Category: U.S. Workforce Trends

U.S. Workers Are Settling Into a Global Era of Fewer Good Jobs and Declining Incomes

ITEMS FOR YOUR CONSIDERATION

Chart-Missing Civilian Labor Force
Source: Andrew Sum, et al (see citation below quote)

“Following 2007, the pool of hidden unemployed has risen steadily and strongly from 4.7 million in 2007 to close to 6.5 million in 2011; a rise close to 1.8 million or 40%. This was the third largest annual average number of hidden unemployed in the 45 year history for which such data exist dating back to 1967.”

Andrew Sum, Mykhaylo Trubskyy, with  Sheila Palma, The Great Recession of 2007-2009, the Lagging Jobs Recovery, and the Missing 5-6 Million National Labor Force Participants in 2011: Why We Should Care, Northeastern University Center for Labor Market Studies, January 2012

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Change in Average Hourly Earnings of U.S. Employees, 2006 – 2011

Chart-Average Hourly EarningsSource: Historical Data, Current Employment Statistics, Bureau of Labor Statistics.

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“Spain’s jobless rate for people ages 16 to 24 is approaching 50 percent. Greece’s is 48 percent, and Portugal’s and Italy’s, 30 percent. Here in Britain, the rate is 22.3 percent, the highest since such data began being collected in 1992. (The comparable rate for Americans is 18 percent.)

Thomas Landon, For London Youth, Down and Out Is Way of Life, New York Times, February 15, 2012

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Looking at the changes within countries over time, the overall long-term trend is obvious: the majority of countries have witnessed increases in low-wage employment over the past 15 years. Overall, figure 20 shows that, since the second half of the 1990s, low pay has increased in about two-thirds of countries for which data are available (25 out of 37 countries). … While it is too soon for an assessment of the short-term effect of the crisis on low pay (since few countries have published their data on low pay in 2009), there is little reason to believe that a global recession will have brought about any improvement in the overall situation of low-paid workers.

Global Wage Report 2010/11: Wage policies in times of crisis, International Labour Organization, December, 2010

COMMENTS

In a free market economy, buyers and sellers negotiate prices.  When buyers have lots of choices and sellers don’t, buyers have the leverage to push prices downward.

We have seen this in the U.S. housing market: huge numbers of houses are on the market and an army of builders are waiting in the wings to put even more houses on the market – the ratio of sellers to buyers is very high.  Thus, even though houses are beginning to sell a little better, prices are still falling.

The same thing has happened in the global labor market: the ratio of available workers (sellers) to employers with jobs to fill (buyers) is very high, and it will stay high.  There are several structural reasons:

  • the integration of national economies into a single world economy based on free market principles has made huge numbers of unemployed and underemployed workers newly available to the world’s major employers and many intermediate size employers
  • expanding national education systems are producing a growing supply of skilled workers for the global labor market
  • the global economic crisis of 2008-2009 produced large numbers of business failures and consolidations, reducing the number of employers competing for the growing global supply of workers
  • the production of a given volume of goods and services continues to require fewer and fewer workers as machines and computers do more of the brute work and more of the routine thinking
  • global consumption of goods and services is not growing fast enough to reduce the ratio of available workers to available jobs.

Thus, even though hiring in the U.S. is beginning to get a little better, the bargaining position of U.S. workers, even those who are unionized, continues to deteriorate.  Given this trend, either real U.S. wages and incomes will decline much further, or rates of unemployment, underemployment, and non-participation of working age people in the workforce will remain high.

Employment Optimism? Really? This January was Worse than January 2011 and Adverse Global Economic Forces are Still in Play

ITEMS FOR YOUR CONSIDERATION

Downward Trends in U.S. Civ Labor Force ContinueData source: Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics

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Private Sector Job Growth is Dominated By Lower Wage Industries

Percent of Private Sector Job Growth By Selected Industries

Jan-11

Dec-11

Jan-12
Goods-Producing

30.3%

32.3%

31.5%
Private Service-providing

69.7%

67.7%

68.5%
Retail Trade

31.0%

2.8%

4.1%
Temporary Help Services

13.5%

3.8%

7.8%
Leisure and Hospitality

-6.7%

8.6%

17.1%
Other services

-5.9%

2.3%

2.7%
Total 4 Selected Service Providing

31.9%

17.5%

31.8%

Data source: Employment Situation Summary Table B, Employment News Release, Bureau of Labor Statistics, February 3, 2012.

