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The Unemployment Conundrum: Business Cycles or Something Larger?

If the nation's unemployment crisis is to be solved, education as well as on-the-job experience must now be combined with the ability to adapt to a rapidly changing business environment.

November 2011
The axles on the rear end of that semi backed up to your truck dock have Frank Dodd's name on them. For years, Frank kept the equipment operating at the forge plant on the west side of Marion, Ohio, producing heavy truck axle forgings. "What I did mostly was trouble-shoot. When the machines went down, I was the one they'd call to see if it was mechanical, electrical, or both. Then we'd get them back in operation again," says Dodd. No longer. "October 2, 2009 was the last day I worked. That was when the last hourly employee went out of there."

The plant that had once employed 500 under the Eaton, Dana, and Sypris names was reduced to a skeleton crew, making a part now and then - those parts that the new Mexican operation wasn't able to produce.

"Why?" is the question being debated today in the halls of Congress and across the country as the current president, presidential contenders, and members of Congress consider ways to reduce a persistent 9+ percent U.S. unemployment rate. What is it that makes the decades' worth of training and experience, the skills and talents embodied in Frank Dodd irrelevant in today's economy? Is the unemployment of Frank Dodd and 14 million other U.S. citizens "structural" or "cyclical?" Does it matter?

Cyclical or Structural?
The answers are "yes," and "yes," says Ohio State University's Oded Shenkar. He is the Ford Motor Company Chair in Global Business Management at Ohio State's Fisher College of Business. His latest book, Copycats, explores imitation versus innovation as business strategies. In 2006, he published The Chinese Century. He's been studying the global marketplace nearly all of his academic life.

Today's persistent unemployment is both cyclical and structural, says Shenkar - cyclical in that the business cycle has ebbed, as housing and stock market retrenchments erased trillions in savings and spending power. Less spending equals less demand for goods and services and fewer jobs. Cyclical unemployment is not just a response to the ebb of the business cycle; it becomes, itself, a self-reinforcing spiral that is hard to break without government intervention, argue Keynesians.

Mike Konczal of the Roosevelt Institute described the phenomenon recently on the PBS Newshour: "There are people who are sitting around unemployed, and there are, you know, people who want to open businesses and provide services who could hire them if they had customers. And they don't have customers because so many people are unemployed or afraid of becoming unemployed that they're not spending."

It's a vicious cycle. A typical approach is to add government cash to the economy to stimulate demand, create jobs, and break the cycle. Except, says Shenkar, to ignore the structural, global changes in the economy is to ignore the root causes of today's employment issues. Our own ingenuity is partly to blame. Robots fabricate, move, and package products with remarkable agility. They don't need salaries, medical benefits, or unions - and they replace human workers. Skilled, tech-savvy employees are required to manage them, but not nearly as many individuals as modern automation replaces.

Education Isn't Enough
Shenkar says he challenges his students to think about their futures. "What is your plan?" he asks them. Many, he says, reply with a variation of "Well, my grandpa worked for GM. My father worked for GM. I expect to work for GM too. " He tells them, "I have news for you. That may not be possible. Education is part of the answer, absolutely, but it is not a simple answer. There are a lot of educated people in India who would be happy to do your job for a fraction of what you're being paid."

Shenkar says, "Yes, education is critical, but we cannot just assume that we can continue to do what we've been doing until now. Simply increasing the proportion of people who get a college degree, while commendable and important in and of itself, is not going to solve all of our problems. I don't know how many college graduates are being cranked out all over the world. And, yes, our universities are better, but the difference is not always huge and they [universities in other countries] are improving fast."

Dr. Shenkar's thoughts are echoed by employers. A recent study by the Association of American Colleges and Universities finds 87 percent of employers believe colleges and universities have to raise student achievement if the United States is to be competitive in the global market. Sixty-three percent say recent college grads don't have the skills they need to succeed. But what are those skills?

For many, they are critical thinking skills derived from core subjects like math, science, history, composition, literature, and economics. Employers want graduates who can think and adapt in a rapidly changing environment with specific skill sets honed on the job. Others seek more specialized knowledge like PLC (programmable logic controller) training and blueprint reading.

Acquiring New Skills
Brad Dodd, Frank's son, opted for the latter course. He worked early in his career at Eaton with his father, picking up practical knowledge in maintenance mechanics. But he also attended classes at the local career center, technical college, and multiple training courses offered by machine and robot manufacturers, where he learned about robots, engineering, and electronics. "You know, I don't really have a degree, but if you put all of my education together, you could make a degree out of it."

Today the younger Dodd is an equipment service team leader at Honda supplier Marion Industries. The company sends 8,000 brake knuckle sets daily to the Honda assembly plants 40 minutes away. He's weathered layoffs that cut the plant's employment from 225 to 128 during the worst of the economic slowdown and the problems associated with Japan's earthquake and tsunami. Brad Dodd credits his continued employment, despite the hard times, to his ability to adapt. He's combined the common sense his Dad taught him with the technical knowledge required in today's fast-paced, just-in-time environment.

"I pretty much do all my trouble-shooting with a laptop," says Brad. But he remembers his father's admonition to use the computer sitting on his shoulders first. "One of the things Dad and those guys at Eaton always taught me was to look for the obvious first. Think dumb. If it's not moving, what does it take to move? Maybe it's just something stuck somewhere, or a sensor isn't on, or a wire's loose.

"What makes Brad Dodd valuable and keeps him employed, even in the depths of the worst recession since the 1930s, is his ability to assimilate the wisdom of his father's generation with the technical skills of the digital age. He has survived the structural issues that have affected so many by adapting to changes in technology. His father, a certified electrician, albeit with most of his experience in relays and switches not PLCs, recently took a government-sponsored re-training course. He's now certified in HVAC repair. "I'm licensed to work on anything - big units clear down to window air conditioners."

So, will he go to work in that field? "That's my problem," says the elder Dodd. "Now the age factor is stopping me. They see I'm qualified for a lot of stuff, but on my resume, they see I graduated in 1964. They can add real quick! They see I'm 65 years old. There are guys younger than I am who aren't getting anywhere too. I wanted to broaden my scope, so if I did want to go full time again, I could. I'm still looking."

Government Intervention Isn't the Answer
Could more government intervention help? Professor Shenkar doubts it. "I'm not a big believer in government intervention - even though it's done by people who mean well. That was never our strength - and the Chinese do a much better job of it! We have to decide. Do we want to out-centralize China in terms of creating a command economy where the government makes the decisions? Are we willing to accept what it takes to have that kind of a system? Most likely not!"

Shenkar grew up in Israel where he watched his parents struggle under a socialist system. "We suffered tremendously under that. I have seen exactly what it can do to people. When the government begins to be the one that creates the job, the government also decides who gets what job - who gets the better job - who gets the worse job. There's no end to it. I think it's an illusion to think you can decide on a particular midpoint and say this is where we're going to stop. It's like stopping an airplane in midair. I'm not sure it is possible."

Frank Dodd still wants to work - at least for a few more years. Perhaps a solution for him - and the country - would be for growth-oriented companies to hire Frank and others like him, not just for the skills they can still apply to the work at hand, but, perhaps more importantly, to transfer the common sense and wisdom bought through years of experience to a new generation - a generation charged with finding its own way back to economic strength.

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