Guest Commentary, by Max Fraad Wolff
De-Servicing, Hiding in Plain View?
September 12, 2003
Max Fraad Wolff is a Doctoral Candidate in Economics at the University of Massachusetts, Amherst, Mfwolff@aol.com
History- not to mention our personal lives- reminds us time and again that essential facts often hide in the shadows cast by our noses. Real consideration requires much more than repeating the hopeful cliché that employment is a lagging indicator. The Bureau of Labor Statistics dutifully reports downbeat numbers with a positive spin. Sure, the labor force keeps shrinking as the population grows, the pool of discouraged workers is growing and jobs are being lost- almost 3 million of them since the peak. The BLS informs that labor force participation rates for those aged 19-24 hit a 37 year low in July. Don’t worry, the official unemployment rates are falling and productivity is up, up and away. That’s the bullish message, but there is a bigger more bearish message in these numbers and it is hiding in plain view.
I see long term structural changes in the American labor force. Given the debt this group carries and their essential role as the world’s purchasing power, this is profoundly important. Let’s not forget that consumption accounts for 65% of GDP. If the 1970s were defined by the de-industrialization of America, we now face the prospect of the first decades of this millennium being defined by de-servicing. White collar jobs, from data entry and call center work, to equity and bond analysis, are being sent overseas. Given the long downswing, the possibility of outsourcing has become seductive. Competent and educated employees are available for under $10,000 per annum in India, China and beyond. Recent Federal Reserve Bank of New York studies suggest that lay-offs increasingly mean the loss of careers, not their temporary cyclical suspension and resumption. Forrester research recently opined that in coming decades 3.3 million jobs, presently compensating to the tune of $130 billion, may get a one way ticket to the developing world. This comes alongside the previous movement of tens of thousands of service jobs to India and China by America’s leading technology and service firms.
Of course if you step on the earnings that support the purchases of your end products there are huge long run risks. This may be part of the reason we see skyrocketing productivity alongside stagnant wages, falling payrolls, unspectacular profit reports, massive trade deficits and 37 months of falling manufacturing employment. Manufacturing employment- down better then 16% over the last 4 years - is unlikely to pick-up the slack. When China opens up its Three Gorges Dam it will be able to tap into an even cheaper pool of hundreds of millions of interior residents. This may serve to further weaken sputtering domestic manufacturing. Wage and salary growth in the first 2 quarters of 2003 is running well below its 10 year average. Spending stays up on debt growth and low carrying costs. For how long can we accumulate debt, reduce home equity and spend ahead of income?
As with the loss of manufacturing, a process that began in the late 1960s, de-servicing will proceed in fits and starts. Ebbs and flows will move with new communication and transportation technologies, political conditions and macroeconomic cycles. Early evidence of this trend is beginning to trickle in. Purchasing power fueled by earnings is being slashed alongside costs. Leading firms are left to scramble for the dangerous but lucrative job of lending to a consumer base that can pay only with debt offered at unsustainably low rates and in ignorance of rising credit quality risk. GM and Ford provide dramatic examples- they earn from financing not selling cars to people who can afford them. This may explain why serious labor sector weakness is very poorly summarized by dated measures still relied upon but, profoundly lacking in explanatory power. Present employment measures ignore the rising mass of discouraged workers, involuntary part-timers, labor force participation rates and a long term secular down trend in real average weekly earnings. The existence of 30 million working poor and the recent Hewitt Associates release that salary and wage raises hit their lowest levels in the 27 years the study has been conducted, suggest a possible resumption of the secular downtrend in real average weekly earnings witnessed across the period from 1970-1990.
Bulls are ever excited to inform us that this is a new economy. If it is so new and different, why should we be convinced of its health by ignoring poor employment figures that are understated? If the trend toward de-servicing is real, however, the exodus of both manufacturing and service industry workers will be difficult to place in a positive light. |
