This Is No Time for Irrational Exuberance about Jobs at Living Wages – We’re in a New World of Work

SOURCE ITEMS

Eurozone GDP still hasn’t gotten back to its 2007 level, and doesn’t look like it will anytime soon. Indeed, it already wasn’t clear if its last recession was even over before we found out the eurozone had stopped growing again in the second quarter. And not even Germany has been immune: its GDP just fell 0.2 percent from the previous quarter.

Matt O’Brien, Worse than the 1930s: Europe’s recession is really a depression, Washington Post, August 20, 2014. Web 9/5/2014.

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Total nonfarm payroll employment increased by 142,000 in August … Manufacturing employment was unchanged in August, following an increase of 28,000 in July. Motor vehicles and parts lost 5,000 jobs in August, after adding 13,000 jobs in July. Auto manufacturers laid off fewer workers than usual for factory retooling in July, and fewer workers than usual were recalled in August. Elsewhere in manufacturing, there were job gains in August in computer and peripheral equipment (+3,000) and in nonmetallic mineral products (+3,000), and job losses in electronic instruments (-2,000).

Employment Situation Summary, U.S. Bureau of Labor Statistics, September 5, 2014. Web 9/5/2014.

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Today’s report also included revisions to first-quarter personal income. Wages and salaries rose by $131.3 billion, revised down from an initially reported $135.1 billion gain. They climbed by $103.6 billion in the second quarter.

Shobhana Chandra, Economy in U.S. Expands 4.2%, More Than Previously Forecast, Bloomberg, August 28, 2014.

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Almost 21 million people are victims of forced labour – 11.4 million women and girls and 9.5 million men and boys. … Almost 19 million victims are exploited by private individuals or enterprises and over 2 million by the state or rebel groups. … Forced labour in the private economy generates US$ 150 billion in illegal profits per year.

Facts and Figures, Forced labour, human trafficking and slavery, International Labour Organization, Web 9/5/2014.

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Comparing the first half of 2014 with the first half of 2007 (the last period of reasonable labor market health before the Great Recession), hourly wages for the vast majority of American workers have been flat or falling. And even since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline…

Elise Gould, Why America’s Workers Need Faster Wage Growth—And What We Can Do About It, Economic Policy Institute, August 27, 2014. Web 9/5/2014.

COMMENTS

The U.S. is deeply tied to the rest of the world economy and the world economy is plagued by contradictory national economic policies, geopolitical instability, extreme weather conditions, and rising prices. These are chronic conditions that will continue to prevent the world economy from achieving a steady rate of economic growth high enough to grow jobs and incomes.

Slow economic growth combined with high levels of global income and wealth inequalities can only produce a steady stream of domestic and geopolitical disasters. Slow economic growth is probably a permanent feature of the 21st century world economy, so we have to learn to live with it. We can, however, do a lot to reduce economic inequalities.

The Growing Skills Shortage: A Real Problem or A Politically Expedient Invention

SOURCE ITEMS

Employers have long complained that graduates do not have the skills they need.

A study released in November by Eurofound, the research arm of the European Union, showed that despite the recession, almost 40 percent of companies reported difficulty in finding workers with the right skills, compared with 37 percent in 2008 and 35 percent in 2005.

The issue peaked last summer, when PayPal’s chief executive in Ireland, Louise Phelan, stoked controversy by acknowledging that the company had recruited from 19 other countries for 500 positions in its operations center in Dundalk because of a lack of foreign-language skills among Irish nationals. This summer, Fujitsu, which employs 800 people in Ireland, revealed that it had had to hire most of its Ph.D.-level experts from abroad.

Liz Alderman, Unemployed in Europe Stymied by Lack of Technology Skills, New York Times, January 3, 2014.

COMMENTS

What is the right wage for a business facing stiff global competition: the lowest wage, of course!  Note the last paragraph above.  Apparently, PayPal and Fujitsu did get the workers they needed.

Let’s try another interpretation.  The high tech jobs are created mostly in very large corporations.  Those corporations recruit workers globally, regardless of where their operations are located.  Note this paragraph from the same story:

“Multinational technology and social media companies kept investing, lured by Ireland’s ultralow 12.5 percent corporate tax rate and an English-speaking work force.”

