At its height, the labor market lost 22 million jobs and many workers will not return to their old jobs regardless of how fast the economy recovers.
There are current efforts in Congress to produce a stimulus bill and president-elect Biden has promised that more will be done to produce jobs once he is sworn in.
But, the longer-term problem in this world of rapid change is to educate, train and re-train people so that the "human capital" in the economy matches the needs of businesses.
For the longer-run health of the economy, and the stock market, this labor problem needs to be addressed so as to increase employment, productivity, and profitability.
These are just the things investors need to get business performance moving more in parallel with the movement of the stock market.
Eduardo Porter presents, to me, the most important problem that must be solved to produce more economic growth in the future, lower rates of unemployment, and more social stability.
All of these things would be good for the workers of America, but it would also be good for businesses and investors. Faster growth and filling open jobs makes for a stronger and more prosperous economy. This will contribute to an economy that moves more in line with the stock market.
Mr. Porter writes about “Reinventing Workers for the Post-Covid Economy” in the New York Times:
"The labor market has recovered 12 million of the 22 million jobs lost from February to April. But, many positions may not return any time soon, even when a vaccine is deployed."
There is a bipartisan group in the US Congress attempting to put together a spending bill that would help the “displaced” to weather the economic recession going on and the disruptions caused by the coronavirus pandemic, but this is aimed at solving immediate concerns.
President-elect Joe Biden has been proposing further fiscal stimulus to deal with the slow economic growth and unemployment situation.
But, as I wrote in a recent post, these are just short-run efforts to reduce the pain that currently exists.
The problem is that these efforts do not address the longer-run dilemma, the one that Mr. Porter highlights. And, it is the longer-run problem that must be addressed if the country is to really move forward.
Aggregate Demand Is Not The Long-Run Solution
The proposals being made are appropriate for the time, but they are not the solution to the longer-run issue.
The longer-term problem is captured by the picture of trying to put a round peg in a square hole. The problem is that many in the current workforce do not possess the skills to fill the jobs that are currently available or will become available in the future. This is a problem of education and training. The short-run efforts do not address this issue.
The current efforts are modeled upon Keynesian ideas about current demand and the assumption that stimulating aggregate demand in the economy will be enough to put workers back into the jobs they held before they became unemployed.
This type of policy was built in the effort to reduce the impact of a downturn in the economy that was cyclical in nature. The assumption was that, given the fact that the economic downturn was cyclical, that unemployed workers would return to their jobs as aggregate demand in the economy picked up and as employers returned the workers to their former jobs.
This was also a very desirable picture for politicians because their efforts to get the unemployed workers re-employed would help them, immensely, in getting re-elected. What more could a politician ask for?
But, this does not work as well in an economy that is rapidly changing because of technological change. And, then you add a pandemic to an economic recession and you find that technological change is accelerating at an even faster pace.
And, as Mr. Porter writes, in the current case:
"...the jolt has landed squarely on workers with little or no education beyond high school, toiling In the low-wage service economy.”
He notes, “All are waiting for the economy to restore the jobs they have known.”
But, “often the old jobs just don’t return.” This is because the task is “moving millions of workers into new occupations,” which “remains an enormous challenge.”
And, the policies and programs that can work to resolve the problem not only take a lot of money, they take a lot of time. And, these are two things the politicians don’t like.
The Solution
It seems as if the longer-run solution must include changes in the education system and in the training- and re-training system.
Furthermore, any solution to this situation is going to include an emphasis upon “life-time learning.” In today’s world of rapidly advancing technology, people… all people… must continue to learn throughout their lifetimes. And, somehow, society is going to have to find out how it can contribute, enthusiastically as well as financially, to the existence of this “life-time learning.”
The United States has supported general education through twelfth grade. In the future, this support, I believe, is going to have to be extended further to include all different types of training and re-training.
Bottom line, as we have seen in the past, a rising level of education and training is good for the economy, raises wealth and creates greater satisfaction in the population. It is certainly a “positive sum” effort.
Educational Changes
Furthermore, the education space is going though its own re-creation. The spread of the pandemic and the accompanying recession have accelerated the investigation about education, how it should be delivered, and what it should consist of. It seems to me that the whole field of education is going through a process of internal questioning, one that is well overdue.
Education, and what it contributes to society, must be brought into the twenty-first century. It is time educators looked at what they are doing and bring it “up-to-date” with the technology and the times. This is a hard thing for them to do, but it needs to be done, especially as so many people are facing the future that has been presented above. This all needs to be done together.
The Future
The world moves on. This is something that investors should understand and support.
Not only does a longer-run effort like this improve economic conditions, it also means that companies that need the “human capital” to run their businesses effectively will have access to it. And, it creates a more productive workforce that should be greater satisfied, who feel included in the system.
Finally, as readers of my posts know, I believe that history shows us that information grows and spreads and that people that participate in this growth and expansion prosper. We need to understand this and work to build a society that supports this growth and expansion.
This is ultimately the foundation for a strong business community and a strong financial system and a strong stock market. Investors should encourage this kind of thinking because politicians tend to focus on a shorter-run horizon. All would be served, however, if everyone concentrated on a longer-run vision.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
