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Unemployment, Inc.: Six reasons why America can't create jobs

UPDATE: No net growth in new jobs in August kept the US unemployment rate at 9.1 percent. Six reasons the country is struggling to put people to work – and why it may not last.

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Laura Dahowski knows a lot about how high-tech firms manage their labor costs. When they need help, she's hired as a contract worker. When the project is over – say, rolling out some new software or video game – so is her employment.

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Ms. Dahowski, based in Seattle, is part of a growing cadre of never-permanent employees. That might be a perfectly fine way to work, if the time in between jobs wasn't so long.

Her problem, writ large, may also be a significant factor behind the economy's dearth of job creation. Businesses in many industries are managing their people for maximum efficiency through techniques that range from outsourcing whole departments to relying on contract workers and on-call support. In the past, hiring people project to project was often a way to cut costs in hard times. Now it is becoming a permanent way of doing business.

The result is efficiency gains for employers. That can often be part of a "virtuous cycle" where profits go up, firms invest in new ventures, and jobs and incomes keep growing. But in a depressed economy, moves that have bolstered corporate earnings haven't fueled a recovery in jobs.

"My dad worked for the state of New Hampshire," says Dahowski. "My mother worked for years at an insurance agency. You're there and you're locked in [to wages and benefits]. That's totally not the way that it is now."

Of course, traditional steady jobs haven't vanished entirely. And the definition of "steady" has always depended on the employer's own solvency. But the shift toward more flexible workplaces has accelerated in recent years.

A survey of 2,000 employers by the McKinsey Global Institute, the research arm of the McKinsey consulting firm, found that two-thirds say they have "made changes to achieve the same output with fewer employees" over the past three years. Of those, 44 percent had increased their use of part-time, temporary, or peak scheduling. A similar number have redesigned processes, and 24 percent have outsourced some activities.

In recession periods in the mid-1970s and early '80s, employers didn't lay off as many workers as declining consumer demand suggested they could. In 2001 and 2008, by contrast, employers felt an imperative to keep their per-worker productivity from falling – and the result was deeper layoffs.

Still, labor-market experts point out that workplace flexibility has its benefits as well as challenges. The upside for employers includes being more nimble and focused. It's typical for a firm now to have a core permanent staff – among its most highly valued assets – surrounded by a flexible workforce.

For workers of both types, the current environment includes greater freedom (the opportunity to work at home, for instance) and often good pay as well.

Some types of workplace adaptability can hold advantages even during downturns. Susan Lund of the McKinsey Global Institute notes that Germany has survived the global downturn better than the US, in part because many of its companies reduced work hours instead of cutting so many jobs.

As a result, consumer activity in Germany didn't plunge as sharply.

2 The résumé gap

To say that a lack of job skills is part of the employment problem sounds like blaming workers for their own predicament, at a time when many jobless Americans have both skills and a willingness to retrain.

But some economists argue that this is an important part of the jobs conundrum. And the issue really isn't about blame, but about helping workers, schools, and businesses connect better. If they do, more new jobs and even new industries will be created in the US, rather than overseas or not at all.

Even in the current weak economy, employers say a good number of jobs are going unfilled because companies aren't finding skilled workers.


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