It’s a possibility that corporate CEO’s are extremely unlikely to say to a host country like Ireland, “We like your low taxes here, but we can import cheaper workers from other countries — and we will.”  Isn’t it very likely that the real issue for corporate leaders is that the hourly wages of educated workers in more affluent countries are not the lowest wages they can pay and still be successful?

My bet is that CEOs present the issue as a labor supply problem (skills shortage) as political cover and to shift the cause of high unemployment (even for well educated workers) onto the workers themselves and away from the corporations that are making the actual hiring and firing decisions.   My bet is that the world economy actually has plenty of well educated and skilled workers, but the world’s corporations are producing too few jobs to employ them all.  They just won’t ‘fess up.

What is really in short supply are jobs that pay decent wages by North American and Western European standards.   Too much supply (of skilled workers) in a world of too little demand = falling wages.  (Note the concessions the Boeing workers in Seattle, WA just made to keep their jobs!)

Tom Friedman’s Jobs World is Interesting But a Bit Flat

SOURCE ITEMS

In today’s hyperconnected world without walls — when more Indians, Chinese, computers, robots and software can perform more average blue-collar and white-collar jobs — the only high-wage jobs are increasingly high-skill jobs

Our kids face three big adjustments. First, to be in the middle class, they will need to be constantly improving their skills over their lifetime. Second, to do that, they will need a lot more self-motivation. … And third, countries that thrive the most will be the H.I.E.’s — the high imagination-enabling countries — that attract and enable talent to be constantly spinning off new ideas and start-ups, the source of most new good jobs.

Thomas Friedman, Can’t We Do Better?, New York Times, December 7, 2013.

 COMMENTS

Tom Friedman is almost always worth reading, but he has yet to acknowledge a societal development that is one of the most consequential for the world’s working families – the transformation of the role that work plays day in and day out in distributing the world economy’s newly created wealth.

Ironically, Friedman identifies the very forces that are undoing the role of work in distributing newly produced wealth, but fails to follow through. He takes us right to the door through which he could walk us to the real solutions to growing poverty and inequality.  He then turns away and offers up the same old failed conventional wisdom.

Friedman and so many others define the problem of low wage jobs and growing inequality as due to the inadequacies of workers (low skills, outdated skills, lack of drive).  They fail to seriously consider the possibility that the world of work is changing in such fundamental ways that no feasible amount of improvement in the skill levels of working people or change in their approaches to getting and keeping jobs can reverse the trend toward lower wages and greater poverty and  inequality.

As Friedman rightly notes, global integration and advancing productive technologies have great consequences for working families and societies, but not because they are creating demand for highly skilled workers and destroying demand for low skilled workers.  The core systemic change is that those forces are producing an enormous and growing surplus of labor, both skilled and unskilled.

The role of machine energy in the production of the world’s goods and services has advanced to such a large proportion of the combination of human energy and machine energy that the available human energy far exceeds the demand for human energy.  Even human thinking energy is being displaced by machine energy.

The trend shows up in the long term decline in the proportion of the world’s population that is employed.  Friedman and others apparently believe that this trend won’t eventually bring us to a point in time when more than half the world’s people are effectively outside the world of work.

How then will we distribute the world economy’s newly created wealth day after day?

The era in which employment could be the primary way in which a person could legitimately claim a fair share of the world economy’s income is nearly over.  Yet Friedman and other experts still have not asked the question in public of what will give a person a right to a fair share of income in this increasingly jobless world.

The world’s people desperately need a new kind of right to income, and until we invent that right, inequality will keep getting worse and more of the world’s people, including Americans, will be shoved into lives of destitution, begging, scavenging, and violence.

Fragmented and Weakened Global Governance Perpetuates the World’s Employment Crisis

“A second conclusion is that the multilateral system lacks coherence; that is, comparable and consistent disciplines in closely connected areas of international economic interaction. This is particularly notable between trade and finance. The existing system of global economic governance lacks effective multilateral disciplines over exchange rate, macroeconomic and financial policies, or for redress and dispute settlement regarding the negative impulses generated by such policies. In this respect, governance in money and finance lags behind that for international trade. This is a main source of strains in the trading system.”

