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The Real Reason the USA is #2

Written By Briton Ryle

Posted December 6, 2014

Education stocks can teach us a thing or two about the economy, employment, and general worker attitudes which are worth looking at. As adventurous and industrious as we may believe we are, most tend to fall back into their comfort zones as often as they can. And the results can be devastating not just to each one’s financial future, but to the nation’s future as well.

Just yesterday, China officially bumped America out of the top spot on the economic leader board. And our broken education and training systems – together with a lackadaisical attitude – may be to blame.

“The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in ‘real’ terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.,” Market Watch reported. “To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.”

While many would gladly push the blame for this slippage into second place on the recent downturn in economic activity since the financial crisis, we must remember that China too has been slowed by the global crisis. So we can’t blame the recession.

Nor can we pin the blame on a lack of jobs in America which limits productivity. Truth be told, there are more unfilled jobs than people realize. What is really limiting our productivity is a poor education and training system – something which China has always valued, and has placed at the forefront of its economic development plans.

Let’s see why much of the blame for America’s fall into second place is to be placed on a failing education and training system that doesn’t make the grade.

The True Job Situation

Those who would pin the blame for falling into second place on the recent disruption to the U.S. economy will often cite the loss of more than 8 million jobs in the span of just two years from the end of 2007 to the end of 2009, as graphed below in red.

But they neglect to factor-in the reclaiming of all those lost jobs plus the addition of a few more, as 9 million jobs had been created from 2009 until present, as graphed below in green.

USA versus China chart 1


Of course, those who blame the still struggling U.S. job situation do have a valid point. Even though some 9 million jobs have been added in the last 5 years, we still need to factor-in the population growth which adds more people to those looking for work at one end, while a longer working life keeps older workers in the workforce at the other end.

The net result, therefore, is that despite having created more jobs (9 million) than were lost (8 million), America still has more unemployed people now (9 million) than it did pre-crisis (7 million), as graphed below in yellow.
USA versus China chart 2


But that’s not where the real problem concerning underemployment lies. The truth of the matter is that there are currently nearly 5 million unfilled jobs in the U.S., as graphed below, which employers are desperate to fill.

USA versus China chart 3


And why are these jobs not being filled? Because most are high-skilled jobs which required several years of education and training.

“About 33% of 848 small-business owners and chief executives said they had unfilled job openings in June because they couldn’t identify qualified applicants, up from 31% of 811 owners nearly two years ago, according to surveys by The Wall Street Journal and Vistage International,” reported the Wall Street Journal this past July. “A shortage of workers with the right skills and experience is also a major impediment.”

Indeed, a major impediment to competing on the international market. Therein lies the real reason why America has slipped into second place. The global marketplace is advancing, and there is real money to be earned in the high tech, engineering, aerospace and healthcare sectors – incomes and profits which are now going to other countries who are getting smart about getting smart – like China.

Symptoms of an Ailing Education System

Want more proof that a lack of advanced education and training is holding America back?

Take a look at the following graphs of the performance of the nation’s two largest education and training companies – Apollo Education Group, Inc. (NASDAQ: APOL) and DeVry Education Group Inc. (NYSE: DV) – and the two largest education materials publishing companies – John Wiley & Sons Inc. (NYSE: JW.A) and Scholastic Corporation (NASDAQ: SCHL).

First, we notice how both of the schools and one of the textbook publishers outperformed the broader market S&P during the bear market from mid 2007 to early 2009, with the educators actually rising 38% and 30% respectively while almost every other industry in the nation sank.

USA versus China chart 4


The reason? This was the period when 8 million jobs were being lost, forcing workers to consider their options, like going back to school and retraining for new positions.

But notice what happened in the graph below once the economy started picking up again. The two educators and the same publisher grossly underperformed the S&P, with one of the educators falling 50% and the other rising a mere 10% while the rest of the market has soared over 200%.

USA versus China chart 5


What happened? The addition of 9 million new jobs – most of which were low paying, low skill, service sector jobs – were giving American workers no incentive to retrain or upgrade their education and skills.

This is why America currently has nearly 5 million unfilled jobs and 9 million unemployed workers. Do we realize what this means?

It means that if just 55% of all those currently unemployed were retrained or had their education upgraded, all of those 5 million available jobs could be filled, adding that much more productivity to the nation’s output.

How much more productivity? 5 million available jobs equate to 3.4% of the 147 million employed persons we already have, increasing national productivity by at least that much. Actually, the increase to national productivity would be much greater than 3.4%, given that most of these 5 million available jobs are higher paying, higher skilled positions that generate more revenue per hour of work, and produce more valuable goods and services per hour of work.

Close the Browser and Open a Book

America has just received a wake up call yesterday, as China overtook it as the leading economy on the planet, and Americans are not going to take that sitting down.

Or are they? The average youth spends more than 12 hours a week sitting in front of their computer, browsing the web, chatting with friends, playing games, watching movies or listening to music.

Naturally, recreation and social interaction are important, as they add to our enjoyment of life and help us become more socially involved. But too much play and not enough study has contributed to long line ups at the McDonald’s hiring line, while high tech jobs paying $100,000 a year and more are sitting unfilled.

And it isn’t just our youth who are paying the price. Now the entire nation is as well.

Joseph Cafariello