The U.S. American Labor Market. Implications for HR Strategy

Table of content

Table of abbreviations

1. Methodology

2. PESTEL Analysis of United States of America

3. The U.S. labor market

4. Implications for Human Resource Strategy

Bibliography

Table of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Methodology

In the following, the methodology of this paper is explained: First, the country is described and analyzed from a macro perspective using the PESTEL framework¹. Second, the analysis focuses on the domestic labor market. Here, facts and major shifts are explained, and current significant challenges are outlined. Through that, risks and opportunities are assessed, and a labor market outlook is given. Finally, implications for a human resource strategy are formulated, addressing the specific risks and opportunities of the American labor market.

2. PESTEL Analysis of United States of America

Political: The United States is a federal republic and a representative democracy. The U.S. population benefits from extensive civil rights and a free press (Freedom House, 2018). Additionally, the political situation is considered as stable, however in recent years a downtrend is noticeable (The World Bank, 2017). Generally, the rule of law is considered to be strong and corruption is perceived as relatively low as the U.S. ranks 16th in the Corruption Perception Index (Transparency International, 2018). Bringing those factors together, the U.S. ranks on 21th place (2017) in the Democracy Index by The Economist Intelligence Unit with an overall score of 7.98 and is categorized as a flawed democracy (The Economist Intelligence Unit, 2017).

Economic: The U.S. has a highly developed capitalist mixed economy that constitutes of ca. 24% of gross world product and is therefore, according to the International Monetary Fund, the world’s largest economy with a nominal GDP of $20.513 trillion (2018) and the seventh highest nominal GDP per capita ($62,518) in 2018 (International Monetary Fund, 2018). The annual inflation rate in Nov. 2018 was 2,2% (U.S. Bureau of Labor Statistics, 2018a). The unemployment rate in the U.S. was 3,9% in December 2018 which is relatively low, compared to the last decade’s (2008-2018) average of 7,4% (U.S. Bureau of Labor Statistics, 2019a). Further, in 2017, ca. 34,2% of the U.S. population who were aged 25 and above had graduated from college or university, while 89,6% had obtained a high school degree (U.S. Census Bureau, 2017a).

Social: The U.S. has the 3rd largest population of the world with a population of approx. 327,2 mio. (2018) (U.S. Census Bureau, 2018). While the population growth in 2017 to 2018 was 0,71%, the population is expected to grow to 416,8 mio. in 2060) (U.S. Census Bureau, 2018). The fertility rate is ca. 1,77 children born per woman and life expectancy lies at 80 years (male: 77,7 years; female: 82,2 years) (U.S. Department of Health and Human Services, 2018). Labor mobility is very high in the U.S. as mobility is a very important factor for Americans (The World Bank, 2011). Lastly, unionization in the labor market was measured at ca. 10,7% in 2017 (U.S. Bureau of Labor Statistics, 2018b).

Technological: The U.S. has highly advanced and very innovative industries and is considered to be an innovation leader, ranking 6th in the Global Innovation Index (2018). Additionally, the U.S. has the highest number of science and technology clusters (Cornell University, INSEAD, and WIPO, 2018). According to the Global Energy Architecture Performance Index, energy access and security is on a high level (World Economic Forum & Accenture, 2017).

3. The U.S. labor market

The U.S. labor market has undergone major changes over the past decades. Besides globalization and other macroeconomic factors, demographic shifts, immigration, innovations in information technology and a decrease in unionization have been changing the American labor market in multiple ways. In the following, the most important shifts in the last decades are outlined and, additionally, an outlook with main challenges is given.

(i) Labor market shifts

Since the end of the 1960s, developments in technology as well as shifts in politics and demographics led to a drastic change in the U.S. economy. In 1950 a large portion of the American workforce (41.0%) worked in “goods-producing” industries. Due to automation and offshoring these jobs declined, so that in 1970 33.0% (U.S. Department of Commerce, 1975) and in 2016 only 12.6% worked in those industries (U.S. Bureau of Labor Statistics, 2017a). However, service-providing industries increased. It is assumed that in 1910 approximately 45% of the workforce was employed in the service-providing industry; In 2015, it was about 80% (U.S. Bureau of Labor Statistics, 2015).

Furthermore, the proportion of women in the American labor market is steadily increasing. In 1900, women represented 18.3% of the workforce while in 1950 this number climbed to 27.4% (U.S. Department of Commerce, 1975, p. 131). In 2017, women were nearly half of the workforce (46.9%). In the following sectors, women are the vast majority of the workforce: Healthcare practitioners and technical occupations (75.0%), Personal care and service occupations (76.1%), Healthcare support occupations (87.1%) (U.S. Bureau of Labor Statistics, 2018c). Women also tend to have a higher educational level than men (Ryan & Bauman, 2016) but, in 2017, were paid ca. 80% of what men earned (Fontenot, Semega & Kollar, 2018).

