preparing a workforce for the next arizona economy mckinsey & company november 17, 2011...

Preparing a Workforce for the Next Arizona Economy

McKinsey & Company

November 17, 2011

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

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The US has lost 3 to 5 times as many jobs as those lost in any other post-war recession

8.8

2.8

1.8

2001-20101981-821990-91

3X5X

Millions of jobs lost from peak prior to recession

SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis


The US is a long way from recovering the lost jobsMillions of jobs

-6.7

2.1

-8.8

2007-2010 2010-2011 Net jobs lost



1 Total employment equals the number all employed workers in the economy, including full-time, part-time, and self-employed 2 Net employment change as a share of total employment in the base year (e.g., 1990 for 1990s)


34.6

24.5

14.5

4.2

Young people without a high school diploma

Young high school graduates

Young college graduates

College graduates

Unemployment rates vary by degree level Percent


In the long term, the cost of unemployment is in the trillions of dollarsUSD billions

UI pay-outs

Lost output due to unemployment

Lost lifetime income for today’s unemployed

400

2,500

4,500



A quarter of Americans surveyed “feel the American dream is not really alive today”

27

15

11

201120031986

Percent of surveyed


A new job market?


The period between GDP recovery and employment recovery has been increasing

39

15

63

86676

20081

?

8

200119901981197319691960195719531948Year in which the recession began

“Jobless recoveries”

1 GDP returned to its pre-recession peak in December 2010

SOURCE: U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; McKinsey Global Institute analysis

Gap between GDP returning to pre-recession peak and employment returning to pre-recession peakMonths


68

49

25

In contrast to the past, firms today are more likely to lay off workers during a recession than suffer declines in productivity

1 Calculated from the onset of recession to trough of GDP. Calculations use real GDP estimate (2005 chained dollars) and total employment (full time and part time) for workers ages 16 and over.

SOURCE: US Bureau of Labor Statistics; US Bureau of Economic Analysis; McKinsey Global Institute analysis

Contribution to change in real GDP during recessionsCompounded quarterly growth rate,1 peak to trough (%)

100% =

Productivity loss

Employment loss

2007–09

-0.70

2

98

2001

-0.27

2

98

1990–91

-0.45

75

1981–82

-0.53

51

1973–75

-0.65

32


The number of new businesses has declined dramatically in this recession

SOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis

Change in number of private-sector establishments launched every year March 1993 to March 20101, thousands

1 Calculated using U.S. Bureau of Labor Statistics Business Employment Dynamics data set. The annual number indicates the number of businesses less than 1 year old that were in existence in March of that year.

03

609

02

612

01

631

2000

634

505

-23%

201009

548

08

627

07

656

06

667

05

633

04

603

The US would have 1.8 million more jobs had the 2007 rate of start-ups continued


1 Calculated using U.S. Bureau of Labor Statistics Occupational Employment statistics data, which do not include farm, self-employed, or new entrants to the labor market


Low-skill occupations had the highest job losses in all sectors

Annual net employment change from 2007–20091

Thousands of jobs

>500,000 job loss

>100,000 job loss

10,000-100,000 job loss

1,000-10,000 job loss

Most significant source of occupational training

On-the-job training

Work experienc

eVocational

awardAssociate

degreeBachelor’s

degree

Bachelor’s plus work experienc

eGraduate degree

Manufacturing

Administrative & support services

Retail

Construction

Finance and insurance

Transportation and warehousing

Business services

Wholesale

Real estate

Accommodation & food services

Educational services

Government

Health care

Ind

us

try

<1,000 job change

1,000-10,000 job gain

>10,000 job gain


The unemployment rate varies widely across the country


Unemployment rate, December 2010% unemployed

>10%

9–10%

8–9%

7–8%

6–7%

5–6%

<5%


0

2

4

6

8

10

12

14

16

18

20

22

Long-runaverage =18%

20092000199019801970119601950

Mobility in the United States has been declining since 1990

and is at a 50-year low


1 Data from 1970–1981 are interpolated due to data constraints.

Annual domestic migration rate, 1948–2009% of residents who have changed addresses during the past year

. . . but that figure has now dropped to 1 in 10

In the 1950s and 1960s, 1 in 5 Americans changed residences every year . . .


