The Jobs Problem

Newsmax ^ | Wednesday, Jan. 14, 2004 | Paul Craig Roberts

[looscnnn]

The current economic recovery has not been good for employment. Despite 25 months of "recovery," the economy has 2,944,000 fewer private sector jobs than in January 2001. American manufacturing has experienced the largest job loss, with 2,559,000 fewer jobs today than 35 months ago when President Bush took office.

These figures include the losses of the 2001 recession. The really scary part of the story is that, far from recovering these job losses during the past 25 months of economic recovery, the economy has continued to lose jobs. During 25 months of recovery, the economy lost another 1,321,000 jobs in the manufacturing sector. A small gain in poorly paid areas of non-tradable services leaves a net loss of 907,000 private sector jobs during 25 months of economic recovery.

This is unprecedented poor performance, especially in the face of unprecedented expansionary monetary and fiscal policy. With interest rates near zero and 6-year interest-free auto loans, with fiscal policy expansionary, whether measured by tax cuts or the record size of the budget deficit, 25 months of economic recovery loses almost a million jobs?!

Much hope was attached to October's "turnaround" job growth of 116,000 private sector jobs, even though about half were in lowly paid temporary help and retail, and none were in high-value-added tradable goods and services. This "turnaround" job growth number has now been revised down by 37,000 jobs. Revisions have reduced November's paltry 50,000 gain (also in lowly paid service jobs) by 51 percent.

December's job gain is 1,000 jobs, or practically speaking, zero. Obviously, U.S. job growth is far from enough to absorb the monthly inflow of immigrants or the inflow of young people into the job market looking for their first jobs, much less to reduce the unemployment from the 2001 recession.

Some economic recovery it is.

Trying to put a good face on disaster, some claim that overtime has cut into employment growth, with businesses working existing workers longer in place of new hires. This argument is contradicted by the empirical evidence. During the past 25 months of recovery, total hours worked have declined by 1.7 percent, with manufacturing hours declining by 7.7 percent.

When pressed on the point, apologists for the recovery say that fewer people and hours are needed because of increased productivity.

There is another explanation, one much less reassuring: As a result of outsourcing, offshore production and Internet hires, the U.S. recovery is creating jobs for foreigners, not for Americans.

Every day, we read about another corporate giant replacing thousands of American jobs by moving operations to India, China or another foreign country where skills equal to those of Americans can be purchased at a fraction of U.S. wages and salaries. Economists, determined to keep their heads buried in the sand, dismiss report after report as "anecdotal evidence," as if facts don't count unless they are in an economist's study.

Economists and policymakers continue to ignore -- indeed, they are in outright denial of -- two fundamental changes that are disconnecting the U.S. economy from U.S. employment: the collapse of world socialism and the rise of the Internet.

Until the collapse of world socialism about 15 years ago, the international mobility of First World capital and technology was confined to the First World. This limit on capital mobility ensured that First World labor would have productivity advantages over much lower paid Third World labor.

The new global mobility of capital and labor has stripped away the protection that high productivity gave First World wages. Indian and Chinese labor employed by First World capital and technology is just as productive as First World labor. Moreover, due to large excess supplies of labor in those labor markets, Asian labor can be hired for less than the value of labor's contribution to output.

Capitalism works by finding the lowest cost. Thus, First World labor is being substituted out of First World production functions by outsourcing, offshore production and Internet hires.

The business press has been full of stories, example after example. When will policymakers notice?

When will economists notice? They will never notice as long as they believe they are witnessing the beneficial effects of free trade.

But are they? American economists seem to have forgotten that free trade rests on a case. They have forgot the necessary conditions under which free trade produces mutual gains to the participant countries. They have not noticed that these conditions have been destroyed by the international mobility of factors of production.

The economic case for free trade rests on shared gains. Shared gains depend upon countries allocating within their borders factors of production to where they have comparative advantage. For there to be comparative advantage, factors of production cannot be as mobile as traded goods.

Today, factors of production are as mobile as traded goods, indeed more mobile. Capital, technology and ideas can move with the speed of light, as can Internet labor, whereas goods must be shipped.

What we are witnessing is not trade patterns based on the flow of First World factors of production to comparative advantage within their own countries, but the flow abroad of First World factors of production to where absolute advantage is greatest. The productivity of capital is highest where labor is most abundant.

The flow of factors of production to absolute, in place of comparative, advantage vitiates the economic case for free trade. What we are witnessing is the redistribution of First World income and wealth to developing countries blessed with excess supplies of labor.

If the United States is to remain committed to free trade, we must give thought to figuring out how to recreate the conditions under which free trade produces mutual gains to the participating countries.

