Opening Plenary, Job Creation and America's Future (Presentation) - Dr. Susan Lund

An Economy That WorksJob Creation and America’s FutureMcKinsey Global Institute2011 WIB SymposiumState College, PennsylvaniaAugust 18, 2011CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

Other countries have not experienced the sameemployment decline as the U.S. Gross Domestic Product Employment Percent decline, peak to trough1 Percent change from January 2008 2 Germany U.S. 1 U.S. 4.1 0 -1 U.K. Germany -2 Germany 6.1 -3 -4 U.K. -5 U.S. U.K. 6.4 -6 -7 2008 2009 2010 20111 Peak quarter for United States was Q4 2007; peak quarter for Germany and United Kingdom was Q1 2008SOURCE: United States Bureau of Economic Analysis; United Kingdom Office for National Statistics; Germany’s McKinsey & Company | 1 Statistisches Bundesamt Deutschland; ILO; OECD; McKinsey Global Institute

Low-skill occupations had the >500,000 job loss <1,000 job changehighest job losses in all sectors >100,000 job loss 1,000-10,000 job gainAnnual net employment change from 2007–20091 10,000-100,000 job loss >10,000 job gainThousands of jobs 1,000-10,000 job loss Most significant source of occupational training Bachelor’s On-the-job Work Vocational Associate Bachelor’s plus work Graduate training experience award degree degree experience degree Manufacturing Administrative & support services Retail Construction Finance and insuranceIndustry Transportation and warehousing Business services Wholesale Real estate Accommodation & food services Educational services Government Health care1 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 marketSOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 2

Job growth in the 2000s was half the rate of previous decades Real GDP Net employment change compound Increase in total annual Total employment1 employment2 growth rate Millions Percent Percent1950s 6.9 12 3.51960s 12.9 20 4.21970s 20.6 26 3.21980s 19.5 20 3.21990s 18.1 15 3.42000-07 9.2 7 2.42000-10 2.2 2 1.71 Total employment equals the number all employed workers in the economy, including full-time, part-time, and self-employed2 Net employment change as a share of total employment in the base year (e.g., 1990 for 1990s)SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 3

Jobless recoveries The new normal? McKinsey & Company | 4

The period between GDP recovery and employment recoveryhas been increasing Gap between GDP returning to pre-recession peak and employment returning to pre-recession peak Months “Jobless recoveries” ? 39 15 7 8 6 6 6 6 3 6Year in which the 1948 1953 1957 1960 1969 1973 1981 1990 2001 20081recession began1 GDP returned to its pre-recession peak in December 2010SOURCE: U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; McKinsey Global Institute analysis McKinsey & Company | 5

The unemployment rate varies widely across the United States >10%Unemployment rate, December 2010 9–10%% unemployed 8–9% 7–8% 6–7% 5–6% <5%SOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 6

Mobility in the United States has been declining since 1990and is at a 50-year lowAnnual domestic migration rate, 1948–2009% of residents who have changed addresses during the past year2220 Long-run18 average =16 18%14 In the 1950s and 1960s, 1 in 5 Americans changed12 residences every year . . . . . . but that figure10 has now dropped 8 to 1 in 10 6 4 2 0 1950 1960 19701 1980 1990 2000 20091 Data from 1970–1981 are interpolated due to data constraints.SOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 7

The number of new businesses has declined dramatically in this recessionChange in number of private-sector establishments launched every yearMarch 1993 to March 20101, thousands 667 656 615 610 610 634 631 612 609 603 633 627 584 588 550 548 5051994 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 20101 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.SOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 8

McKinsey & Company | 9

The high job-growth scenario is the only one that returns the United Statesto 5 percent unemployment by 2020 Employment demand scenarios Millions of net new jobs, 2010 - 2020 22.5 Need 21 million 17.4 new jobs to return to 5% unemployment in 2020 9.3 Low Middle HighAverage net new 77 145 187jobs per monthThousands of jobsSOURCE: Moody’s Analytics; McKinsey Global Institute analysis McKinsey & Company | 10

