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High U.S. unemployment forecast to persist for years

The United States will still face high unemployment in 2020 except in "the most optimistic scenario for job creation," according to a new report to be published on Friday.

America needs to create 21 million new jobs to keep up with population growth, say analysts at the research arm of consultancy McKinsey, but that will only happen if the economic trends of the last decade are reversed.

The report implies that U.S. policy makers and politicians must rethink their assumption that today's 9.1 per cent unemployment rate will automatically fall back toward 5 per cent as the economy recovers.

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A strong economic recovery is a precondition for full employment, said Susan Lund, director of research at the McKinsey Global Institute in Washington, but productivity gains that complement rather than replace lower-skilled workers in areas such as health care, a slowdown in the movement of manufacturing jobs overseas and a recovery in new business start-ups will also be needed.

"Demand for workers with college degrees rises in any scenario but you only get strong demand for low- and middle-income workers in the best case," said Ms. Lund, one of the report's authors.

In McKinsey's least optimistic scenario, the economy would add only 9.3 million jobs by 2020, leaving unemployment mired close to 9 per cent.

That reflects a shift in the nature of productivity growth during the past decade toward techniques that increased efficiency by replacing existing workers rather than creating demand for new goods.

U.S. economic recoveries in the past two decades have been marked by very slow job creation compared with those of earlier decades. During the 2000s, problems generating jobs may have been masked by the housing boom.

The research uses a bottom-up approach to look at job growth in six large sectors rather than an economic model that balances overall supply and demand for labour.

For example, in an optimistic scenario for health care, technology would help nurses do tasks currently done by doctors and wider insurance coverage would increase overall demand. In a negative scenario, caps on health care spending could hold back growth.

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In manufacturing, an optimistic outcome would see companies moving back to the U.S. as costs rise in overseas centres such as China and after Japan's tsunami exposed the problems of long global supply chains.

But a negative outcome in the retail sector could involve wider adoption of technology such as self check-out in supermarkets that would replace lower-skilled workers.

McKinsey projects that there will be 1.5 million fewer college graduates than employers demand in 2020 and 5.9 million too many high school dropouts. Ms. Lund said that policy should encourage more technical and vocational skills.

"It is striking that despite 9 per cent unemployment, there is still some mismatch in the labour market," she said.

Other policy suggestions are to try to attract more investment and tourists from abroad, improve the flow of capital to start-ups and increase the speed and certainty of business regulation.

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