The job market is not just about employment. It's also about productivity.
In the years running up to World War I, Henry Ford watched two problems grow to a point he could no longer tolerate. Then, on Monday, January 5, 1914, he solved them both at the same time, with one executive order.
Here were his problems: (1) He had the capacity to manufacture more cars than he was actually producing, and (2) The American public’s appetite for them was weakening. In other words, his ability to supply was greater than the demand for his products, the chief reason for which was that he was a prisoner of his own excellence. His Model-T, in production from 1908 to 1927, was so well made, so reliable, and didn’t change each year as our model years do now, that buyers kept the cars they had for many years. Selling for roughly $540 (base model), it was considered a good buy, but out of reach for many American households. Sooner or later, that catches up with you, even if you’re Henry Ford.
It was really that simple.
His executive order, one of the most impactful in business history, was simple. He came into work that Monday morning and signed the order that more than doubled the minimum wage of his workforce – from $2.25 to $5.00 per hour, effective immediately. The thousands of workers in his employ who – a day earlier – couldn’t dream of buying a car, started buying Model-Ts – 15 million of them between 1914 and 1927, when the last one rolled off the assembly line.
Among other things, Ford’s decision also led to the institutionalization of the 40-hour week and it single-handedly raised the life styles of, if not all Americans, certainly those in and around Detroit, with so many others to follow. In the process, Ford’s productivity numbers went through the roof, reducing the time to assemble a Model-T to 93 minutes. Go back to your Economics I textbook. What happens when consumer wages rise, manufacturing costs decline, production capacity increases, productivity improves, product prices come down, consumer markets expand, and brand awareness for your product grows? You sell 15 million cars, that’s what happens. Two problems, one solution.
How does this relate to us, a century later?
We have 11 million open jobs, jobs that employers say they would fill immediately if the right candidate would show up. Typically there have been between three and five million, or 2.5% to 3.5% of the civilian labor force In today’s job market that’s been unprecedentedly strong for 25 consecutive months, our open jobs have equated to nearly 7% of the workforce for 18 months running. Stunning.
So with all the job creation going on, why are there still so many open jobs? The universally accepted reason given by employers is that the right candidate – hidden meaning: perfect – hasn’t appeared. That’s no longer a good reason; it’s a stubborn, persistent illusion.
It’s time to fish or cut bait, dear employers, and fill those jobs already – and there’s no better time to do it than now, in what continues to be the strongest job market in history. For perspective’s sake, in January, the civilian labor force numbered 165.8 million. Of that number, 160.1 million were employed. Now, if you’re asking where, in the difference of 5,7 million, 11 million jobs would fit, the answer is that they would immediately grow the size of the civilian labor, and with it, productivity. Productivity! With all the talk about our powerful, consistently record-setting job market, the envy of the world, the focus has always been where you’d expect: jobs, unemployment rate, layoffs, and all other predictable labor statistics.
Two problems, one solution – again
But let’s look at this from a different angle and as a different issue: the cost of keeping a job open. Every day a job remains open, revenue opportunity is lost. Productivity is defined as the revenue generated by the production of goods or services per hour worked. If we continue to look at open jobs as an employment issue, we’ll get no further than that, as we have been all along. But if we look at filling open jobs in terms of economic growth, we’ve got something. That’s what Ford did.
Measuring productivity is not uniform, but I’m comfortable with one source that says the global cost of non-revenue-producing jobs is $8.5 trillion. Now, with the estimated global GDP at $97 trillion (Source: World Bank), the loss of productivity worldwide due to vacant jobs is roughly 9% of global GDP. With the US’s GDP at $23 trillion, or 24% of the world’s, it’s safe to assume that our share of productivity loss is at least $2 trillion, probably more because much of our productivity is in high-revenue services and out-of-whack health care costs. Could our lost productivity number be $3 trillion? Sure. But the point should be clear: there are two problems that need one solution, just as Henry Ford saw it. He raised wages; today’s leaders can add jobs. Same objective.
Employers must (1) Take the bold step to fill those jobs already, and with it, (2) start thinking in terms of what they’re doing to promote our national interest. Backyard provincial thinking has no place in the 21st century.
Just think of what a $2 trillion increase in productivity would do. Expand the size of the workforce, reduce unemployment, generate revenue and profitability, lead to new industries and facilities, bolster Social Security and other badly-needed human services, and secure our position as the world’s leading economy for generations to come.
Now ask: What Would Henry Do?