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Job Cuts, January 2012 Greater than in January 2011

(Ten Industries with Highest Cuts)
 

January 2012

January 2011
Retail

12,426

5,755
Financial

7,611

2,822
Pharmaceutical

4,071

2,090
Entertainment/Leisure

3,910

1,545
Aerospace/Defense

3,634

3,167
Government/Non-Profit

3,021

6,450
Food

3,000

873
Consumer Products

2,464

1,783
Industrial Goods

2,230

1,874
Transportation

1,770

725
Data Source: 2012 Kicks Off With 28% Surge in Job Cuts, Press Release, Challenger, Gray & Christmas, February 2, 2012.

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January 2012 Purchasing Managers’ Index (PMI) for Manufacturing Lower than in  2010 and 2011

2010

January

April

July

Oct

56.7

59.0

55.7

57.0

2011

2012

January

April

July

Oct

January

59.9

59.7

51.4

51.8

54.1
Data source: table of Manufacturing Business PMI history, Institute for Supply Management. 

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“The man in charge of a firm with several hundred thousand staff around the world bemoaned that, ‘we live in a world where wealth creation is uncoupled from job creation. This once close connection is ruptured.'”

Tim Weber, Davos 2012: Youth unemployment ‘disaster’, BBC News website, January 28, 2012.

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SMBs in developing countries are keeping pace with their more developed counterparts when it comes to providing employees with smartphones, netbooks/mini notebooks, and media tablets. In some cases, they are actually more likely to provide these products to their staff.

The Consumerization of IT Helps Level the SMB Playing Field Across the World, IDC Says, Press Release, International Data Corporation (IDC), January 25, 2012.

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“This suggests that the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. … Stricter market incentives to control costs in the face of stiff domestic and international competition may also be factors. In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs. These special factors are not readily addressed through conventional monetary or fiscal policies. But such policies may be able to offset the central obstacle of weak aggregate demand.”

Rob Valletta and Katherine Kuang, Why Is Unemployment Duration So Long?, Federal Reserve Bank of San Franscisco Economic Lettter, January 30, 2012.

COMMENTS

The only way to arrive at optimism about U.S. employment is to focus attention on indicators that are poorly related to unemployment changes (GDP growth, initial unemployment insurance claims, the traditional unemployment rate) and ignore global economic forces that continue to spell trouble for U.S. employment growth

Misleading indicators:

  • An uptick in the rate of GDP growth is misleading about employment growth because machines now play such a large role of in the production and sale of goods and services in the U.S.;  modest upswings in GDP can take place with almost no impact on employment
  • Initial claims for unemployment insurance (UI) get a lot of press, but only about 43 percent of unemployed workers receive UI; unemployment among workers who mostly do not qualify (many workers in retail and service industries) can rise or fall dramatically with little impact on initial claims
  • As is well known, the traditional unemployment rate is a downwardly biased measure of unemployment; it does not count as unemployed persons who have opted to do something other than look for work until prospects improve (e.g., going to school,  taking a self-financed sabbatical, making repairs to the house) and does count as employed persons who want full time employment but can only find part-time employment and persons who are working in jobs beneath their qualifications.

Global forces that undercut U.S. job growth are still in play:

  • Global and U.S. GDP growth rates will be modest through at least 2012 because of financial turmoil, lots of supply, and weak demand
  • The number of competing nations in the world economy has not diminished and very high levels of unemployment are pushing many nations to become even more aggressively competitive
  • Slow global market growth continues, which means the world’s global businesses must continue to relentlessly cut labor and other costs to survive
  • Emerging market countries with skilled workers, advanced production capacities, and much lower production costs will continue to outbid the U.S. for the investments that produce the most jobs per dollar of investment
  • Facing higher production costs in the U.S., much of the investment in the U.S. will continue to be in high tech, high profit activities that produce relative few jobs, and those jobs will be ones for which very few U.S. workers have the required skills.

The labor force participation rate, which is a better indicator of whether we should be optimistic about job growth, has been trending downward for many years.  Taken as a whole, economic signals indicate that this trend is locked in, whatever economists and reporters may wish to read into short term economic indicators.

IMF: World’s Economic Recover Stalls at End of 2011; Global Policy Coordination Needed (Addendum to January 22, 2012 Post)

ITEMS FOR YOUR CONSIDERATION

Note: WEO refers to the IMF's World Economic Outlook report.

