Will the Job Outlook be Great Again? (Part 1)

As a new presidential administration approaches, you may be wondering about the impact that the change in leadership will have on job prospects in the United States. I don’t claim to have a crystal ball, but I believe I can glean useful insights from what economists are saying and from past employment trends. And, in fact, I have a record of forecasting trends brought in by a previous sea change.

Eight years ago, when a major recession was looming and I was working for JIST Publishing, my editor—Susan Pines—assigned me to write a book that eventually was called 150 Best Recession-Proof Jobs. The book came out just as the full force of the Great Recession came crashing down on the U.S. economy. Thanks to this good timing, the book was so newsworthy that I was being interviewed on television approximately once a week for a month and more. (A lot of credit goes to JIST’s crackerjack publicist at the time, Selena Dehne.)

I selected the occupations that I featured as “recession-proof” by mathematically comparing the past ups and downs in the gross domestic product with the ups and downs in the workforce size of each occupation. Thus I was able to identify occupations that were least impacted by past downturns. The main limitation of this approach is that each recession is different from previous recessions. For example, the Great Recession was caused by a sudden drop in the value of real estate after a long bubble of overbuilding, so certain industries related to real estate—especially construction—suffered more than they did in previous downturns. Nevertheless, over the following several years my predictions were more often confirmed than disconfirmed.

The pending change in administrations presents a similar problem for those who would forecast employment trends. It might seem sensible to look at the employment effects of past transitions when a Democrat was succeeded by a Republican. However, each such transition, like each recession, is different in many ways. The year 2017 can’t be expected to repeat 2001 precisely. For example, while the last part of Barack Obama’s administration has seen a long streak of growth, it is not comparable to the technology bubble that ended Bill Clinton’s second term. And Donald J. Trump is not as conventional a Republican as George W. Bush.

In fact, it’s difficult to tell what kind of Republican—indeed, what kind of politician—Trump is. His policy pronouncements tend to lack specifics and frequently change depending on his audience. Some of the policy goals he has stated at various times run counter to the stated goals of Congressional leaders of his own party, raising the question of who will prevail if he tries to bend Congress to his will.

Because of these uncertainties, I am basing my forecasts on Trump’s general goals, plus an analysis of possible policies that he might or might not employ in pursuit of these goals. And I am organizing my forecasts by industries. In this blog, Part 1, I discuss only manufacturing.

Manufacturing Jobs. One of Trump’s most consistent messages has been his desire to bring manufacturing jobs back to the United States. What’s often overlooked in his rhetoric is that manufacturing output in the United States is now at nearly an all-time high. The kind of manufacturing that is now done here uses highly automated processes and employs a comparatively small workforce of highly skilled technicians. (Since recovering from the Great Recession by 2015, the number of employees has leveled off at about 12.3 million.) Most low-skill manufacturing tasks are performed either here by robots or overseas by low-paid workers, such as the ones who are making the garments branded with Trump’s name and his daughter’s.

That leaves the next president with these policy choices:

·         He might impose high tariffs that make it uneconomical for offshore manufacturers (whether American-owned or otherwise) to export to the U.S.  market—a policy that Trump has explicitly endorsed at times. But the policy could backfire. To the extent that imposing or raising tariffs is feasible under existing trade agreements, it would encourage other nations to retaliate with their own tariffs, reducing exports of our own manufactured goods and increasing the costs of the supply chain—imported parts and raw materials that U.S. manufacturers use. Also, once American manufacturers are protected from foreign competition and start hiring low-skill American workers, they will not be able to pay the rock-bottom wages that third-world workers earn. So, although many jobs will open in manufacturing, consumers will find American-made manufactured goods costing a lot more than the cheap foreign-made goods that now fill the shelves at Walmart. In summary, this policy would hurt high-skill manufacturing workers and create an economy where the low-skill manufacturing workers might have no more purchasing power than is now possible from work in service industries. And, finally, almost all Republican lawmakers, as well as many Democrats, are committed to tariff-free trade (although Republican voters have become more hostile to it), so this policy stands little chance of getting through Congress.