Are we asking the right question?

Cyclical | Structural | Institutional


1 Total employment, including self-employed and part-time workers2 New entrants include student inflows, net immigration inflows, return of discouraged workers, and exits of retirees

SOURCE: Bureau of Labor Statistics’ Current Population Survey; McKinsey Global Institute analysis

Full employment in 20201 160.4

Net new entrantsto workforce2 14.3

Replace lost jobs 7.1

EmploymentIn 20101 139.1

How many jobs does the US economy need to produce?

21 million

Employment needed to achieve 5% unemployment rate by 2020Millions

MCKINSEY CONFIDENTIAL AND PROPRIETARY


1 Total employment equals the number all employed workers in the economy, including full-time, part-time, and self-employed 2 Net employment change as a share of total employment in the base year (e.g., 1990 for 1990s)


1970s 20.6

1980s 19.5

2000-10 2.2

2000-07 9.2

1990s 18.1

1960s 12.9

1950s 6.9

Is it possible to produce 21 million jobs?

Increase in total employment2

Percent

12

20

26

20

15

7

2

3.5

4.2

3.2

3.2

3.4

2.4

1.7

Net employment change

Total employment1

Millions

Real GDP compound annual growth ratePercent


▪Has automation and information technology permanently reduced the need for workers?

Has globalization permanently priced US workers out of the global labor market?

Does growth in non-traded sectors come at the expense of traded sectors?


How must institutionschange?


▪How must schools, colleges and universities change what and how they teach?

How must businesses change the way they recruit and train?

How should government change its priorities and the way it operates?


Skill

Speed

Share

Spark


Ensure more Americans acquire the skills that match employers needs

Bachelor’s degreeor higher

Associate degree

Some college, no degree

High school graduate

No high school diploma

Supply

168.9

56.5

19.6

29.1

44.1

19.5

Demand1

163.3

58.0

17.7

30.7

43.3

13.6


Demand vs. supply – 2020 projectionsMillions

1 Labor demand from MGI high job-growth scenario

Difference

+5.9

+0.8

-1.6

1.9

-1.5


Help US workers to win market share

5 5

77 9

1011

11

34

24

08

36

25

07

34

24

06

31

22

05

29

22

09

27

20

03

23

18

02

24

19

01

24

22

2

2000

26

26

0

04

Actual overseas visitors

Potential visitors lost

Number of overseas visitors in the US

Millions

SOURCE: WTTC


Restore the new business growth engine

-7,000-6,000-5,000

-4,000-3,000-2,000-1,000

01,0002,0003,000

4,0005,000

09070503019997959391878583817977

SOURCE: BDS, Kauffman

1 Startups refer to new businesses, i.e. firms less than 1 year old

Entire economy

Entire economy without startups

Net job creation in US establishments

Thousands of employees


Speed up processes

“The real threat to our industry is the slow, cumbersome, and out-of-date system that we use to manage our”

- Executive of Corporation

“It is much easier to site and build a factory in China than it is in the US. For a manufacturer, two year advantage in building a plant may be everything”

SOURCE: RFF “Reforming Permitting”; expert interviews

US has a lengthy and complicated set of regulatory/ permitting requirements

This lack of speed can act as a major competitive disadvantage

Other

A power plant built in Wisconsin required 46 environment approvals

EPA

US Army Corp of Engineers

FAA

FERC

Six state agencies

State historical society

City, country, and others

46 environ-mental reviews


Skill

Speed

Share

Spark


Why can't students, workers, and employers have as useful information as marketers and investors?


Why shouldn't what you learn on the job be worth as much as what you learn in school?


How can we turn the unemployment system into a re-employment system?


▪Incentives and support to innovate

Joint commitment to solving these issues

Prioritize a high skill, high share, high spark, and high speed economy

▪Make it easier to invest in the US


Thank you

preparing a workforce for the next arizona economy mckinsey & company november 17, 2011...

Documents

recession source

recession peak months

onset of recession

postwar recession

lost jobs millions of

percent of surveyed

employment recovery

gdp recovery