 Yilmaz Akyüz, Global Rules and Markets: Constraints over Policy Autonomy in Developing Countries, Working Paper No. 87, Policy Integration and Statistics Department, International Labour Office, June 2008

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“Economic integration and interdependence in the world today have reached an unprecedented level. As a result, the globalized economy cannot function for the benefit of all without international solidarity and cooperation. This was highlighted by the global financial and economic crisis that followed the collapse of big financial institutions, and it has underlined the need for developing approaches to new forms of global collaboration.”

Trade and Development Report, 2011: Post-crisis policy challenges in the world economy, United Nations Conference on Trade and Development

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“Global investors increasingly view risk in binary terms: When things are looking calmer on the global economic front, stock markets rise across the world; when things look scarier, they fall. Instead of differentiating among the economies in the United States, Europe and Japan, market measures are moving closely in tandem.

Moreover, because major U.S. companies have operations around the globe, executives are more likely to try to offset weakness in their overseas operations by pulling back on hiring and capital investment domestically, even if the U.S. economy is proceeding apace.”

Neil Irwin, U.S. fortunes increasingly determined in Brussels, Frankfurt, Political Economy Blog,  Washington Post 09/06/2011

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“Concurrent with the shift in power among nation-states, the relative power of various nonstate actors—including businesses, tribes, religious organizations, and criminal networks—is increasing. The players are changing, but so too are the scope and breadth of transnational issues important for continued global prosperity.

The diversity in type of actor raises the likelihood of fragmentation occurring over the next two decades, particularly given the wide array of transnational challenges facing the international community.”

By 2025, the international community will be composed of many actors in addition to nation-states and will lack an overarching approach to global governance.

Global Trends 2025: A Transformed World, National Intelligence Council, PDF version, November 2008

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“Today, some 50,000 multinational enterprises and their 450,000 affiliates employ over 200 million people throughout the world. Their impact is felt in virtually every facet of industry, trade, services and business activities.”

Multinational Enterprises web page, International Labor Organization

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Over the last several decades, the world’s distribution of economic power has shifted along several dimensions.

  • The distribution of power among nations has become more decentralized (the number of nation-states in the world has doubled since 1950, a number of weaker nations – notably the BRIC countries – Brazil, Russia, India, and China – have substantially increased their positions of power in the world economy, and with the cold war over, the most powerful nations have less ability to dictate foreign and domestic policies to weaker nations).
  • The number of economically competing geopolitical units in the world economy has increased dramatically (increasing numbers of bilateral and multilateral free trade agreements have exposed more and more of the world’s local businesses to global competitors; advances in transportation and communications technologies have brought more and more of the world’s state, provincial, and urban governments into virtual face-to-face competition for investments and jobs)
  • The distribution of economic power between the world of national and multinational governing institutions and the world of global business enterprises has shifted in favor of the business enterprises (.the expansion of the number of competing geopolitical actors in the world economy has increase the number and diversity of investment opportunities available to corporations and investors, increasing their power to play off one geopolitical entity against another and thus limit the willingness of governments at all levels to manipulate flows of capital and goods to favor their own citizens).

These shifts in power have wrought a destructive change in the global environment for job creation.

Business enterprises operate under very different mandates than do governments.  The core mandate for every business is to gain market share, not share market gains; to maximize profits for owners and shareholders, not to maximize general welfare.  In the pursuit of that core mandate business enterprises cannot increase employment, pay higher wages, create safer working conditions, pay taxes, or invest in parts of the world where the greatest need for jobs exist, if doing so will alter the balance of competitive advantages in favor of competitors.    Incurring avoidable costs seldom enhances competitiveness; cutting costs often does.

In a world in which governing institutions lack the power to organize and moderate competition so that it serves the general interest and in which the growth of markets is stagnant, fiercely combative and norm-breaking waves of competition among the world’s 50,000 global corporations and among the world’s millions of globally exposed local businesses and governments are inevitable.  Unrestrained job slashing frenzies in pursuit of lower costs are inevitable.  Waves of hiring that manage to materialize cannot be sustained.  High levels of unemployment and underemployment become the permanent state of affairs.