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·         He might mandate that American-made products and components be used when federal funds are expended. He hinted at this policy at the third presidential debate with Hillary Clinton when he said that he had used Chinese steel in one of his building projects because Congress had done nothing to stop him. It seems unlikely, however, that Congress would go along with this policy. Congressional leadership has not changed since House Republicans defeated an amendment to impose just such a mandate on infrastructure projects for the nation’s waterways.

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·         He might offer tax breaks to American manufacturers so that their operations here are more profitable. Trump actually tried this approach in October when he persuaded Indiana to give tax breaks to the Carrier division of United Technologies as a way of preventing jobs from being shifted to Mexico. However, Carrier has indicated that it intends to use the resulting savings to increase the company’s use of automation—thus subsequently cutting more low-skill manufacturing jobs. Cutting labor costs produces savings that are more dependable than easily-reversible tax breaks. So tax cuts seem unlikely to be an effective solution.

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·         He might reduce federal regulations on manufacturers that add to the costs of doing business in the United States. (I am not saying I favor this policy, but it is one that is sometimes proposed.) For example, it has been argued that the main reason Carrier wanted to relocate jobs to Mexico was regulations, not wages, and Trump is in agreement with Republican leadership in Congress on the need to reduce regulations on industry. It is not clear that Trump can get enough cooperation from Congress to make sufficient reductions in regulations to bring a true renaissance of manufacturing. And for some regulations (e.g., on the formaldehyde levels in plywood), the way to reduce competition by offshore manufacturers is to apply the same regulations to imports that are imposed on goods manufactured here, rather than rolling back regulations.

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·         He might accept the reality that low-skill manufacturing jobs are gone for good and instead focus on preparing (or retraining) workers for high-skill jobs in the industry. One way to accomplish this is to make community college as free of charge as high school. This is what President Obama proposed and that became the America’s College Promise Act of 2015, but Congress sent the bill to die in committee. I have been unable to find any statement from Trump himself about this proposal, but Trump’s campaign co-chair Sam Clovis, in an article in Inside Higher Education, stated that the campaign rejected the call for free community college.

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·         A related policy to encourage manufacturing would be to find a way to increase the number of manufacturing engineers working here. According to Walter Isaacson’s biography of Steve Jobs, the Apple  CEO once told President Obama that Apple’s suppliers in China are able to employ 700,000 factory workers because they have ”30,000 engineers on-site to support those workers. ‘You can’t find that many in America to hire.’” The skill level that Jobs was referring to seems to have been closer to engineering technicians than to what we normally think of as engineers. So, again, increased funding of community colleges and technology schools would be a way to achieve this goal, but that was not a priority of the Trump campaign. Alternatively (or additionally), a reformed immigration system might welcome engineers and engineering technicians trained abroad or coming from abroad for training here. Trump has both welcomed and rejected immigration of high-skill workers at various times. Congressional leadership has generally favored it despite the reluctance of many Republicans and therefore has sometimes had to find underhanded ways to encourage it. Therefore, it is difficult to predict whether or not this policy will be pursued in the coming administration.

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·         Yet another way to create a high-skilled manufacturing workforce is to encourage unions to partner with manufacturers on forming apprenticeship programs. Although Trump starred in a TV series called “The Apprentice,” I have not been able to find any statements from his campaign about his attitude toward actual apprenticeships, with the meaningless exception of a tweet he issued in October: “Did Hillary just say she wants more Apprenticeships? I created The Apprentice!” Judging by Trump’s past record as an employer, his attacks on an Indiana union leader, and his appointment of a foe of unions for Labor Secretary, he seems no friend of unions, and Congress certainly has not encouraged them, so this last outcome seems unlikely.

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In conclusion, then, I do not expect the Trump administration to deliver on its promise of a renaissance in low-skill manufacturing jobs. I expect employment in these jobs to remain at its current low level—or worsen if there is an economic downturn.

