 My name is Rana Faroohar, I'm the assistant managing editor at Time magazine in charge of business and economics and I have the great pleasure of being here to speak with Professor Chris Pizzerides from the London School of Economics, a Nobel laureate who I'm sure many of you know and probably many of you know his work as well. The professor won the Nobel for his work in labor economics and it's very interesting, I'm just going to give a little bit of background before we move on to your new idea because I find it fascinating. He won for questioning the fact which was conventional economic theory that if you had an open job and an unemployed worker they would inevitably come together and you were one of the first to really question this and much of what you found is now a conventional wisdom in labor economics. So the professor is going to share a new idea, a breakthrough idea with us today on employment and how to make the jobs that are being created now better jobs. So I turn it to you. Thank you, Rana. The idea what's been worrying me about recently in the last five or six years now is where are the jobs going to come from that will employ the young workers coming out of school. My focus has been the industrialized countries of the OCD, mainly Europe and how it compares with the United States, Japan, I looked at. And to give you a little bit of the historical background, if we look back in the age of manufacturing, which was up to the 1970s when it started declining in our countries, many, many young people, the unskilled, the ones who left school early, they were expecting to go into manufacturing or mining. They were becoming manual workers, very little skill, maybe a little bit of apprenticeship training, and then you got your job and you stay there. It's probably what your father was doing. Your mother was not likely to be working and society sort of knew what to expect in terms of employment. Now that route to a job, of course, has ended now following the oil shocks of the 1970s and the decline of manufacturing, especially in the last decade with globalization and the movement of manufacturing jobs to China, India and other places. And we have to realize that manufacturing jobs are not going to come back to the industrialized countries of the OECD. So young people will have to go into services. Then you might say, what kind of services? Well, what's the most striking thing about service employment when we look around us? It's computerization. We see computers everywhere, electronics. So the obvious thing that might occur to you when you see it is to say, well, it's going to be in these services. So let's give them education. Let's supply all schools with computers and the employment problem will be solved. And in fact, that's the approach that the European Union has taken in the Lisbon treaties, the approach that the individual European Union leaders took. Tony Blair, when he was elected prime minister, he said, they asked him what was going to be the initiative of your government. He said education, education, education, computer in every school for every child. And he was driven by the whole European Union push for what they call good jobs. Now, if you look at the statistics, though, that's not the case. If you look at the statistics, and especially statistics in the United States, because the United States is still the leading economy of the world in terms of where job creation is going to go, which sectors are going to develop. And usually Europe follows closely behind another 10-year gap, maybe in employment. I mean, historically, you can see that. If you look at where jobs are being created, they're mostly in unskilled services that involve some kind of service provision for the individual or the business. So what you're describing is a world of services moving towards the high end. And you've said some very provocative things. We can't bring manufacturing back in rich countries. I mean, President Obama just gave a State of the Union speech that was telling us that we could. And there are a lot of companies that disagree with that. You've also said that I think that we can't innovate our way out of the end of manufacturing and the shrinking middle problem. And we can't potentially educate our way completely out. Is that right? It's right. Those are big statements. Yes, I don't know why I don't know how President Obama, I mean, I don't know how he could think that you would bring manufacturing back. I mean, you see, we have to be a little bit careful here, actually, because you definitely cannot bring back big numbers of jobs in manufacturing. You could bring back or rather you could have high-tech manufacturing in our countries that countries like China don't have the capability of producing now. But when you look at the number of jobs though that they generate, even in Germany, you see a line that comes straight down. The number of jobs involved in these famous export industries of Germany, they are shrinking all the time. That's interesting. So do you think that this we should all be German's model is overblown? It's not overblown in terms of exports and generating value added, generating products that other countries want to buy so that we can get before an exchange and buy all the cheap products that we are not producing. That's basically the German model. But it's overblown in terms of where the jobs are coming from. The big number of jobs in labor intensive sectors will always be in these non-tradable kind of services. You cannot trade health services. You cannot trade the personal service you get when you go to the gym. That's where So sectors are not exposed to global competition, basically. Yeah, exactly. And many of these jobs