[looscnnn]

Points out the common sense of what is going on with jobs being sent overseas.

[RLK]

There has been no recovery. There has been nothing but spin. It will get worse.

[hapy]

what will get worse the job market or the spin?

[lainde]

bttt

[reed_inthe_wind]

Another factor of production is entrepreneurial spirit.

[rj45mis]

Union wages contribute significantly to the corporate decision to move operations out of country. When you're paying a high school dropout $30/hr to produce consumer goods while allowing comparable goods imported at 1/3 the cost, what CEO will choose the former? It's a no brainer!

[RockyMtnMan]

But jobs are a "lagging" indicator. </sarcasm>

I would love to hear when the "lag" time should be over and hiring of these new "high skill" jobs is to occure. If it takes 10 years to create these new high end jobs then we should expect a severe economic depression until then.

[RLK]

what will get worse the job market or the spin?

----------

Both.

[RiflemanSharpe]

Both.

[RockyMtnMan]

It's difficult to justify giving a few million to a startup if their business plan doesn't include offshore labor. That doesn't employ very many American's in those scenarios. The boom of the 90's was a direct result of VC investment and hiring domestically. Unfortunately most of those businesses were based on "irrational exuberance" and did not have a real "entrepreneurial spirit" just a desire to fleece any poor sucker that would give them money.

If you want to compete with the global corporations of the world nowadays you have to buikd your business a brick at a time. If they notice you they might crush you or if your lucky buy you out. Don't expect a VC to loan any money to a startup that wants to compete in a space currently owned by a trans-national corporation, unless you've solved world-peace and hunger.

[pissant]

Get a grip. The economy even in Seattle is starting to simmer. The Northwest took it in the shorts with the collapse of the over-inflated Tech sector.

With a 3rd quarter 8.2 GDP growth, someone is creating wealth. Who might that be? Maybe the construction industry (wood products, concrete, window manufacturer's, electricians, etc.) the software industry (Microsoft is doing fine), Aerospace (Boeing is profitable again).

The US economy is the most Dynamic in the world. Industries rise & industries fail. The same doom and gloomers were bitching during the early to mid eighties when companies were axing people and restructuring. Yet Reagan's unshackling of the business community led to a 18 year boom cycle.

I hope as we enter this new boom cycle, the critics will settle down and get a job that makes 'em happy.

[Dane]

Union wages contribute significantly to the corporate decision to move operations out of country. When you're paying a high school dropout $30/hr to produce consumer goods while allowing comparable goods imported at 1/3 the cost, what CEO will choose the former? It's a no brainer!

Nah, it's more like a reason for RLK and looscnn to go ballistic. Afterall to them business owners are evil and the enemy.

[RiflemanSharpe]

I have not seen the job market improve one bit. I have been looking at want ads on line and in the paper the number and quality of ads has not gone up in the past 7-8 months, the lentgh of time I have looked.

[looscnnn]

You got that.......wrong. I had my own business, before I had to move to South Carolina. Granted I was the only employee and I worked a full time job also, but I had hopes of the business becoming viable. Also, my relatives work/ed for one of the big 3 in the auto industry and I can agree with the statement about the unions.

Before you make a moronic statement like that again, you better get all the facts.

[GigaDittos]

If all the jobs are going overseas, how come the Mexicans aren't following them? Are they even too mundane for the Mexicans?
Is there some point in this scenario where enough jobs go overseas and most Americans will be sitting around twiddling their thumbs with nothing to do? I wonder if that is even possible. Has any culture ever been able to exist on a permanent vacation?

[ctonious]

No worries mates, we will abandon the low-tech horse-and-buggy-whip industries of manufacturing, electronics assembly, software programming and IT - and with our hyper-educated youth leading the way, leapfrog into Martian habitat fabrication, nano-burger-technology and quantum nursing homery.

[RussianConservative]

Because Mexican factory closes and move to China and because US give them FREE education and welfare...and Mexico socialist failure for 200+ years.

[GigaDittos]

Didn't they say the same thing when the Japanese were kicking our butts in the late 70's and 80's? Now it appears that the Koreans are japanesing the Japanese, and the Chinese are japanesing the Koreans, and etc.... but the Americans are still here along with the Japanese and Koreans. This ripple effect apparently isn't the country killer we thought. I believe there is a reason why all these industries are changing and moving EXCEPT defense, space, computers and software. Hmmmmm, why is this? Could it be that any area of innovation stays HERE???

[GigaDittos]

Every country has free education, and since ours sucks so bad, why don't they move to some other country like Canada, where they can even get free socialist medicine? I'm surprise the African-Americans are allowing them to share the welfare budget with them.