“For the United States, the growth impact of such spillovers is broadly offset by stronger underlying domestic demand dynamics in 2012. Nonetheless, activity slows from the pace reached during the second half of 2011, as higher risk aversion tightens financial conditions and fiscal policy turns more contractionary.

…

Importantly, not all countries should adjust in the same way, to the same extent, or at the same time, lest their efforts become self-defeating. Countries with relatively strong fiscal and external positions, for example, should not adjust to the same extent as countries lacking those strengths or facing market pressures. Through mutually consistent actions, policymakers can help anchor expectations and reestablish confidence.”

World Economic Outlook Update: Global Recovery Stalls, Downside Risks Intensify, International Monetary fund, January 2012.

COMMENTS

Most economists say (and the record of job growth during 2011 shows) that the U.S. must have GDP growth over 3 percent for a long period of time to substantially reduce the unemployment rate and bring discouraged workers back into the labor force (which will raise incomes).  Surely,  the U.S.  will not achieve the needed level of employment growth without working closely with other nations to implement a coordinated global policy approach to fixing the world economy and increasing global demand for workers.

Click this link to see related items and more comments on this topic:

The World Economy’s Demolition Derby of Competing and Overlapping Economic Policy Making Entities, January 22, 2012

The Myth of State Economies Undermines the Development of Effective Economic Policies

“In other words, if we think of state borders as physical barriers, do we also irrationally imagine that these borders protect us in some way? …

The idea was that the dark line would reinforce the biased notion that borders are impermeable—and that states are therefore meaningful categories to rely on for decision making. …

As reported in October in the online version of the journal Psychological Science, when the radioactive waste was being stored in neighboring Nevada, residents of Salt Lake City perceived much greater risk of contamination if the border was a light, dotted line. In their minds, that light, sketchy border minimized the distinction between Utah and Nevada—and thus increased their perception of risk. The thick, dark border offered psych­ological protection from radioactivity.”

 Wray Herbert, Border Bias and Our Perception of Risk, Scientific American, February 21, 2011.

———————–Comments———————–

The use of the term “state economy”, and even more to the point, terms like “Michigan economy” and “Nevada economy” by economists, economic policy experts, and policy makers is common and has the same psychological effect as drawing a dark border around a state.  The use of such terms reinforces and perpetuates the illusions that state boundaries have economic importance and that state economic policies have the power to change economic outcomes.

A state economy is nothing more than an artifact of geopolitical decisions made long ago.  Like the mix of bird species in a state, the mix of economic activities and relationships in a state is little more than an arbitrary consequence of the intersection between where a state boundary was drawn and where particular economic activities and relationships later developed.  Just as habitats expand and contract and change shape and location with time, so too do the economic boundaries defined by the distributions of economic activities and economic relationships among people.  But, state boundaries almost always stay put.

There is now only one economy, the world economy.  State economies exist only in our minds.  So too, the power of state governments to improve investment and employment outcomes exists only in our minds.

Depreciate This: Good for the Stock Market, Bad for the Job Market

“Capital goods orders rose a robust 4.2 percent in August from July.

Core capital goods orders — nondefense bookings for items such as industrial machinery, power transmission equipment and computers, but excluding the auto and aircraft sectors — rose 1.1 percent.

…

‘We think large companies are so cash-rich that they can keep spending despite lower confidence. In competitive industries, the company which does not spend loses market share,’ he [Ian Shepherdson at High Frequency Economics] said.”

US capital goods orders shine in August, Breitbart.com, Sep 28, 2011

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“The business spending … may be further supported by a December agreement between President Barack Obama and congressional Republicans. Companies will be able to depreciate 100 percent of capital equipment put in service by the end of this year.”

Bob Willis, Demand for U.S. Capital Goods Rises by Most in Three Months, Washington Post, Sep 28, 2011

 ———————–Comments———————–

From the standpoint of business leaders, the impact of investments in capital goods on employment opportunities is only a side effect.  If the investments contribute to job growth, they are happy to get the positive public relations bump.  If they undercut job growth, well, that’s just unavoidable collateral damage.

Yes, a burst of investments in capital goods can generate employment, but only in the short term.  Downstream, as those new computers, manufacturing robots, and assorted other high end technologies go live in workplaces, jobs will bleed out, more than offsetting short term job gains.

