Where have all the jobs gone ?
by John Finger
The Money Management Firm
October 1, 2003
financialsense.com
We've all read the headlines by now. U.S. manufacturing shed jobs in September. The August unemployment report announced 93,000 layoffs for the month. Ford announced the elimination of 3,000 salaried positions on September 30. On that same day, the National Association of Purchasing Management for the Chicago area said Chicago-area firms stepped up layoffs in September after a brief respite in August. A separate report from the Conference Board showed the "Jobs Hard To Get" gauge in its survey--seen as a good indicator of labor market trends--jumped to a nearly 10-year high. Nearly one quarter of all Americans now say they--or someone in their household--are very concerned about losing their job, the highest level of job insecurity in a decade. Oh, and the recession officially ended in November 2001.
More than 2 million jobs have been lost in the United States since 2001. In fact, more jobs have been lost since the recession (1.1 million) than during it. Despite more upbeat numbers in recent months regarding corporate profits and stock prices, the job market has barely budged. Weekly unemployment claims have remained around the 400,000 level for over half a year. The official unemployment rate dropped from 6.4% to 6.1% in August. There's a dirty little secret in government jobs reporting, and you ought to know about it: unemployment benefits run out after six months. If the unemployed person hasn't found a job after that time, he's no longer counted among the unemployed. That way, the government's figures look better. By one estimate, one million people are categorized this way.
We are in what is considered by many to be a "Jobless recovery." The year 1992 started out that same way: although the Gulf War recession officially ended in 1991, the nation experienced very little job growth in 1992, and this was in large part responsible for the election of Bill Clinton as President. Shortly after Clinton took over, the nation started a recovery in the job sector. So why haven't we seen a recovery this time?
One big reason is global capitalism. Huge American corporations are hiring overseas labor at a fraction of the cost of American labor. Look at these figures from the Bureau of Labor Statistics:
Average Hourly Wages of Workers
In Select Countries
United States $20.32
Australia $13.15
Ireland $13.28
South Korea $8.09
Singapore $7.77
Hong Kong $5.96
Thailand $0.50
Indonesia $0.37
China $0.30
India $0.24
That's right. In India, companies can hire labor for 1.18% of the cost of hiring a U.S.-based employee. In low-cost countries, companies can hire the best-skilled engineers and scientists for $500 per month. No benefits, overtime or pension plans. Even welfare recipients can't get by on that much money in the United States. In fact, a highly skilled computer programmer in the U.S. earns at least $80,000 per year, plus benefits. In India, he earns $5,000 per year, without benefits. Do the math: that's at least 16 professional jobs in India for every one job in the United States. An American corporation can hire 10 software engineers in China for each one it hires in the United States. With the Internet, work can be done in the same amount of time whether performed in Calcutta or New York. Teleconferencing saves on airplane, hotel and dining costs. If something needs to be shipped, U.P.S. operates worldwide.
If you were C.E.O. of a large company, wouldn't you at least consider the possibility of shifting some of your jobs overseas? Many do. A February survey of 145 U.S. companies conducted by Forrester Research found that 88 percent of the firms that look overseas for services claimed to get more value for their money abroad. Forrester also estimated that in the next 15 years, $136 billion in wages will move offshore to countries like India, China, and the Philippines.
Half of all imports into the United States come because of decisions made by American corporations to produce goods in cheap overseas markets and then send the items to the U.S.A. for sale. Michael Dell is a prime example. This is a guy who started out by fixing computers in his dorm room. His company now makes most of its computers in Ireland.
It's not just the highly skilled jobs that are leaving our shores. You have certainly experienced the following scenario: you are having problems operating your widget, so you call the customer service department for help. Once you have escaped from phone mail jail, you're connected to someone who speaks English with a heavy accent. In the background, you hear other people talking in heavily-accented English. After working out your problem, you start wondering where the company got that technical service representative. The answer is probably India. And everyone else in the boiler room is also from India. Why? Because the boiler room itself is in India! You've just called half-way around the world without even knowing it.
In the 1980s and early 1990s, German and Japanese automobile companies decided to cut costs by starting production facilities in the United States. It made sense. Since Americans were the largest consumers of their automobiles, it made sense for foreign companies to build plants in Tennessee, Georgia and a few other lower-cost states. Not anymore. Volkswagen builds most of its cars for the U.S. market in Mexico. That's why car thieves love the border areas with Mexico: they get a hefty price for stolen U.S. merchandise by smuggling it across the border. The Japanese have stopped acquiring new U.S. facilities because of their own foundering economy and high labor costs. Delphi Corp., the largest automotive parts manufacturer in the world, shifted factory work overseas years ago. Now, they're doing the same with white-collar jobs: more of their engineering work is going to India, Poland, Mexico and Brazil. The company has eliminated 30% of its U.S. workforce since it was spun off from General Motors in 1999.
Do you know any laid-off engineers, java programmers or other high-tech, formerly-high-paid people? Are you one of them? There are plenty of job openings for you. The problem is that you probably need to move to a low-cost, low-paying country to get one.
Some states are worse than others. If you live in California, you know what socialism is. Employer-provided health care, family leave and vacation are mandated, as are many other ill-advised policies. People are wondering why businesses are fleeing California. They shouldn't be wondering at all. California should have learned a lesson from most of Western Europe, where powerful labor unions have successfully forced governments to set standard work weeks, family leave, high wages and vacation time. Health care is socialized. Governments can mandate socialism, but they can't mandate employment. Europe has a huge unemployment problem as a result. Eastern Germany was until recently the haven for employers to find low-cost labor. Not anymore. Mandated labor laws in all of Germany and the European Union have caused employers to go to Poland for cheap workers.
One of the biggest thorns in the side of the U.S. government is China. China is only Communist in a political sense. When you buy a cheap product at Wal-Mart, chances are it was made by a series of 30-cent-per-hour laborers in a Chinese factory. China pegs the value of its currency, the Yuan, to the U.S. dollar. That way, Chinese products will always remain cheap in the United States, contributing to our enormous trade deficit and keeping Beijing stocked full of job opportunities--jobs which otherwise could have stayed in the United States. China's manipulation of its currency is the prime cause of our trade deficit with that country. Four congressman have urged the Bush administration to threaten retaliation under the Trade Act of 1974. Even if China were to float its currency, though, one fact remains: labor costs in China are dirt cheap.
How do we fight back against this problem? One very undesirable way is to engage in a trade war. President Hoover tried that in 1930, and what was then a small depression became the Great Depression. One answer, though, is for the Federal Reserve to buy so many Yuan that the Chinese couldn't peg it to the dollar anymore. And hedge fund traders like George Soros should be willing to help: in 1993, Soros made a fortune in short selling the British Pound, causing the Pound to collapse. The other answer is to make our country as business-friendly as possible. Rather than over-regulating business, government needs to recognize that business is the source not only of revenue, but also of people's survival. Let supply and demand solve this problem like it has solved others: get rid of the minimum wage (something which will never be done) and let the marketplace determine a viable wage. Family leave, employer-financed health insurance, a regulated workweek and the minimum wage should never be mandated by government, especially when employers are fleeing to other countries where they can be left alone to flourish. It may be tough love, but it's capitalism on a world scale. It's time for the United States and every state to get out the red carpet and welcome back their businesses. President Calvin Coolidge said, "The business of the United States is business." He presided in the prosperous 1920s. It's time we brought him back. |
