It’s generally assumed that the biggest issue this election is job creation. That is interesting given how the economy has already created 14 million jobs in the last six years.  More interestingly, as we’ve pointed out, we’re getting close enough to full employment that it’s hard to imagine where enough workers will come from.

Then again, it isn’t hard to imagine a job shortage. As we also have pointed out, the key issue when it comes to jobs isn’t trade deals or unfair labor practices – it’s automation. Robots build our stuff, computers file our paperwork.

If we want to seriously talk about jobs, the first thing we have to realize is that the short-term is probably covered by the coming worker shortage as Boomers retire. That’s the good news. Over the longer haul, however, automation of various kinds will replace more and more workers. That will take careful attention to what’s going on as well as a completely new definition of “work” to get us through the other side.

Big companies have been slow to hire, slow to increase hours

There are many ways to look at the ongoing revolution in manufacturing as well as services, all of which point in the same direction. Productivity gains are always going to be the primary way our economy grows, but over the last sixteen years of relative stagnation they are the main reason jobs have been lost. Raising the minimum wage would certainly put more money into the economy, but it would also likely speed up the arrival of robots to do more menial tasks. Growth in world trade, new agreements or not, will certainly put the US at some kind of competitive disadvantage over other nations for many jobs – especially in manufacturing.

There is only one solution. Workers have to be valuable enough to justify a high wage, which is to say they have to be highly productive. That means they have skills, and that means they learned them somehow.

Whether it’s in school, on the job, or as part of continuous adult learning the secret is training.

A high skills – high wages economy is not alien. Many European nations work this way, most notably the economic powerhouse of the continent, Germany. “Made in Germany” is a badge representing a quality brand for many items known around the world. But how do they do it?

The short answer is that such a reputation doesn’t come overnight, it takes generations. The way you groom future generations for such an economy is all about the education system.

Develop Nations + BRICS plotted as the Gini Index (higher is more inequality) vs Labor Force Participation Rate. Data from the World Bank and OECD Index.

As we’ve pointed out before, Germany stands alone among developed and developing nations. Generally, the percent of adults in the workforce is a strong indicator of income inequality, probably for multiple reasons. Too many workers chasing a fixed number of jobs means competition and lower wages, and lower wages mean more people in a household want to work.

Not so in Germany. Where we’d expect their adults working to suffer with a relatively high income disparity, a Gini Coefficient of 0.4, they instead have a low inequality with a coefficient of 0.27 – the lowest in the developed or developing world.

The secret to their success is their education system. Students who aren’t going to University are trained in a valuable trade after elementary school. Schools work with industry and trade unions to identify needs and help develop talents needed for the next generation of German workers.

It’s going to be their world, probably all at once.

As good as this sounds, however, there is a downside. Students are “tracked” into categories beginning in the fifth grade. The future life of every ten year old is determined by their placement in Gymnasium, or college prep, Realschule, or technical school, or Hauptschule, the remedial path. The determination is made by teachers more than testing. Once you are in a track it’s very hard to get out of it.

In this way, the next generation of German workers is forged. Less than one third of all Germans go on to a University, a rate less than half of that in the United States – which is the main reason it’s quite easy for government to foot the entire bill for the next generation of thinkers.

What life can they expect if they are tracked into Realschulen? It’s not bad, but they don’t get much respect. I worked with my partner lab in Germany some years ago, doing research on new plastics with equipment we simply didn’t have over here. Most of it was done by phone and email, but I flew over whenever it was necessary. I developed a close working relationship with Franz März, a very capable technician without whom I would have never gotten anything done.

The town of Burghausen, Bavaria, Germany.

When it came time for me to write the patent on some of our work, I naturally included März. After the US filing came translation into German and French for the European filing, which we did right away. And that’s when all Hell broke loose.

You see, the fussvolk (foot people) are not supposed to be included on a patent. That gives them certain rights and upsets the balance of power that is carefully maintained. Herr Direktor called me into his office on my next visit and really laid into me. All I could do was apologize and explain that this is how we do things in America – I simply did not know better and this would never happen again.

I didn’t let him know how angry I was that this was even an issue. I’m an American, damn it, and we don’t treat people like this. Besides, brilliant is brilliant and innovation only moves forward when we recognize it.

This is the system, from ten years old through the rest of your life, that creates a decent living for everyone in the incredibly productive nation of Germany. There is no way in Hell I would ever want to see it implemented here. More interestingly, Germany is starting to relax its rigid system and allow some movement between tracks. My son is visiting his sister school near Frankfurt next year, which is both a Gymnasium and a Realschule. I can’t wait to hear how that works.

Industrial Arts – it’s not just for the 19th Century anymore!

But there is little doubt that some attention to the Industrial Arts and some kind of tracking, ideally self regulated, will be necessary for kids to learn the skills they need for a good life. But it also has to leave open the possibility of going on to college later in life. And we cannot neglect continuing education for adults who need more schooling as valuable skills come and go.

Lastly, we have to figure out how to pay for all of this.

The German model is interesting, for sure, but it’s not for us. It may not be for the next generation of Germans as they seek a more open society and more innovation in the workforce. But it does tell us how important the development of skills is for the kind of society we all say we want – full of opportunity and high productivity that ensures a good life for everyone.

How do we create jobs? The short term is probably going to work itself out. The long term will require a dedicated effort that includes everyone thinking long and hard about what is important. It won’t be easy and it certainly won’t be developed by shouting at each other. But it has to be done.