Shipping out jobs (A myth pols find convenient)

New York Post ^ | October 27, 2010 | DANIEL GRISWOLD

[expat_panama]

With campaign season comes predictable charges that Candidate X favors "tax breaks for corporations that ship US jobs overseas." It's a bogus claim.

With unemployment still stubbornly high, Americans are rightly worried about the economy. And politicians of both parties -- from President Obama on down -- have seized on US multinational companies as a convenient scapegoat.

The charge sounds logical: Under the US corporate tax code, US-based companies aren't taxed on profits that their affiliates abroad earn until those profits are returned here. Supposedly, this "tax break" gives firms an incentive to create jobs overseas rather than at home, so any candidate who doesn't want to impose higher taxes on those foreign operations is guilty of "shipping jobs overseas."

In fact, American companies have quite valid reasons beyond any tax advantage to establish overseas affiliates: That's how they reach foreign customers with US-branded goods and services.

Those affiliates allow US companies to sell services that can only be delivered where the customer lives (such as fast food and retail) or to customize their products, such as automobiles, to better reflect the taste of customers in foreign markets.

In 2008, US companies sold more than $6 trillion worth of goods and services through overseas affiliates -- three times what US companies exported from America. And, no, those affiliates aren't mainly "export platforms," set up to ship goods back to the United States: Almost 90 percent of what they produce abroad is sold abroad.

It's not about access to "cheap labor," either: More than three-quarters of outward US manufacturing investment goes to other rich, developed economies like Canada and the European Union. That's where they find the wealthy customers, skilled workers, open markets, efficient infrastructure and political stability to operate profitably.

[algernonpj]

“we seem to be finding less need for “workers”.

Not at all. We find less need for low-skilled workers. There is a huge shortage of workers -— highly skilled ones -— in the U.S. It is somewhat filled by H1B program, but that is a drop in the bucket.

What we have is not a shortage of skilled Americans but a shortage of skilled American under 40 who can work at third world salaries. Skilled Americans compete with guest workers who often pay no or little taxes, as well as illegal aliens (visa overstays) who work through temp agencies that vouch for them.

Here is a sampling of interesting articles and studies about H-1B's (and other skilled workers).

If we had been experiencing a shortage of skilled workers salaries would be going up, not down, i.e. unless supply and demand does apply to labor.
starting salaries lower in 2005 than 2001
Hiring younger and cheaper workers is a major motivator in bring in skilled guest workers.
global mythology - shortage of 500,000 knowledge workers

WSJ Disputes Engineer Shortage
global mythology - shortage of 500,000 knowledge workers
How and Why Government, Universities, and Industry Create Domestic Labor Shortages of Scientists and High-Tech Workers
USA Today declares teacher shortage while Dallas fires hundreds
The World's Best at Giving Away Jobs

Currently we are bringing in 125,000 new legal workers per month (a combination of guest workers and green cards), many as the result of so-called free trade agreements that over ride our immigration law and have no accommodation for the unemployment situation in the US.

Siminar on How to Replace Americans With Guest Workers

Addressing the 'brightest and best myth:
Best? Brightest?

[nascarnation]

Did you check the contents to see where they were made?

LOL, no

I said "assembled" in Mexico

I'm sure most of the internals are from various Asian suppliers.

[algernonpj]

Technical work is difficult, requires a constant effort to stay informed on the latest advances, and carries a real fear of age discrimination. It's tough to convince people to go into these fields. Better pay would help, but if we import cheaper labor, then the pay doesn't rise appropriately.

There are a great many 50+ engineers walking around looking for work. But people talk about a shortage of highly skilled workers. This isn't about skills; this is about money. We don't want to pay for highly skilled workers.

See post # 61

[expat_panama]

Dealing with the unfortunate is always difficult.  We want to help the needy and what happens is the needy often blame us and try to attack us.  Of course that sad fact of life will never stop us from doing what's right, just like we're not held back by the fact that when we were in need nobody helped us.

The key here is not to stew on the misery but to be ever grateful that we are well off and we're able to help others.  A good sense of humor helps too...

[rhombus]

A good sense of humor helps too...

We're going to need it on FR. The 2012 election starts on Nov 3 (if not already). I sense lots of primary anger around these parts...and coming soon.

[jboot]

Thanks for those links. They will be very useful.