Immigration into the U.S. is historically an important topic (Abramitzky & Boustan, 2017). In the year 1970, immigrants represented 4,7% (9,6 million people) of the population living in the United States. In 2016 this share of population increased to 13,5% (43,7 million) and is estimated to reach 18,8% (78,2 million) by the year 2060 (Camarota & Zeigler, 2017). In 2016, most immigrants came from the Americas (42,8% of total immigrants) and Asia (39,1%). The top three countries where immigrants come from are Mexico (2016: 14,7% of total immigrants), China (2016: 6,9%) and Cuba (2016: 5,6%) (Baugh, 2017). In aggregate, immigrants tend to have a lower educational level than the native population. In 2016, ca. 26,7% of the foreign-born population which an age over 24 years had no high school diploma (Native counterpart: immigrants tend to have a lower educational level than the native population. In 2016, ca. 26.7% of the foreign-born population with an age over 24 years had no high school diploma (Native counterpart: 7.6%). However, immigrants had nearly the same portion of holders of a bachelor’s degree (Foreign born: 18.8%; Native born: 21.2%) and a higher percentage of holders of an advanced degree (Foreign born: 13,6%; Native born: 12.4%) (U.S. Census Bureau, 2017b). But it must be noted that the educational level among immigrants is increasing (Krogstad & Radford, 2018).

While young people in the U.S. have a relatively high unemployment, the babyboomer generation tends to stay longer in the labor market compared with the typical retirement age. Reasons for that might be insufficient retirement plans or, more general, financial troubles (Johnson & Southgate, 2013). The relative high unemployment faced by people from ages 16 to 19 (12.9% in 2018) might be due to high competition for middle or low-skill jobs which college graduates also opt for, even though they are sometimes overqualified (Davis, Kimball & Gould, 2015; U.S. Bureau of Labor Statistics, 2019b).

Additionally, it can be observed that low-skill jobs with a low wage as well as high-skill jobs with a high wage experience growth while middle skill jobs decline. This potentially increases the already existing income and wealth inequalities in the U.S. economy. The basic trend is: The rich get richer while the poor get poorer. Reasons may be the decline in unionization, growing costs for health care, stagnating wages, and tax policies unfavorable to the poor (Kuhn, Schularik & Steins, 2018). In 1976, the top 1% in the U.S. had a share of the pre-tax national income of 10.4% and ca. 22.1% of total net personal wealth. Until 2014, these numbers nearly doubled: 1% of the population earned 20.2% of pre-tax national income and owned 37.2% of net personal wealth (World Inequality Database, 2019).

Another big shift, esp. in the last two decades, is the decline in unionization (Freeman & Hilbrich, 2018). In 1983, 17.7 million resp. 20.1% of workers were union members. However, in 2017, only 10.7% or 14.8 million workers were union members (U.S. Bureau of Labor Statistics, 2018b). Union membership varies between age, gender, occupation and location. Generally, workers in the public sector are much more likely to be a union member than workers in the private sector. Also, men tend to have a slightly higher union membership. Further, people of color are more often union members than White, Asian, or Hispanic workers. Lastly, union membership differs from state to state: In 2017, New York had the highest unionization (23.8% of employed) while South Carolina had the lowest (2.6%) (U.S. Bureau of Labor Statistics, 2018b).

(ii) Labor market challenges & outlook

In the coming decades automation will have a deep impact on the U.S. labor market. It is estimated that 23% of current work activity hours will be automated by the year 2030. Especially office support jobs (-4.6%) and jobs in predictable environments (-6.6%) will make a much lower percentage of the labor market in the year 2030. On the other hand, care providing occupations (+4.9%) and builders (+2.7%) will take a bigger share of the jobs in the labor force. Because of automation, up to 33% of workers in 2030 might need to change their occupation (McKinsey Global Institute, 2017, p. 103).

In 2030, an increasing share of jobs will require a college degree (2030: 21%; 2016: 19%) or advanced degrees (2030: 7%; 2016: 6%) in the United States (McKinsey Global Institute, 2017, p. 82). Due to the strongly increasing costs of higher education, this could further the wage and wealth inequality within the country (Snyder, de Brey & Dillow, 2018). Additionally, as already mentioned, low-wage jobs and high-wage jobs are growing, while middle-wage jobs decline. This trend is estimated to intensify in the next decades (McKinsey Global Institute, 2017, p. 103). In the long term, this can also increase income and wealth differences which already exist to a large extent in the United States (Autor, 2010).

Another big challenge in the U.S. labor market is the decline in unionization. On average, union members earn 5 to 15% more than their non-union member counterpart with same characteristics (Blanchflower & Bryson, 2007). Other benefits are better retirement plans, health insurance and payed vacation (Bennett & Kaufman, 2007). Beyond those pecuniary advantages, Unions counterbalance management, ensuring a fair and transparent exchange of workers' problems. One reason for the decline in unionization might be economic trends, such as the demographic change, the changing composition of the American workforce or the decline of historically union heavy industries like manufacturing. Another reason might be the fear of risking a dispute with the employer and the uncertainty if unions are needed in a free market (Freeman & Hilbrich, 2013).

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¹ The Pestel framework is a tool “used in strategic management to group macro-environment factors to help strategists look for sources of general opportunity and risks” (Witcher & Chau 2010, p.91).