Just to keep the rate of joblessness constant, the global economy will need to create 600 million jobs over the next eight years, according to a new World Bank report.
Where will all those jobs come from?
The “job engines” of the past two centuries were usually new technologies, such as the steam engine, electricity, new seed varieties, or new types of manufacturing. Growth was also driven by more trade, easier transport, instant communications, and better rule of law.
Now many economists wonder if global growth is in a long stall with no new “engine” in sight. The International Monetary Fund (IMF) warns of an “alarmingly high” risk of a sharp slowdown for both developing and developed nations in coming years. Much of Europe is in recession. Banks and governments in many countries are saddled with debt.
“Looking ahead, no significant improvement appears in the offing,” states the IMF’s latest World Economic Outlook. Many workers have simply left the labor force. More than 620 million young people have no job or aren’t being educated, the World Bank finds.
This pessimism has many economists looking for new models of growth. Harvard economist Dani Rodrik, for example, says poorer countries may not be able to rely on industrialization as a path to prosperity, as much of Asia has. Modern factories are highly advanced, requiring fewer workers and more skills. They can be easily moved. Growth, he wrote last month, will rely instead on “sustained improvements in human capital, institutions, and governance.”
The World Bank, too, sees a need for many countries to avoid the model of export-led growth that has long relied heavily on wealthy consumers in Europe and the United States. A slowdown in richer nations means poorer nations must look more to their own markets or neighboring countries.
The bank is pushing for a “virtuous cycle,” or enough reforms in education and governance that each country finds its own job engine. China, for example, has seen its growth rate slow, bringing new pressure for less state control, better rule of law, and more transparency in decisionmaking. It needs to rely more on its internal market. For the US, reform also lies in better governance, such as more certainty over regulations, taxes, and debt reduction.
But according to a new paper by Robert J. Gordon, an economist at Northwestern University, the US must also face the prospect that today’s technology innovations may not bring the same job growth of past technologies.
While the Internet helped boost productivity from 1996 to 2004, its effect may now be diminished. In fact, he says, it is disrupting old industries, such as music and newspapers, without creating enough jobs fast enough to replace them. Like the World Bank, he lays out a need for basic reforms, such as better education, reduced inequality, and more energy sources.
In other words, society itself – or how people “innovate” with each other – is needed far more than innovations in material technology. Maybe then, a “virtuous cycle” of reforms can make better use of new technical discoveries – and help create those 600 million jobs.
[Editor's note: An earlier version of this editorial gave an incorrect figure for the number of young people without jobs or not in school.]