We now live in a world in which an accelerating global shift in the mix of humans and machines engaged in the production of goods and services is squeezing the life out of employment and income growth.  The pace at which machine energy is replacing human energy in the workplace is accelerating.  Machine energy has already replaced enormous amounts of human energy in agriculture, mining and manufacturing.  Today machine energy is increasingly replacing human energy used in thinking (evaluation and decision-making activities) in more and more fields of work, including professional fields.

Public policy cannot and should not stop innovation and the growing use of machines to supplement and replace humans in the workplace.  (Indeed, workers in many types of work are still exposed to dangers that can best be reduced by using more machines.)  But, use of tax write offs to encourage even faster displacement of workers by machines when done in the absence of a comprehensive policy approach to creating wealth and equitably distributing that wealth is extraordinarily wrongheaded.  Such unlinked use of tax write offs can only exacerbate the damage already being done to jobs and income in the U.S.

This kind of unlinked use of tax write offs is not just a U.S. practice.  Many of the world’s nations take the same approach to increasing market shares in very competitive global investment markets.  These nation by nation tax write off practices aggregate into a global economic force that increases wealth production and increases corporate profits, but also relentlessly destroys jobs and the incomes of families that depend on those jobs.

As of now the world does not have a comprehensive policy approach to managing the growth of the world economy.  More to the point, the world does not have global institutions with the power to coordinate economic policy-making across the world’s nations on behalf of the world’s people.  Thus, the ongoing global transition to more and more use of machines in place of people is both unmanaged and unmanageable.  The largely destructive aspects of this transition cannot yet be addressed and rectified.

In this context, the Obama administration’s 100 percent depreciation of new equipment can only become a 100 percent disaster for working families in the U.S. and in the rest of the world.

Computers With Master’s Degrees Will Accelerate Service Sector Job Losses And Increase The Need For Non-Work Income Entitlements

Not Today's Business Computer“ARMONK, N.Y., – 18 Aug 2011: Today, IBM (NYSE: IBM) researchers unveiled a new generation of experimental computer chips designed to emulate the brain’s abilities for perception, action and cognition … cognitive computers are expected to learn through experiences, find correlations, create hypotheses, and remember – and learn from – the outcomes, mimicking the brains structural and synaptic plasticity.

IBM Unveils Cognitive Computing Chips, Press Release, IBM, August 18, 2011.

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“IBM sees multiple applications for these cognitive computing systems, which would fit in the size of a shoebox. Among potential uses:

  • Computers that could take in inputs such as texture, smell and feel to gauge whether food was outdated.
  • Financial applications to monitor trading and recognize patterns in a way today’s algorithms can’t.
  • Traffic monitoring.
  • And system monitoring for waterways and other natural resources.”

Larry Dignan, IBM creates cognitive semiconductors: A step toward right brain computers, ZDNet Blog Between the Lines, August 17, 2011.

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Global Employment By Sector, 1999-2009
Source: Global Employment Trends 2011, International Labor Org., p. 20

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U.S. Employment Projections to 2018
Data Source: Rose A. Woods, Employment outlook: 2008–2018: Industry output and employment projections to 2018, Monthly Labor Review, November 2009.

———————–Comments———————–

The barriers to replacing intellectual and professional workers with machines are rapidly falling.  Already, computers are taking over customer service communications, digital archive research, teaching responsibilities, aspects of legal research, stock market trading, and other information gathering, information evaluation, and decision-making activities. With new computational technologies moving into the world’s workplaces almost everyday, the pace at which intellectual and professional work activities are being turned over to computers is accelerating.

The impact of this trend on global and U.S. employment can only be negative.  In every field of business, the world is crowded with competitors and the global rules governing competition are minimal and poorly enforced.  In this environment, no business leader can risk not looking at every new computational technology as a possible way to reduce labor costs faster than do competitors.

A very large proportion of the jobs that involve observation, evaluation, and decision-making activities are in service providing industries, including government, so the largest part of the negative employment impact of the accelerating use of computational technologies that emulate aspects of human thinking will be in this sector.  But the overall impact will be much greater.

Neither the agricultural sector, which is rapidly losing workers to automation, nor the industrial sector, which is already highly automated, will be able to absorb the very large numbers of workers likely to be displaced from service sector jobs.  Unemployment and underemployment will rise, and as they do non-work entitlements to income will have to play a much larger role in distributing the wealth created by the enormous and growing productive power of the world economy.

Otherwise, the future will be tragic.  The proportion of the world’s people living in poverty will increase, morbidity and preventable deaths will rise, the growth of the world’s middle class population will stagnate, and political upheavals and brutal governmental repressions will grow more numerous.

