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.

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?

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.

Use Common Sense with Assessments

I worked for 19 years at the nation’s premier testing company, and one thing I learned was not to be dogmatic about assessments. Even the makers of the mighty SAT exam freely admit that their scores do not predict college achievement as well as high school grades do. The SAT scores still have value, however, because when combined with high school grades, they give a better prediction than the grades could alone.

Something similar can be said about assessments that are designed to help you with career choice: Alone, they probably are not the best way to identify a promising career. But combined with other sources of information, they can be very helpful.

Incautious assessment users sometimes forget that psychological instruments are not as precise as a yardstick. Every assessment has a certain margin of error, meaning that although its scores put you into category x, there is a chance that you really belong in the neighboring category y. In baseball games, it’s usually pretty obvious whether a ball has landed in fair or foul territory. But imagine what accuracy would be possible if the ball were ten times as big as a beach ball and even more squishy: Even the instant replay would not resolve a borderline hit.

In baseball, it’s also helpful that the foul lines are at the edges of the area that the batter is aiming for. Now imagine what the game would be like if a line ran right down the middle of the field, and the score of the game depended on which side of the line the enormous beach ball fell on. For good measure, imagine that both right-handed and left-handed batters tended to hit the ball towards the middle. Now you have an idea why I’m reluctant to use the Myers-Briggs assessment. It attempts to place you on one side or the other of a bipolar range (e.g., introvert or extravert), although the normal distribution that is so typical of psychological characteristics clusters most people near the middle. There’s a very high likelihood that your actual location on this continuum is close enough to the middle that the inevitably imprecise measurement of the instrument will assign you to the wrong side of the middle.

Although I prefer to use assessments based on the Holland types, I have to caution that they also are unable to achieve a pinpoint focus. For the Holland types, let me change the metaphor from baseball to hopscotch, where a lot depends on which square your marker lands in. On the playgrounds where I grew up, the squares tended to be at least 10 inches across, but imagine how the game would be if they were only 3 inches across and your marker were a beanbag the size of a dinner plate. Fortunately, the Holland rationale is conceptually more forgiving of ambiguity than is the Myers-Briggs rationale, because it is not bipolar and accepts the notion that bordering types (for example, Realistic and Investigative) share some characteristics. If I can’t tell for certain whether my beanbag fell in the Realistic of Investigative square, I probably would not err greatly by favoring occupations coded RI, IR, or even just R or I.

But the really big mistake would be to rely solely on the assessment, whatever its rationale. Here are some other indicators of your interests and preferences that you should consider:

• In what school subjects did I get the most enjoyment and the best grades?
• What activities am I reluctant to drop at dinnertime?
• What are my favorite sections of the newspaper or of news websites?
• At a party, what kind of people would I be able to sustain a conversation with?
• If you could meet the world’s greatest ____________ and get that person to share his or her secrets of success, what field would that person’s achievement be in? (Romance doesn’t count.)

Still another indicator is the opinion of a family member or of a friend who knows you very well. Explain the concepts that the assessment is designed to measure and ask this person which characteristics describe you best.

Making decisions is hard. People naturally tend to seek the quickest and easiest way to decide between x and y. This is one reason why people often perceive an assessment as the beginning and ending of the decision-making process. Instead, use an assessment as the start of a gradual process of self-discovery.

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.

Teach in a Department of Defense School

In my new book, 150 Best Federal Jobs, I focus mostly on jobs in the 50 states. I did this so that I could combine data from the Office of Personnel Management--which covers all federal employees, foreign and domestic--with data from the Bureau of Labor Statistics--which covers only employment on these shores.

However, I knew there would be interest in overseas federal jobs, so I included an appendix about two important offshore federal employers: Department of Defense schools and the United States Peace Corps. It’s the former that I want to discuss in this week’s blog, partly because a lot of American teachers have lost their jobs recently and may be looking for opportunities elsewhere.

The federal job with the largest civilian foreign workforce is teachers, covering some 8,000 workers in September 2010. Most of these workers (and a few thousand in other occupations) are employed by the Department of Defense in schools that DoD operates overseas for minor dependents of active-duty military and civilian personnel. The schools enroll students from kindergarten through grade 12 and are modeled on American public schools.

