U.S. Business Environment in the Next Decade and Implications for Business and Households.
Over the last decade, the U.S. economy has been undergoing tremendous challenges. This is because the lingering recession and slow recovery have left the unemployment rate high. Evidence of this can be seen in figures from the Bureau of Labor statistics between 2008 and 2012 (which is illustrated in the below table).
US Unemployment Rate from 2008 to 2012
("Labor Force Statistics," 2012)
These numbers are showing how the economy has continued to struggle despite tremendous efforts from the federal government to stimulate growth. This is because the recession was much deeper than expected and the recovery has been stagnant. ("Labor Force Statistics," 2012)
At the same time, the world economy is continually shifting with many developing nations playing a larger role (i.e. Brazil, Russia, India and China). Commenting about these transformations Beattie (2010) observed, "The BRIC grouping -- Brazil, Russia, India and China -- has become shorthand for the rise of emerging markets in the global economy. Collectively, these economies could well surpass output in the Group of Seven wealthy nations -- which have dominated the management of the global economy -- by 2032. They already have a bigger share of world trade than the U.S. China, probably the world's biggest goods exporter last year, has been supplemented by India's software and back-office exports, Russia's oil and gas and the domination of a number of agricultural commodity markets by Brazil's super-competitive farmers." (Beattie, 2010) This is illustrating how major transformations are taking place in the world economy. To determine what will happen in U.S. over the next decade requires studying five major trends and their impact on businesses / households.
Fiscal Challenges for all Levels of Government
In the ten years, the states and federal government will face challenges from high levels of debt and deficits they are running. According to the GAO, they estimate that these issues will impact services and the taxation structure. In a recent report they observed, "Our analysis shows that in less than a decade the state and local government sector will begin to face growing fiscal challenges. Both fiscal balance measures (1) net lending or borrowing and (2) the operating balance -- are likely to remain within their historical ranges in the next few years, but both begin to decline thereafter and fall below their historical ranges within a decade. That is, absent policy changes, state and local governments will face an increasing gap between receipts and expenditures in the coming years. Since most state and local governments actually face requirements that their operating budgets be balanced or nearly balanced in most years, the declining fiscal conditions are foreshadowing the extent to which these governments will need to make substantial policy changes to avoid these potential growing fiscal imbalances." ("State and Local Governments," 2012) ("Overview," 2012) (Walsh, 2012)
At the heart of these challenges, are the rising health care costs from an expansion of government programs on the federal and state levels. Moreover, increasing expenses from entitlement programs (i.e. Social Security) are adding to the pressure. This is because a large segment of the population is retiring and will be using these areas to help supplement their income. In the future, this will lead to a sharp increase in expenses and a decline in revenues that are being received. This is having an impact on businesses and households by affecting their confidence about the future. When this happens, there is the possibility that a secondary recession could be triggered by these events. At the same time, this will lead to higher interest rates from investors who will demand larger yields to loan these governments the funding they need to meet their obligations. ("State and Local Governments," 2012) ("Overview," 2012) (Walsh, 2012)
The Polarity of Employment Opportunities
A major trend that will impact the U.S. business environment in the next decade is the polarity of employment opportunities. This is because a shift is taking place in the labor markets with increasing demand for highly skilled and low aptitude employees. While many of the middle wage and income positions are seeing a decline. This is causing labor force participation to decrease and it is creating disparities between various segments in society based upon these differences. (Autor, 2010)
Moreover, the outsourcing of jobs to developing countries (i.e. India, China and Brazil) is making these gaps even larger. This is when firms will send these positions to third party providers who can perform them for a fraction of the cost. These factors are having an impact on personal income levels. (Autor, 2010)
At the same time, there are less college graduates and many of them are experiencing declining salaries. This is creating disparities in real wages between these individuals and those who have a high school education. The combination of these elements is showing how businesses are requiring more specialized skills from their workers. Those who meet these standards are paid higher forms of compensation. They also are looking for employees with fewer skills that can perform basic functions for low wages. This is in response to globalization and the pressure that it is placing on their profit margins. In order to remain competitive they are outsourcing different functions and using only a fraction of staff members (who are critical to their operations). (Autor, 2010)
For households, this is creating disparities in their standard of living and disposable income. This is hurting the prosperity and economic foundation of many communities by effectively destroying the middle class. When this happens, it is harder for households to maintain their way of life. (Autor, 2010)
The Increased Influence of Brazil, Russia, India and China
A third trend that will impact the U.S. business environment in next ten years is the rising influence of Brazil, Russia, India and China (BRIC). These countries are growing faster than the United States. This is allowing them to have more wealth (which is invested in U.S. based assets). On the world stage, this is giving them greater influence in how various policies are created and the way institutions respond to economic challenges. The results are that American consumers will enjoy low cost products and services that are outsourced from these regions. (Ahern, 2011)
However, it is also bringing about changes in the economic and social structure. This is occurring through the outsourcing of middle income jobs to BRIC countries. In the future, this will result in disparities between different segments of society. For businesses, these implications mean that they can maximize their profit margins and reduce their underlying costs. As far as households are concerned, this will affect their income levels and standard of living. In the future, this will decrease their purchasing power and create disparities between the different segments in society. (Ahern, 2011)
Income Inequality and Changes in Economic Mobility
A fourth trend that will impact the U.S. business environment is the changes in economic inequality and mobility. This is occurring through many upper, middle and lower middle class workers losing their jobs from firms outsourcing them to BRIC countries. Those who try to find work elsewhere will more than likely have to settle for lower paying jobs. At the same time, there is a possibility that they will have to move to other regions of the country. This is because they must go to locations that have the greatest opportunities for them. (Levine, 2012) (Hungerford, 2008)
For businesses, this means that they will relocate to regions that have the lowest cost structure. This is taking jobs away from existing communities who are dependent upon them. In the case of households, this will lead to changes in their quality of life and their income levels. At the same time, there is the possibility that families will be divided by having select individuals working in different areas. While others will remain behind in one location until the transition is complete. They will have trouble making these adjustments from the increased expenses associated with moving to other locations and must adapt socially (because of these transformations). (Levine, 2012) (Hungerford, 2008)
A fifth trend that will impact the U.S. business environment is climate change. This is because shifting weather patterns and temperatures will place pressure on their profit margins from potential damages that will occur (i.e. drought, flooding and large amounts of rainfall / snowstorm). Moreover, governments and international institutions are scrutinizing their practices. This increases the costs that firms will face in meeting tougher regulations and from damages (due to adverse weather conditions). (Leggett, 2007) (Sussman, 2011) (Gabriel, 2003)
The implications for businesses are they will be forced to meet stringent regulations. At the same time, they will have to change their practices which will hurt productivity and increase their expenses. This is when they will focus more of their resources in meeting these guidelines. Once this happens, these firms will have less money to invest in expanding their operations in new plants and equipment. In the…