The Divisive Election Reflects a Divided Economy

Last Sunday’s New York Times Magazine carried a story about how the Amtrak ride from New York City to Washington offers a microcosm of the new American economy: at either end of the trip, prosperous cities fueled by government and finance, and in between, struggling cities plagued by high unemployment. This portrait represents the challenge that confronts the second term of the Obama Administration.

The article correctly points out that the nostalgia for good-paying manufacturing jobs, expressed so often in campaign speeches during the previous months, overlooks the reality that “the dollar value of goods made in America is at an all-time high of $1.9 trillion, just about even with China. The catch is that the number of American workers needed to create all that value has dropped steadily. In the mid-1940s, more than half of the New Jersey work force was in factories; today around 7 percent [are].” Modern manufacturing facilities employ “a handful of highly trained workers guiding machines that return huge value to shareholders while all the time finding ways to produce more goods with fewer workers.”

The writer, Adam Davidson, notes that the train ride also offers views of shiny office buildings housing “law firms and engineering companies and I.T. firms.” He is mistaken when he identifies the workers in these buildings as having “nothing to do with manufacturing.” That is true for many of these office workers, certainly, but the nation’s high-dollar-value manufacturing industry depends on engineers and I.T. workers who apply new technologies, as well as lawyers who work out contracts and fight patent infringements, to keep their companies competitive.

It’s highly significant that General Motors has done a U-turn on its previous trend of outsourcing information technology jobs, according to an article in MIT’s Technology Review. When GM’s current chief information officer came on board in February, 90 percent of the company’s I.T. work was being done outside of GM. Now GM plans to open four software innovation centers around the United States and may hire as many as 10,000 workers to staff them. This shift recognizes the fact that as manufacturing—from the design process to the assembly floor—has become thoroughly computerized and automated, and as the automobiles themselves have integrated many computerized components, it is expertise in I.T. that gives American carmakers the competitive advantage over foreign firms.

Where Davidson is very much on point is his observation that these white-collar service jobs are not as easily obtained as the manufacturing jobs of the old economy: “For people with advanced training, the service sector means an above-average wage, a below-average risk of unemployment and days sitting at a desk. For those with only a high-school [diploma] or no degree at all, far fewer jobs are available, and the ones that are pay poorly and disappear quickly.”

During the presidential campaign that just ended, you probably heard a lot about policy differences between the two major parties. Many of these policies had implications for the new economy outlined in this article: for education that will equip workers with advanced skills, for innovations in technology that will keep us competitive, for health care that will keep us productive at costs that are not crippling, and for infrastructure that will allow industries to function efficiently. We voters have now chosen government leadership that is highly divided on which policies will achieve these ends. Let’s hope that our leaders can move past the gridlock of the past several years and find ways to keep our industries strong without leaving behind a large segment of the population.

Two Models for Manufacturing Jobs: Walmart versus Boutique

It’s time to discard the widespread belief that manufacturing in the United States is dead. Although we are not the world’s biggest manufacturer, now that China has taken the lead, second place is not a bad position to be in. And we are already putting the brakes on our downward slide. One factor that’s slowing the offshoring trend is the movement of American manufacturers away from the Walmart model and toward the boutique model.

By the Walmart model, I mean large-scale production of mass-market goods. In this model, marketers and engineers design a product that can be manufactured at low cost in the large volumes that can be sustained by a mass market for a long time. For such a product, it doesn’t matter that the production workers have low skills or that shipping the product around the globe takes a long time. Although the large scale of production creates the danger of inventory buildup, the long product lifespan offers opportunities for the distributor to study and anticipate buying patterns and thus fine-tune the logistics.

But the Walmart model is not the only sustainable form of manufacturing. According to an article on the Forbes website, American manufacturers are learning that they can compete by adopting a boutique model. The author, Mitch Free, surveyed a large number of American manufacturers and found that 40% of them have accomplished some “reshoring” this year. One reason is uncertainty about the economy, which makes the businesses willing to trade the risks of large-scale production for the flexibility and lower risk of smaller-scale projects.

