Wednesday, October 26, 2011

Who Pays the Price for Globalization?

Along with automation, the force that has caused the largest number of U.S. job losses is globalization. Jobs that used to be done by American workers are being shipped overseas, in a never-ending quest for lower-paid workers. But some American workers are being hurt by this more than others.

To understand who is suffering the most from globalization, it helps to consider what makes this economic environment possible. A major reason is free trade agreements with foreign countries, removing tariffs that used to shelter American industries. The argument for international trade is that it lowers costs for everyone, and I must agree that much (though not all) of the Chinese-made merchandise that fills the shelves at WalMart is priced lower than equivalent American-made goods.

On the other hand, even if you set aside the arguments against globalization (for example, the problem of China’s manipulation of its currency to depress the dollar cost of its goods), you cannot pretend that globalization has no adverse effects within the United States. Even if it’s too late to reverse globalization, policy-makers must recognize whom it damages and take appropriate measures to mitigate the damage.

Therefore it’s significant that last week Congress issued a little-noticed report (PDF here) on this topic, called “Nowhere to Go: Geographic and Occupational Immobility and Free Trade.” The report was written by the staff of Sen. Bob Casey for his role as chairman of the Congressional Joint Economic Committee.

The report notes that the chief American victims of free trade are older workers and those with less education. These two groups are concentrated in the manufacturing sector of the economy, the sector that has been undermined the most by competition from foreign countries.

These older workers are closer to retirement and therefore may be reluctant or unable to invest the time required to acquire the new skill sets needed for the industries that remain in the U.S., such as high technology, finance, and health care.

Occupational mobility often requires physical mobility: the ability to relocate to find work. Physical mobility also can allow workers to find new jobs in the same occupation as the job that was eliminated. But older workers are the least likely to move, both locally and over long distances. One important reason for this is that older workers are more likely to be homeowners and therefore may be tied down by the slow-moving real estate market we have been experiencing for several years now. Many are stuck with a mortgage that exceeds the market value of their house. And although older workers tend to have better-developed networks than younger workers, useful for finding work, the networks usually are anchored in the workers’ local community. If the community has few jobs, the network is of little help, but the displaced worker is reluctant to attempt to find a job in another location where he or she has no network in place.

The congressional report outlines the problem well but gives short shrift to solutions. I would suggest the following:
  • Education has to be made more affordable, especially at community colleges. During the Cold War, aid to education was considered a matter of national defense. That has not really changed.
  • We need to invest more in our infrastructure, which supports manufacturing (and, for that matter, all aspects of the economy)
  • We need to run our manufacturing sector more on the German model, as I wrote in a blog a few weeks ago.
  • We need to require that banks renegotiate mortgages for properties that are underwater. Most of these homeowners did not take on mortgages larger than they could afford but rather are victims of a general decline in real estate values. If homeowners can pay off their mortgages, they can relocate to where the jobs are.
Will Congress move on any of these measures? That seems unlikely, but it’s worth remembering that older workers are also the most likely voters.

Wednesday, October 12, 2011

Steve Jobs and American Jobs (part II)

Last week I used the iPod as an example of how innovation creates jobs, some of them offshore, but many of them--especially those that pay well--here in the United States. Steve Jobs, who died last week, was one of America’s greatest innovators, and we may well wonder where the next innovator of his caliber will come from. But another question is how and where that person’s skills for innovation will be refined and implemented.

We hear a lot of talk these days that the key to job creation is getting out of the way of the private sector. Tax it less, regulate it less, and it will nourish innovation and create the jobs that our economy so desperately needs right now. Let the marketplace discover and reward breakthrough technologies.

But there’s also a case to be made for the role of the public sector, especially at a time when the private sector is unwilling to invest in jobs and in basic research. I was impressed by the video of Senate candidate Elizabeth Warren that recently went viral, in which she says, “There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you, but I want to be clear: You moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.” It’s useful to remember that Steve Jobs was the product of a public school education.

Political demonstrators who invoke an earlier era by wearing three-cornered hats seem to forget that this country has a long legacy of innovation that was fostered by the public sector. Samuel Morse developed the electric telegraph in response to a prize that Congress offered for a better form of long-distance communication than the semaphore signals that were in use at that time. His first demonstration of long-distance telegraph transmission, from Baltimore to Washington, was financed by a federal grant.

At last night’s Republican debate, one of the questioners asked, “From the Erie Canal to the Internet, . . . innovation is what’s always fueled economic recovery.  So shouldn’t the focus now be on trying to create the innovative jobs of tomorrow?” None of the candidates present commented that the Erie Canal, which transformed New York City into the paramount port on the East Coast, was financed entirely by the public sector. So was the development of the Internet, by what’s now the Defense Advanced Research Projects Agency.