that you've mentioned, home health aids, retail jobs, they're relatively low paying jobs. So what are the ramifications of that? How do we fix that? Well, that's exactly what the challenge is now in terms of making those jobs more respectable for young people who come out of school. Now, one thing that we always have to remember is that inequality in the marketplace is inevitable. What's different now is that the expectation of the young people might be disappointed because that's not the kind of job they might expect to get. And there's also this fear that you're going to work for this big employer who has experience and employs thousands of people. And what protection do you have if that employer squeezes you? And so these are the challenges and thinking then about the insights as you as you contemplate this problem. How do you go from here to there? How do you affect that cultural change and make these jobs better? Okay, there you have to take a multi dimensional approach as we're in effecting these jobs, making them more respectable, raise their pay. And that's what I've been spending more of more of my thinking time. Now, first of all, you have to start with schools and change the type of education that we're given in high school in secondary school to be more geared to this kind of job, you know, given, give basic training in, in, in, in health, you know, in demographics, longevity, you know, life expectancy, all these things we don't teach anything at all in our schools. Talk more about how respectable this is, you know, rather than spend all your time at least in, in English school, but in English schools, but I'm sure the same everywhere is just I'm more familiar with those because I have children who went through the system. You know, tell them about the great industrial nation and how people used to go to the factory and work and all that. Tell them more about what's going on now, you know, that we have less mythologizing. Yeah, so, so that expectations are geared in that direction. I had so two children who went through the entire education system in London and neither had any idea about these things when they came out of school. It was not mentioned at all. So that, so that's interesting. Yeah. So, so that's the more long, long term. And what's interesting that we had a meeting just a little while ago with CEOs of companies. And when they asked them, what did they think government could do most to help them in their recruitment? They mentioned precisely this point that the secondary school education is being outdated and government could modernize it by teaching things that are more in tune with where industrial society is going today. Now, that's what now, now the second thing that government could do, actually, and they've become a great supporter of this is a minimum wage. Now, now the minimum wage, it could be a dangerous policy if it's too high. What about social safety nets too? I mean, we hear the story we hear in the States all the time actually mentions the the coffee shop with the stars with an S and how they give health care to everyone. We hear a lot about that and the benefits. Would you like to see more companies making those kinds of jobs have a better social safety net? My preference is closer to the Danish system. They invented the term flex security for it. Where the where the company is concerned only with employment and with enhancing your productivity through training at the company itself paying you a reasonable wage. But then the company doesn't need the job anymore, it closes the job down and and the state through the Social Security or national insurance as we call it. And the side of the Atlantic gives a social safety net to the individual. Now, that might be in the form of income support. And then after a while is in the form of helping with job search. Now that that leaves a health provision, of course. And that's the big question, the 64 million dollar question of our Western countries, because health provision was traditionally many countries provided by the state. But and that's how the safety net was, but it's obviously becoming too expensive for the state now to support that the whole range of services and and both health care and health services that that you might need because we were saying before demand is going up, I think that the there should be a minimum safety safety net for health services, like rather than rely on the employer providing them. But there should be a mix of state and public. Otherwise, taxation would just be too high. Well, I was going to actually turn to tax. What are what should be done with tax policy as regards these types of jobs? I think we could raise the minimum income at which tax payment begins. Don't even ask them to fill in paperwork if they're self employed, if they do it on their own, you know, you have the self employed nanny, for example, who looks after the baby, maybe a few weeks, maybe months. Yes, in one house will goes to another. If pay is below a certain level that is fairly high, don't ask them to have to keep accounts and declare it as well. Just have it as a tax free pay. Most of them will hide their income anyway, if you ask them to. So why don't you just join them if you can't beat them, you know, and and then have higher taxes higher up the scale. Now, that also applies for big employers that that you might say, OK, fair enough for the self-employed with about the employer. But that also applies there. Give them social security holidays that we call them so they don't pay social security tax until they reach a certain level of income. Well, Professor, I want to thank you so much. It's a pleasure to speak with you and we thank you for your ideas. Thank you.