As for H-1B "skilled workers"...that is a misnomer. The better term would be "credentialed workers." Credentials do NOT equal skill or suitability to a task. I've been involved in IT hiring for a decade. All H-1B workers without exception have impressive credentials, but most of them have next to no actual experience, and some are flatly unable to do the very tasks they are credentialed for. But they work for a fraction of the wage expected by skilled US workers, and-most insidiously-one rejects them at peril of being labelled a racist. There are a lot of hiring games being played, and quality suffers for it.

[Tallguy]

“The problem with automation is not that it is expensive but that, in most cases, it is infeasible (prohibitively expensive, if you want to split hairs).”

I don’t disagree with that. I would add that every product has a life-cycle. For things like electronic sub-components these lives can be measured in just a few years.

Automation really only helps cut costs during the high-production phase. Once the product slips back into low-production or MRO phases then the automation is mothballed/converted to another product. That older component often gets shipped off to a foreign subsidiary that does the work with hand tools and “Level One” automation because the product gets labor-intensive again.

[ex-snook]

"We used to make TVs in America. We used to make shoes. Now we don’t. There is some truth to the “myth”."

Right - it isn't a myth. Check where the stuff you buy is made and you will see where the jobs have gone. Clinton started job exporting, Bush put it on steroids, and Obama looks the other way.

There will be no recovery until we make more of what we import. Whatever it takes. A good place to start would be to put flexible tariffs to equalize what countries sell to us and buy from us. No tariff if the difference is small to the more the difference, the higher the tariff. Trade means we buy from us and you buy from us. Anything else is we are being robbed.

[reed13]

Your correct about Cali - it doesn’t need to be out of that “golden state”. TI is in Texas, Intel is elsewhere as well. ATC is on the East coast. etc etc. 1/2 million is nothing for a wafer plant - lucky if you can get them to make the dies for less than that - I know I’ve tried.

[zeugma]

The company I work for has outsourced a crapload of jobs to India. The quality sucks, the timetables aren’t met, and much of the work has to be redone by someone who knows what the heck they are doing. It has also contributed greatly to the turnover of the knowledgeable few who remain here. Unfortunately, the CEO has hitched his horse to his wagon, and refuses to admit it was stupid and short-sighted.

[algernonpj]

jboot, my pleasure.

Here's another quoting Greenspan in 2007 on manipulating the supply of 'skilled workers' to suppress wages:

"Inequality of incomes is the "critical area where capitalist systems are most vulnerable," Greenspan said yesterday in Washington at a conference on maintaining the competitiveness of US capital markets convened by Treasury Secretary Henry Paulson. "You cannot have a system that we have unless the people who participate in it believe it is just."

"Allowing more skilled workers into the country would bring down the salaries of top earners in the United States, easing tensions over the mounting wage gap, Greenspan said."

[1rudeboy]

Trade means we buy from us and you buy from us. Anything else is we are being robbed.

Why do I expect that you are not in favor of free trade agreements with Colombia, South Korea, and Panama? Let me guess, they are not "fair."

[TopQuark]

That is all true for "for things like electronic sub-components," as you said. The problem I had with your statement was that it was overreaching: you generalized to business decisions in a generic company. Many people have in mind computers and such when thinking about business in general. But most businesses are not GE or P&G. If a midimum-size furniture manufacturer does not use robots, he cannot start doing so because it is prohibitively expensive.

[ex-snook]

"Why do I expect that you are not in favor of free trade agreements with Colombia, South Korea, and Panama? Let me guess, they are not "fair." "

Tell how much a country buys from us and we buy from them. If a significant constant difference exists we are being screwed or they are being screwed. Fair went out the window when gold settlements did. Trading jobs and Treasuries for cheap consumer goods is lose-lose.

[1rudeboy]

So in other words, our economy should only trade with economies as large as ours. That'll work. /s

(And it also blows your "fairness" argument out of the water--you're not interested in trade at all).

[Revolting cat!]

At a street fair recently, a local bank was giving away pencils and drink coasters. I picked up two of the latter, took them home, turned one around to see a printed recycling sign, a note that it was 100% recyclable, and that it was made in China. Now imagine, if you will, a cargo ship from Shanghai filled with containers containing nothing but recyclable cardboard drink coasters. Don’t it make you feel warm and fuzzy that these drink coasters are recyclable and save the earth’s environment? Never mind the environmental damage caused by the transport, by the manufacture in god knows what conditions in China, outta sight, outta mind.