The integrated circuit, which made all of Steve Jobs’s products possible, was invented by Jack Kilby, also the product of a public school education. He was working at Texas Instruments, a private-sector company, but TI morphed from a company that served the oil industry to an electronics powerhouse because of contracts from the Signal Corps and the Navy. Development of the computer chip got a massive boost from the space program.

In fact, the Cold War and the space race that grew out of it were responsible for a wide range of innovations that continue to shape our economy. This push also resulted in federally funded improvements to the infrastructure, notably the interstate highway system (which is officially called the Dwight D. Eisenhower National System of Interstate and Defense Highways), along which Steve Jobs’s products were shipped to your door. This effort also expanded federal funding of education through the National Defense Education Act. The accelerated academic program that I was enrolled in while in (public) junior high school was initiated in direct response to Sputnik. And the fathers of many of my classmates had gone to college on the GI Bill and were working at a federally funded New Jersey laboratory that supported the work of the Signal Corps.

The recent collapse of the Solyndra company, recipient of a half-billion-dollar federal loan guarantee, has been used by some as evidence that government support of innovation is misguided at best and corrupt at worst. But when private-sector investment is focused on complex derivatives and arbitrage rather than on basic research and infrastructure, the government becomes the innovation investor of last resort. The money that the treasury lost on Solyndra is miniscule compared to the funds that the private sector lost investing in subprime mortgages.

It will never be cheaper to borrow money than now. We can find workers more easily and hire them for less money than in normal times. What are we waiting for?

Friday, October 7, 2011

Steve Jobs and American Jobs

As the nation mourns the death of Steve Jobs, it’s interesting to look at the role that his company plays in job creation, because Apple is one of the highest-achieving firms in one of the outstanding American industries: high tech. I came upon a fascinating analysis of the employment impact of just one Apple product, a device that Steve Jobs essentially invented: the iPod. An article in the Journal of International Commerce and Economics (PDF) looks at how many jobs were directly created by the iPod.

It’s well known that the device is assembled offshore, mostly of foreign-made components, and the authors of the study estimate that the number of foreign jobs in the iPod value chain outnumbered domestic jobs in 2006 by 27,000 to 14,000. In fact, they estimate that only 30 production jobs and a similar number of professional jobs are created by the manufacture of a few iPod chips here in the U.S. However, in 2006 the iPod also accounted for “7,789 nonprofessional jobs (primarily in retail and distribution) and 6,101 professional jobs (primarily at Apple’s headquarters), including management, engineering, computer support, and a variety of other categories.”

More important, in their analysis of the earnings of the 41,000 iPod workers, the authors estimate that here the balance tilts decidedly toward the United States, where the workers earned nearly $750 million in 2006, compared to only about $320 million earned by the foreign workers. “Over two-thirds ($525 million) of the earnings in the United States went to professional workers, and an additional $220 million to nonprofessional workers. While most of the nonprofessional jobs were relatively low-paying retail positions, we estimated that nearly $50 million went to administrative jobs at Apple for which we used the national average wage of $38,000 a year; actual Silicon Valley wages were probably even higher.”

In drawing conclusions, they hold up the iPod as an example of the opportunities and risks that globalization has created. “Apple’s tremendous success with the iPod and other innovative products in recent years has driven growth in U.S. employment, even though these products are made offshore. These jobs pay well and employ people with college degrees. They are at the high end of what might be considered middle-class jobs and appear to be less at risk of vanishing from the United States than production jobs.”

However, these high-value jobs require that future workers coming out of U.S. schools get a really good education. In addition, there is the risk that creative jobs, such as engineers and designers, will be taken by overseas workers as foreign governments and even American companies invest offshore in education and in cultivating creative industries.

The authors of this study don’t address the question of how many jobs the iPod indirectly created--or destroyed. The invention of the iPod set off a revolution in the way music is distributed. As people shifted to buying music on the Web in the form of MP3s, many record stores had to close, and as pirated MP3s circulated widely, record companies suffered declining sales even as the amount of music being consumed probably continued to rise. Although the shift to MP3s probably caused a net loss of jobs, the iPod also sparked the invention of the podcast, which created many jobs, not only for podcasters themselves, but also for the sound engineers who are involved in production of the glossier podcasts. Radio broadcasting has been consolidating into a few megacorporations, such as Clear Channel, but podcasting has helped keep many local sound-production businesses afloat.

Of course, the iPod is only one Apple product that sprang from the fertile imagination of Steve Jobs. The iPhone created a whole new platform for which creative programmers could devise new applications. Many of Steve Jobs’s other inventions will continue to create employment for American and foreign workers who are still to be born.