Policies of U.S. States Have Negligible Impact on Employment Growth

State Groups by Tax Rank
Data Sources: U.S. Bureau of Labor Statistics, U.S. Census, Tax Foundation.
States Top % By Tax Rank
Data Sources: U.S. Bureau of Labor Statistics, U.S. Census, Tax Foundation.
States Bottom 5 By Tax Rank
Data Sources: U.S. Bureau of Labor Statistics, U.S. Census, Tax Foundation.

Annual Change in Distribution of Percents of State Populations That Are Employed
2000 2001 2002 2003 2004 2005
Range 15.6% 14.5% 13.9% 14.0% 14.1% 14.5%
Minimum 30.9% 31.3% 30.9% 30.5% 30.6% 30.7%
Maximum 46.4% 45.8% 44.9% 44.5% 44.7% 45.2%
         
2006 2007 2008 2009 2010
Range 14.4% 14.3% 14.8% 16.0% 15.6%
Minimum 31.1% 31.1% 30.6% 28.7% 28.3%
Maximum 45.5% 45.4% 45.4% 44.6% 44.0%

———————–Comments———————–

What is striking in the first chart above (employment change for groups of states defined by Tax Climate Ranking) is that the patterns of change are so similar across the groups.  One might easily imagine the changes are choreographed.

This much unity of change is not consistent with the oft stated assertion that state policies have a large impact on state level employment change.  It is much more consistent with the proposition that state level employment change is driven primarily by economic forces that transcend state boundaries.

This interpretation is supported by variations within Tax Climate Ranking groups (second and third charts).  If state economic policies produced large employment effects, one would expect states with very different Tax Climate Rankings to proceed along visibly different employment change paths, while states with similar Tax Climate Rankings would proceed along similar employment change paths.  This isn’t the case.

The differences among the patterns of change for the closely ranked top ten states and among the patterns of change for the closely ranked bottom ten states appear to be greater than the differences among the patterns of change for groups of states.

Other employment change charts using the same formats  (not included here) display very similar patterns.  Again, patterns of change across groups are very similar  and differences within groups are as large as differences across groups.

For those charts the same employment change data were sorted differently.  One set of charts displays patterns of change for ten groups created by sorting the employment change data on percent of total population employed in 2000 (on the assumption that different initial employment levels might correspond to different policy histories and thus produce divergent change patterns).  The second set displays patterns for groups created by sorting the data on change in the percent of total population employed from 2000 to 2010 (on the assumption that differences among states in how well they performed over the decade might reflect policy differences other than Tax Climate that would produce noticeable differences in patterns of change).

The last item above, the table showing the distribution of percents of state populations employed,  offers more evidence that state employment levels change in unison.  Over the course of the decade the highest percent of population employed and the lowest percent change together, producing an almost constant range between highest to lowest.  Again, this is much more in keeping with conclusion that economic forces that transcend states in scope, not state policies, drive employment change at the state level.

A Plausible Explanation

It would be very surprising to find policy differences across states large enough to produce large differences in patterns of employment growth.

First, the states are part of a national governmental system in which constitutional provisions limit the policy options available to states, state governments are very similarly organized, and policy makers generally agree on the beneficence of the free enterprise system.  These factors inhibit the development of large policy differences among states.

Second, when a state enacts a policy or set of policies that seem to provide it with investment and employment growth advantages over other states, those other states adopt those or similar policies very quickly.  Thus, large policy differences will not persist.

Third, U.S. states are exposed to economic forces that are global in scope.  Global financial and production corporations move large volumes of money and commodities  across state and national boundaries.  So do many local businesses.  Ownership often transcends state and national boundaries.   States are subject to the policy rules of numerous  bilateral and multilateral trade and investment agreements entered into by the U.S.

These global economic forces are certainly powerful enough to overwhelm the effects of policies limited in scope to state boundaries and to wash away the employment change differences among states that policy differences might otherwise produce.

No Real U.S. Job Growth Until the World’s Middle and Lower Income Families See Real Income Growth

“The distance between the richest and poorest countries has widened to a gulf. The richest country today (Liechtenstein) is three times richer than the richest country in 1970. The poorest country today (Zimbabwe) is about 25 percent poorer than the poorest country in 1970 (also Zimbabwe). It is sobering to see, amid enormous material prosperity in developed countries, that the real average income of people in 13 countries in the bottom quarter of today’s world income distribution is lower than in 1970.”