Another factor is the role of computer technology in manufacturing:

Computer Aided Design (CAD) software, Computer Numerically Controlled (CNC) machine tools, and Internet-based manufacturing networks have made producing complex parts and tooling akin to printing documents on network printers. This digitalization allows for distributed manufacturing such that companies can easily produce closer to their customers wherever in the world they may be versus in a single factory. By producing closer to their customers, companies save on logistics, take advantage of local economies, tweak products to local market preferences, build goodwill in the local market, and mitigate the risk of a single production factory.

The Walmart model is aided by a long product lifespan, but the trend is toward ever-faster obsolescence of products, which in turn requires ever-faster innovation and time to market. In this race, it helps to locate production near a company’s engineering and marketing teams, enabling close collaboration that produces quick results. This arrangement also facilitates customization of products. As the writer observes,

Starbucks is a great example of us paying a premium for customization; we could buy a coffee at the convenience store for $1 but we go to Starbucks and pay $4 for a customized coffee. This same behavior is permeating the product sector, and companies are quickly learning that there are fat margins in allowing customers to tailor some aspect of their product to specific tastes.

Some other, less significant factors that the survey found were the weakening of the U.S. dollar, rising transportation costs, and rising wages in traditionally low-wage countries. With regard to this last factor, the writer notes that there will always be emerging countries offering low-wage workers to turn out commoditized products that earn thin profit margins.

It’s important to understand that the boutique model of manufacturing depends on a highly skilled labor force. For American workers to take advantage of this trend, they will need the technical skills to use and maintain the computer-aided machinery, which in turn means a good education in STEM (science, technology, engineering, math). But even more fundamentally, they will need good learning skills to be able to adapt to constant change, plus good communication and people skills to be able to work collaboratively.

The emergence of this highly skilled workforce depends partly on the nation’s schools. And it also depends on an evolution in thinking about career goals, so that young people recognize that the new manufacturing jobs can offer a lifetime of highly rewarding work. The schools can contribute to this change in perception, but the larger culture also has to adapt and grant greater prestige to boutique-model, high-tech manufacturing jobs.

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.

Manufacturing and the German Model

I’m writing this blog two days after Labor Day and one day before President Obama’s job-focused speech to a joint session of Congress, so I’m thinking a lot about the problem of high unemployment and underemployment. But the job-related story that caught my eye in today’s paper was the obituary of someone you’ve probably never heard of: Keith Tantlinger.

Tantlinger, who died on August 27 at age 92, was the engineer who designed the modern shipping container in the 1950s. His crucial innovation was a locking mechanism on the corners of the containers that allowed them to be stacked on ships, trains, and trucks. He also designed the corners to be easily grasped by cranes. I once watched a ship being loaded in the port of Hamilton, Bermuda, and marveled at the way the containers were being piled high on the deck rather than just being lowered into the hold, as I thought cargo was supposed to be stowed.

So what did this innovation have to do with jobs? It drastically reduced the costs of shipping goods by simplifying the process of transferring the goods from one carrier to another. Specifically, it reduced the costs of labor, damage, and pilferage. Cheaper shipping made it possible for us to stock our WalMarts with Chinese-manufactured goods and thus was one of the key factors causing the loss of manufacturing jobs in the United States. In 1969, about one-quarter of U.S. jobs were in manufacturing, but that number is now down at around 9 percent. It contributes to about 11 percent of our economy now.

But it’s important to understand that manufacturing doesn’t have to be a dead industry in the United States. In Germany, it accounts for about 25 percent of the economy and helps Germany’s keep trade balance second only to China’s. What can explain the difference?

One factor is the German emphasis on vocational education, including widespread apprenticeship, even for white-collar jobs.