Job growth potential varies by sector Low scenario Middle scenarioJobs created by 2020 High scenarioMillions Health care 2.8–5.2 Business services 2.4–5.7 Leisure and hospitality 2.1–3.3 Construction 0.9–1.8 Manufacturing -2.3 to 0 Retail -0.8-1.2 MGI focus Government1 1.6-1.7 Financial services1 0.7–0.9 Other services1 0.4–0.8 Education1 0.5 Other2 1.0–1.31 Job growth projections from Moody’s Analytics.2 Other includes mining, utilities, wholesale trade, transportation and warehousing, information, self-employed, and agriculture.SOURCE: Moody’s Analytics; Global Insight; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 11

In the high job-growth scenario, we project 1.5 million too few collegegraduates in 2020 Demand vs. supply – 2020 projections Difference Millions 168.9 163.3 No high school diploma 13.6 19.5 +5.9 High school graduate 43.3 44.1 +0.8 Some college, no degree 30.7 29.1 -1.6 Associate degree 17.7 19.6 1.9 Bachelor’s degree 58.0 56.5 -1.5 or higher Demand1 Supply1 Labor demand from MGI high job-growth scenarioSOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 12

Anytime, anywhereThe changing nature of work McKinsey & Company | 13

The nature of work is changing Disaggregation of jobs “As work gets more complex, we’re seeing that jobs are getting disaggregated into many functions… it’s no longer one person doing ten things; instead it’s ten people working on one thing.” – Head of HR in high-tech and software industry Virtualization of work “The virtual work model can be more productive than other setups… it contributes to higher employee satisfaction and lower turnover.” – HR Director in business services industry More part-time and temporary work “We expect to increase our headcount in the future, but our FTEs will remain flat… we will have more part-time and contingent.” – Senior Vice-President of HR in health care industrySOURCE: McKinsey Global Institute analysis McKinsey & Company | 14

Our business survey reveals that employers foresee amore flexible labor forceIn what ways do you foresee the workforce atyour company changing over the next 5 years?1Select all that applyMore part-time workers 36.5More temporary or 34.3contract workersMore telecommuting 25.5More older workers 19.9(aged 55+)More outsourcing 15.6More offshoring 10.41 Survey of 2,000 U.S. businessesSOURCE: McKinsey Global Institute U.S. Jobs Survey, 2011; McKinsey Global Institute analysis McKinsey & Company | 15

Some business support services in the U.S. can becost-competitive with offshoring destinations Cost by location for delivering higher-level IT support services Index U.S. high cost = 1.00 US high cost 1.00 India 0.42 Several large U.S. companies – including Argentina 0.53 Delta, United Airlines and AT&T – have recently repatriated Brazil 0.69 call centers to the U.S. Eastern Europe 0.76 US low cost 0.66SOURCE: McKinsey & Company; McKinsey Global Institute analysis McKinsey & Company | 16

Many cities have abundant supplies of low-cost IT talent Median wage for IT jobs in MSAs < $50,000 $55,000 - $60,000 WA ME ND ≥$60,000 MT MN OR NH VT ID SD WI MI MA WY NY IA PA RI NE CT NJ NV OH MD DE WV DC UT CO KS IL IN VA CA KY Metropolitan MO NC Statistical Area (MSA) OK AR TN AZ SC Any central community with MS NM population of 50,000+ citizens LA GA and adjacent communities of AL 10,000 in which at least 25% TX commute to central community AK FL HI PR McKinsey & Company | 17Source: 2009 Bureau of Labor statistics, McKinsey Global Institute analysis

Toward aU.S. jobs agenda McKinsey & Company | 18

To revive job creation, the U.S. must make progress on four dimensions Ensure Americans acquire the High skill skills that match employer needs Harness globalization to create High share more U.S. jobs Encourage innovation, new company creation, High spark and the scaling up of new industries in the U.S. Remove impediments to investment High speed and job creationSOURCE: McKinsey Global Institute McKinsey & Company | 19

Thank you The full report can be downloaded at: McKinsey Global Institute www.mckinsey.com/mgi McKinsey & Company | 20

Opening Plenary, Job Creation and America's Future (Presentation) - Dr. Susan Lund

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