. "When these jobs
come, we'll have the people with the skills to move into them," says
Workforce executive director Alan Miller.

Employers are stepping up too. A few blocks east of the state capitol
stands a hospital, one of 10 in the metro area owned and run by the
not-for-profit Seton Family of Hospitals. An adjacent building that used
to be a children's hospital now houses a clinical-education center.
Wards and operating rooms are filled with patients - sophisticated,
computer-controlled dummies that nurses-to-be can use to receive
valuable training. One dummy even gives birth.

Health care as an industry is booming in most places, and Austin is no
exception. Over the past three years, Seton has built three medical
centers and hired 2,300 people. But getting people into those jobs -
nearly 30% of which are for nurses - is a multipronged process. A few
years ago, there was a waiting list to enter nursing school in Austin.
Seton had to hire nurses trained in the Philippines. Now, with the
clinical-education center's extra capacity and new partnerships with
nursing programs at local colleges, Seton can hire locally.

That sort of coordination among workers, educators and companies is
vital, considering that it can be difficult if not impossible for
individuals to know which job to train for next. Even the head of
Workforce Solutions admits that focusing on biotech, green energy and
video games is really just an educated guess based on Austin's
historical strengths and industries that seem poised to grow. One of the
reassuring things about capitalism is that over time, workers and
companies are pretty good at figuring out the most productive ways to
get together. In the short term, though, that realignment can be a
struggle.

See what businesses have survived bankruptcy.

See "In a Tough Job Market, Teens Are Suffering Most."

 

Even so, there is a clear trend emerging: tomorrow's jobs will require
people to add more value than ever before. Consider Samsung's only
semiconductor-fabrication plant outside South Korea, which sits in
northeast Austin. Since the fall, the factory, which makes flash memory
for devices like smart phones and iPods, has been undergoing a $500
million upgrade. In advance of the plant's early-summer reopening,
Samsung will hire about 200 engineers and technicians to run and service
the new, more sophisticated equipment inside. But with the new factory
and those new jobs, 500 other positions have been eliminated: robots,
not people, will now transport silicon wafers.

That's actually not so awful, economically speaking. Innovation and
increased efficiency are the lifeblood of any economy. But it does mean
that as we tackle the topic of creating jobs, we must realize that the
sustainable ones will be those that build from a human being's unique
abilities, like problem solving and creativity. If we want to encourage
high-quality-job creation, we need to find a way to enable economic
evolution. We need to set the stage for companies to create tomorrow's
goods and services, and we need to be prepared to support workers in
their quest to adapt.
(See the best business deals of 2009.)

Washington Isn't the Answer

In Washington, the bulk of the response to job loss has been to drum up
short-term demand. Last year's stimulus package kept the economy from
spiraling further downward. Current proposals to extend unemployment
benefits and send $100 billion to struggling local governments would
have a similar effect - allowing consumers and cities to keep on
spending.

Tax cuts for businesses that hire - and then retain - workers will
likely wind up doing more of the same. No businessman in his right mind
is going to add the long-term liability of a worker simply for the
short-term benefit of a tax break. On the other hand, such incentives
may accelerate some hiring that would have eventually happened anyway,
and that would put more money into consumers' pockets faster. Of course,
extra spending and tax cuts contribute to the $1.5 trillion federal
deficit, and that drags on the economy.
(See "How High Could the U.S. Tax Rate Go?")

Easing the flow of credit, especially to small businesses, has also been
a major policy push - and a tricky one to size up. The efficient
reallocation of capital is key to any economy but especially to one like
the U.S.'s, which counts on dynamism as a competitive advantage.
Lending to businesses is down; that much is true. But is that because
banks are overly cautious and asset-impaired or because businesses are
uncertain about the future - or just aren't creditworthy borrowers? A
recent survey by the National Federation of Independent Business found
that companies that couldn't borrow typically had declining sales or
depressed real estate values. Simply opening the lending spigot doesn't
seem to be the answer.

All these ideas are short-term. That's understandable. People who are
out of work want immediate solutions. Politicians wouldn't be doing
their jobs if they didn't try to give voters what they want.

The conundrum is that the most useful things government can do to
encourage job growth aren't flashy initiatives with quickly visible
results. "There's no magic wand we can wave over companies that will
induce them to go out and hire people," says Matthew Slaughter, an
economist at Dartmouth's Tuck School of Business. "We need to think
long-term."

If Congress wants more and better jobs in the U.S., it should do things
like create a permanent tax break for companies that invest in research
and development, make it easier for foreigners who get science and
engineering Ph.D.s at American universities to stick around after
graduation, and spend serious time and money improving the nation's
infrastructure, including the electric grid and broadband network. Such
initiatives will not create many jobs that can be tallied on a
spreadsheet. What they will do is more important: lay the groundwork for
businesses to innovate and grow.

The same is true on the worker side of the equation. If the key
characteristics of the American economy are flexibility and forward
motion, then we would all be better off if people felt more support -
both financial and social - to invest in their education, switch jobs
and industries and venture out to start new firms.

Establishing job creation as a discrete goal is a misleading enterprise.
Beyond cyclic swings in demand, what we're really talking about
creating is not jobs but ideas and technologies and more efficient ways
of producing and selling goods and services. If that sounds like a
harder goal to set, let alone achieve, that's because it is.

Yet as Austin richly illustrates, in the wake of the worst economic
downturn in generations, that sort of innovation is starting to happen.
And from that, the jobs will follow.