[TopQuark]

Most of the articles you sited (thank very much for making them available in one place), cover a lot of ground and don't make much sense. The WSJ one, for instance, talks about greater selectivity among the companies, as if that were contradictory to the existence of shortages. In 2005 computerization in recruitment made it possible for any moron to submit a resume to Microsoft, which then has to spend more time in weeding out the candidates. What does that prove? Only that a recruiter has more second-class resumes to go through; it may still face a shortage of the first-class resumes it is looking for.

The last one is even equally problematic. The author argues, incorrectly, that salaries prove the absence of shortage. But he has not learned his economics properly. Price is indicative only when there is no rationing. Shortage of skill work is rationing. One cannot use the non-rationing tools (price) in situations where rationing exists; this is simply absurd. And yet, that is what the unsuspecting author does.

One of blogs/articles you have kindly made available does inadvertently argue against itself. It sites the fact that more than one half of the science/engineering students are foreign. Right here you can see that graduation data, sites by many opponents, do not apply. "See," they argue, "the number of engineering graduates increased from 72,000 to 81,000 in 1999-2004 -- we don't have any shortages thus." But one half of those graduates do not satisfy the citizenship requirement; we have therefore only 35,000-40,000 of American engineering graduates. Different picture, isn't it? Now the foreign students still apply for jobs, and some get it --- under H1B or some such visa. But now the opponents are railing against those. None of it makes sense. The arguments are supposedly common-sense level (who can argue with prices, for instance?) but are actually fallacious.

Finally, H1B visas cover not only electrical engineers and software specialists. Go to any major university and count the number of Americans in the graduate programs in science, engineering, or business. Count the faculty that teaches in the corresponding departments. I could name for you universities in which there is not a single American-born person in the entire area of teaching/research. Why this is happening can be discussed. But to deny the facts is unproductive.

[TopQuark]

Thanks for the clarification. Now I know there are at least two us who think so.

[TopQuark]

"A large part of our population is only able to handle low-skill work. But we don't need them -- so what happens to them?"

The same thing as happened throughout our history. We constantly learn (from the market) what skills are needed and what they are worth. A significant shortage of programmers, which lasted from 1960s until recently, was signaled by very high salaries (compared to education level), and attracted great many people into that profession. When shortages subsided, salaries and job openings fell.

What impedes/amplifies that process are cultural traits, reflected in part in the education polices pursued. After the Russian scare of 1950s, it was very respectable to be a scientist and engineer: you protected the country by strengthening our military, and prolongs and improved lives by new drugs, conveniences, etc.

It's been too long now. Most people take those benefits for granted. It is not "cool" to know mathematics and physics --- in fact, that will reduce the number of dates you get. Our education policies --- the dumbing down of our nation for several decades --- result in a devaluation of our college degrees (how many remedial, high-school level classes to students take in college now?). The size of a teenager's vocabulary is one half of what it was in 1950s. He still gets a high-school or college degree. All this gives an erroneous impression about the competitiveness of our labor force. Our prosperity, in turn, gives an impression that you can do well without being good. Forces such as these render changes in labor very slow.

"Well, we wouldn't have such a shortage if these highly skilled jobs actually paid well."

That is a common but an erroneous argument, based on misunderstanding of economics.

The first problem is looking at the labor market in isolation. It is connected, however, to the product market. Suppose you can sell a product for no more than $10 and require a certain skill to create it. You need to workers and found one, paying him $9.90. No other people want to work at that salary. Will you offer a salary of $10.10. Of course not: the whole point of employment becomes moot, because you'd be incrurrng a loss at that salary.

Second, and perhaps more subtle error, is in the belief that price always adjusts to demand. That is what you indeed learn in economics. What people forget, however, that this is not universal: such thinking applies only to where there is no rationing (shortages).

To make the point simple, suppose you want to hire Einstein. Princeton got him. Suppose they paid him $200,000. Now you are looking for another Einstein. Suppose you are willing to pay $500,000. How many Einsteins will you get? None, of course. Well, you increase the salary to $1,000,000. How many will you get now. Sill none, of course. Why? Because there aren't any more Ensteins. Given the shortage of Einsteins, no increase in salary will help. Companies are not looking for Einsteins literally, but this illustrates the point.

[WOBBLY BOB]

Google is 100% Hypocritical By Paying 2.4% Tax Rate

http://www.freerepublic.com/focus/f-news/2612272/posts

they’re not very patriotic!