Human Development Report 2010 – 20th Anniversary Edition, The Real Wealth of Nations: Pathways to Human Development, p. 42.

Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. … Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price.

Stephanie Clifford, Even Marked Up, Luxury Goods Fly Off Shelves, New York Times, August 3, 2011.

Trends U.S. Blue Collar Earnings in Manufacturing

Chart source: Richard Wallick, Auto Industry Labor Costs in Perspective,  Bureau of Labor Statistics, Originally Posted: April 22, 2011.

———————–Comments———————–

Increased global spending on yachts, private planes, high end sports cars, multi-million dollar homes, $200 per person meals, and other luxury items does produce a number of new jobs in the world economy – but not many.

Income growth for the world’s middle and lower income working people does the heavy lifting for global job creation.  Increases in spending by middle and lower income families send huge numbers of the world’s global corporations, neighborhood businesses, and governments looking for new employees.

No real income growth for the world’s middle and lower income families translates into insufficient growth in demand for the increasing volumes of goods and services that can be produced by the world economy, and from there almost directly into no progress in the U.S. on reducing unemployment and underemployment.

The U.S. is deeply enmeshed in a demand starved world economy and U.S. economic policy does not directly address that aspect of our situation.

Global Technology and Education Trends Increase Global Competition for High End U.S. Jobs

“Taiwanese contract manufacturer Hon Hai Precision Industry Co. (2317.TW) said Tuesday it…plans to increase the use of robotic arms across its production lines to cope with rising demand for electronics and increasing costs…Hon Hai aims to increase robotic arms to 1 million units by 2013 from 10,000 currently…Hon Hai plans to increase automation on “dangerous and monotonous” tasks and to migrate more of its workers to “value-added” jobs such as product research and development.”

Lorraine Luk, Hon Hai Says To Increase Automation But Will Also Boost Work Force, Dow Jones Newswires, August 02, 201, published at FoxBusines,

“In 1998…Chinese universities and colleges produced 830,000 graduates a year. Last May, that number was more than six million and rising…the supply of those trained in accounting, finance and computer programming now seems limitless, and their value has plunged. Between 2003 and 2009…starting pay for college graduates stayed the same, although their wages actually decreased if inflation is taken into account.”

Andrew Jacobs, China’s Army of Graduates Struggles for Jobs, New York Times, December 11, 2010

“…among citizens between the ages of 25 and 34 in developed countries, America ranked 12th [for percentage of 25- to 34-year-olds with an Associate Degree or higher, 2007]. In this key demographic group, Canada, Korea, the Russian Federation, Japan, New Zealand, Ireland, Norway, Israel, France, Belgium and Australia are ahead of the United States. Also, Denmark and Sweden are close to parity with our nation.”

John Michael Lee, Jr. and Anita Rawls, The College Completion Agenda: 2010 Progress Report, CollegeBoard Advocacy and Policy Center,

“The world, in terms of choices available to educated, ambitious workers and entrepreneurs, is way bigger than just the United States, Japan and Europe.”

Paul Singer, founder of Elliot Management, as quoted in The Economic Manifesto of Elliott’s Paul Singer, By Evelyn M. Rusli and Azam Ahmed.

‘American jobs have been moving overseas for more than two decades. In recent years, though, those jobs have become more sophisticated — think semiconductors and software, not toys and clothes…[quoting Jeffrey Sachs, globalization expert and economist at Columbia University:] “What’s changed is that companies today are getting top talent in emerging economies, and the U.S. has to really watch out.”‘

Pallavi Gogoi, Many U.S. companies are hiring … overseas: One reason why U.S. unemployment remains as high as it is, Associated Press, 12/28/2010, published at MSNBC.

———————–Comments———————–

The U.S. is not alone in the world in the pursuit of high end jobs to grow middle class incomes and not likely to be successful enough in that endeavor to revitalize U.S middle class income growth.  The following global trends are moving strongly against high end job growth in the U.S. and the U.S. economic policy approach does not address these trends.

  • Rapid automation of production processes across the globe is increasing citizen pressure on the world’s governments to train more and more workers for high end jobs
  • Competition among the world’s numerous nations for investments that create high end jobs is intensifying as global employment growth stagnates
  • Expanding global investments in higher education are increasing competition among highly educated workers for an insufficient number of high end jobs
  • U.S.  corporations are taking advantage of the growing number of nations with educated workers to bargain with highly educated U.S. workers for wages and benefits concessions.