Some of these workers are spouses of military or civilian DoD employees stationed overseas; typically they begin in time-limited appointments and may be able to move to a permanent position with experience and appropriate teaching licensure. Others have no marital connection to a DoD employee and apply from the United States.

To qualify for one of these positions, you need a teaching license from one of the 50 states. The DoD certifies you in a field and level that match the certification in your original state as closely as possible. You usually need to sign a mobility agreement that says you are willing to work wherever the DoD needs you. To apply for a teaching position that starts with the following school year, you generally begin the process between September and January 15.

If you are an education major at a college that has an agreement with the Department of Defense Dependents Schools (DoDDS), you may be able to do your student teaching as a federal employee. Some students majoring in school psychology, counseling, nursing, library media, vocational education, or school administration are also eligible for student teaching for DoDDS. Ask your academic advisor about such opportunities. If you apply for spring placement, the deadline is October 31st; for fall placement, April 30th.

For further information about opportunities at DoD Dependents’ Schools, visit the DoDEA Recruitment website or phone DoDEA’s Recruitment Center at (703) 588-3983.

Does the U.S. Face a Skills Shortage?

One subject currently being disputed by economists and educational planners is whether or not the American workforce will possess the skills required for the economy of the future. I’ve been particularly interested in the subject of skills, having recently finished the manuscript for the second edition of 150 Best Jobs for Your Skills, so I have been intrigued to find so much disagreement on this question of America’s future skills readiness.

One of the leading pessimistic analyses can be found in Help Wanted: Projections of Jobs and Education Requirements Through 2018, by Anthony Carnevale (a former colleague of mine at Educational Testing Service) and others at Georgetown University. These researchers predict that “by 2018, we will need 22 million new workers with college degrees--but will fall short of that number by at least 3 million postsecondary degrees.”

In a critique of this analysis, Paul Harrington (a fellow JIST author) and Andrew M. Sum argue that this predicted skills shortage is illusory. They point out that the Georgetown researchers predict the need for college-educated workers by looking at the number of college graduates in each occupation, with the assumption that these college grads in the workforce will need to be replaced by a new cohort of college grads as the occupations expand or lose workers through turnover. Harrington and Sum prefer to look at the actual skill requirements of each occupation. They maintain that college-educated bartenders and other misplaced college graduates in low-skill occupations will not need to be replaced by similarly high-skilled workers because the nature of the occupation does not require college-level skills.

But perhaps it’s a mistake to focus only on the requirements of occupations; another factor is the rewards of occupations. Additional education produces additional pay, on average, even in low-skill occupations. For example, a bartender does not need a college degree, but survey data shows that a bartender who holds such a degree earns more. As a result, college grads will continue to be diverted from high-skill occupations as effectively as if they will actually be needed in low-skill occupations, creating the potential for skill shortages in high-skill occupations. Such is the argument in still another analysis, by three California economists, David Neumark, Hans Johnson, and Marisol Cuellar Mejia.

However, these three economists do not expect actual skill shortages in the high-skill occupations within the 2018 horizon of the current Bureau of Labor Statistics projections. Compared to the Georgetown team, they count far fewer college grads in the workforce. The California economists base their projections on data from the American Community Survey (ACS), whereas the Georgetown researchers base theirs on the Current Population Survey (CPS). As the California team point out, the CPS overstates the number of people who hold associate degrees by including everyone who gets any kind of postsecondary training short of a bachelor’s. The Georgetown researchers also base their estimates of the mix of college grads in various occupations by looking at figures from 2000 to 2008; the Californians observe that the educational mix of workers in 2008 was anomalous (because of the onset of the recession?) and use the period from 2000 to 2007 instead.

The California researchers are less sanguine about trends beyond 2018, however. By 2030, all the baby boomers will have passed 65. They predict that if high-skill occupational growth and the college graduation rate continue along their current lines, we will face a shortage of appropriately skilled workers.