Tradable vs. Nontradable Employment — Structural Solutions to the Unemployment Crisis

August 25 2011 by ChiefExecutive.net


CEOs are probably more aware than anyone of the hesitation of companies to hire new employees (that’s why two-thirds of you don’t plan to increase net hires over the next year)The employment challenge is a complicated one with no clear solution.

To find answers to this dilemma, The McKinsey Quarterly interviewed the CEO of a global staffing firm, Carl Camden, and Nobel laureate economist Michael Spence.

Here are the main points from each interview:

Michael Spence, Nobel laureate economist:

  • U.S. unemployment is structural, with two kinds of workers: tradable and nontradable workers
  • Tradable workers – provide goods/services that can be exported and consumed
  • Non-tradable workers – provide goods/services that require domestic consumption, e.g. legal, government, construction
  • In 18 months leading up to 2008, the U.S. added 27 million job – 26.4 million of these jobs were non-tradable (like government and healthcare)
  • Low value-added work can be sent abroad
  • The U.S. needs to fix the structure to fix the employment dilemma –we can’t expect that the non-tradable side will absorb the tradable surplus
  • Fixing the structural problem will come from fixing education and taxes
  • “I think it’s going to actually take a new policy framework that pays attention to structure and distribution and opportunity. And I think in order to make sensible, pragmatic progress, it’ll require cooperation between the business sector and government.”

Carl Camden, Kelly Services CEO :

  • Job life cycles are rapidly shrinking
  • More employees are independent, contract, or temporary employees (including highly skilled personnel like PhD scientists, engineers, consultants, lawyers)
  • Technology provides remote working capabilities and time flexibility
  • In other countries, companies do not distribute social and retirement benefits the way the U.S. does; “we need to understand that policy administration needs to be based against employment, not employer.”
  • Our education system should provide training for workers