Another is Kurzarbeit, which allows companies to cut workers’ hours while keeping them on the payroll, with the government making up a portion of the lost wages. Companies thus don’t lose their skilled workers during temporary downturns, and employees don’t lose good work habits and their relationships with bosses and coworkers.

Still another factor is the German banking system, which includes Sparkasse banks owned by local governments rather than private investors and functioning like savings and loans to provide funding for local businesses and homeowners. Their high collateral requirements (at least 20 percent for a mortgage) prevented these banks from engaging in the risky home loans that American lending institutions still have not recovered from.

Perhaps most intriguing of all is the role of workers in the management of German companies. This takes three forms. First, unionization is high, at about 20 percent, compared to our rate of less than 7 percent. Labor unions in Germany tend to influence policy at the industrywide level. At individual worksites, workers influence decisions about wages, hiring, and work conditions through “works councils,” which consist of employees (not necessarily union members) elected for four-year terms. Finally, under the policy of codetermination (Mitbestimmungs), corporate boards are required to include representatives of workers as well as representatives of shareholders. At corporations with 500 to 2000 employees, one-third of the board represents the workers; at larger companies, it’s half of the board.

Although low-skill American manufacturing jobs continue to be lost to overseas workers, advanced manufacturing processes are creating high-skill jobs. I detail some of these jobs in 200 Best Jobs for Renewing America. But manufacturing could regain even more of its lost role in our economy if we borrowed some ideas from the German model.

Innovation and Job Opportunity in Manufacturing

One of the central points in my new book, 2011 Career Plan: The Best Moves Now for a Solid Future, is that it’s important to upgrade your skills if you want to compete in the economy of 2011. The book has many specific suggestions for how to do this. But maybe you’re wondering why a high level of skill is so important.

It’s because of the current nature of our economy. The days are long past when an American kid fresh off the farm would be put in front of a machine that stamps out auto parts (or something comparable), could learn how to use that machine in a few minutes or hours, and would take home a comfortable paycheck at the end of the week. Those hayseeds-turned-factory-workers are now working in China and other low-wage countries.

But does that mean manufacturing in America is dead? Not at all. Manufacturing was actually one of the first industries to bounce back from the depths of the recession. It has seen its growth slowing in recent months, but no more so than almost all other industries. This week, Ford Motor Company reported that it just had its most profitable quarter ever, netting $1.69 billion and paying down it debt faster than planned.

Innovation is what has kept American manufacturing successful and will allow manufacturing to continue to provide jobs. It’s particularly striking to see how manufacturing compares to other industries in a study (PDF) by the National Science Foundation that looks at innovative products and processes. NSF surveyed 1.5 million for-profit companies and asked them about their practices for the years 2006–08.

The study found that “22% of the manufacturing companies introduced product innovations (one or more new or significantly improved good or service) and about 22% introduced process innovations (one or more new or significantly improved method for manufacturing or production; logistics, delivery, or distribution; support activities).” Compare this to the mere 8% that is reported for both kinds of innovation in the nomanufacturing industries.

I’m particularly interested to note that the 22% figure applies to both kinds of innovation. It indicates that the high level of innovation is motivated by more than just the need to compete with low-wage overseas workers. If wage competition were the only issue, American manufacturers would simply be upgrading their processes--for example, using more robots or economies of scale. But American manufacturers are being equally innovative in the products they offer. New products open new markets and draw new purchases from existing markets.

What does this mean for job opportunities? If all the innovation were happening only in manufacturing processes, most of the resulting jobs would be for engineers and engineering technicians. But new product development (NPD) is a multidisciplinary field that also involves marketing managers, technical writers, artists, commercial designers, logistics specialists, cost estimators, and perhaps even anthropologists. (Not long ago I did a presentation for an NPD team, and the most effective presenter that day was an anthropologist.) NPD work is highly collaborative, so it requires excellent people skills and communication skills. It also requires a high level of creativity.

So America’s most innovative industry sector is going to need a wide variety of highly skilled workers. This drives home the most important point in 2011 Career Plan, that today’s economy requires you to hone your skills.