Pending Trade Pacts Will Continue the Downward Trends in Number and Quality of U.S. Jobs

Pending U.S. – South Korea Trade Agreement

“Most strikingly, KORUS will open Korea’s service market to U.S. exports, allowing the United States to exploit its competitive advantages in financial services, education and information and communications technologies.

…

The agreement also will lead to increased imports from Korea, which in turn will help the United States achieve greater economic specialization. The likely effects of more specialization—and of increased Korean investment in the United States—include greater U.S. efficiency, productivity, economic growth and job growth. Meanwhile, U.S. investors will gain new opportunities in the increasingly active Asia-Pacific region.

…

KORUS supports market access for U.S. investors with investment protection provisions, strong intellectual property protection, dispute settlement provisions, a requirement for transparently developed and implemented investment regulations and a similar requirement for open, fair and impartial judicial proceedings.”

Pending U.S. – Columbia Trade Agreement

“COL-US improves the investment climate in Colombia by providing investor protections, access to international arbitration and improved transparency in the country’s legislative and regulatory processes. These provisions will reduce investment risk and uncertainty.

…

With considerable investments, Colombia would be able to compete with East Asia for these higher quality jobs, swaying people away from black markets and other illicit activities.”

Pending U.S. – Panama Trade Agreement

“Panama’s $21 billion services market for U.S. firms offering portfolio management, insurance, telecommunications, computer, distribution, express delivery, energy, environmental, legal and other professional services.

…

A fair legal framework, investor protections and a dispute settlement mechanism, all features of the PFTA, are almost certain to increase U.S. investments in Panama.”

All quotes from Mauricio Cárdenas and Joshua Meltzer, Korea, Colombia, Panama: Pending Trade Accords Offer Economic and Strategic Gains for the United States, Policy Brief Series, # 183, The Brookings Institution, July 2011.

———————–Comments———————–

About improved investment climates.  These agreements add three more places in the world where U.S. corporations can invest with confidence.  U.S. banks, mutual funds, and other financial institutions will find it easier to use the money in our savings accounts and retirement funds to expand economic activities and create jobs outside the U.S.

By some estimates, U.S. corporations are sitting on about $2 trillion in cash and banks have returned to profitability, so a lot of money is sitting idle, waiting for profitable investment opportunities.  Economists have noted that there is considerable evidence that the growth of consumer demand is too anemic in the U.S. to spur much investment here, so the investment eye is on the emerging markets of the world where real incomes and consumer demand are growing.

About increased access to service sector markets.  The list of U.S. industries that will benefit include industries that are critical to increasing a nations competitive position in the world economy, and thereby nourish economic growth and enterprise profitability.  Thus, expansion of service sector sales will complement U.S. capital investment in South Korea, Columbia, and Panama, helping to insure the profitability of both U.S. and local investments and thus helping to insure that competitiveness and job growth increase in those nations.

About increased economic specialization in the U.S.  The impact of increased economic specialization on jobs in the U.S. will be a further narrowing of the base of industries and thus a further narrowing of the range of jobs available to U.S. citizens.  This means more workers will have to go through the emotionally painful, family disrupting, and financially costly process of being displaced and retrained for other work because their existing skills are no longer needed.

The record for career displacement and re-employment in a new industry is not good.  Far too many of the new jobs displaced workers end up with pay less and offer lower value in benefits.  Incomes and family welfare decline.

Likely Impact on Global Job Growth. Under existing global conditions of increasing numbers of competing businesses and stalled expansion of global consumer demand, large parts of the new investments to be facilitated by these trade pacts will very likely go into labor saving production, distribution, and management technologies.

Global productivity will increase, so jobs gained in South Korea, Columbia, and Panama will not be greater than the jobs lost in those nations from which South Korea, Columbia, and Panama win market shares.  More likely, the net effect on global employment will be negative.

Likely Impact on U.S. Jobs and Income.  Although jobs will be added in select U.S. industries, and thus in limited parts of the U.S., the net effect will be negative because profitability in sectors of the U.S. economy that have to contend with stronger competition from South Korea, Columbia, and Panama (and all the other nations where U.S. capital is nourishing productivity growth) will decline.  Investment in those sectors will further decline in response, putting more people out of work.

More people competing for work globally and more Americans competing for jobs in the U.S. can only put more downward pressure on U.S. wage and benefit levels.