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Another Grim Report on the Jobs Front

Wednesday, 19 April 2006 12:00 AM

Is your job safe? Not if it can be done abroad. The only safe jobs are in domestic services that require a "hands-on" presence, such as barbers, hospital orderlies and waitresses.

For a number of years, the Bureau of Labor Statistics' monthly payroll jobs reports have been sending U.S. policymakers dire warnings, only to be ignored. The March report repeats the message. Ninety-five percent of the new jobs created are in domestic services. The U.S. economy no longer creates jobs in export or export-competitive sectors.

Wholesale and retail trade, waitresses and bartenders account for 46 percent of the new jobs. Education and health services, administrative and waste services, and financial activities account for another 46 percent.

This has been the profile of U.S. employment growth for a number of years, along with some construction jobs filled by legal and illegal immigrants. It is the job profile of a Third World economy.

From January 2001 to January 2006, the U.S. economy lost 2.9 million manufacturing jobs. The promised replacement jobs - "new economy" high-tech knowledge jobs - have failed to materialize.

High-tech knowledge jobs are also being outsourced abroad. According to the Bureau of Labor Statistics, U.S. employment of engineers and architects declined by 189,940 between November 2000 and November 2004 (latest data available). Economist Alan Blinder estimates that as many as 56 million American jobs are susceptible to offshore outsourcing. That would be about half of the U.S. workforce.

Offshoring has contributed to the explosion of the U.S. trade/current account deficit over the past decade to $800 billion annually and rising. The United States has a trade deficit in manufactured products, including advanced technology products, of more than a half trillion dollars annually, a sum far larger than the oil import bill.

To cover the trade deficit, the United States has to turn over to foreigners ownership of its accumulated wealth. This worsens the current account deficit, as the income streams on the U.S.-based assets now accrue to foreigners.

Many economists pretend that the whopping U.S. trade/current account deficit is evidence that the rest of the world has great confidence in America. They pretend that it is foreign investment in the United States that causes the trade deficit, whereas the simple fact is that it is the U.S. trade deficit that gives foreigners the dollars with which to purchase our existing assets.

Traditionally, a trade deficit might indicate that a country's industries were not competitive against imports from abroad, resulting in a decline in the exchange value of the country's currency. This would make foreign goods more expensive for that country and its goods cheaper for foreigners, thus restoring a balance.

This does not work for the United States for three reasons:

How can the United States reduce its trade deficit when it deprives itself of exports and fills itself with imports by offshoring its production of goods and services, and when the devaluation of the dollar is limited by the dollar's reserve role and by other countries pegging their currency to the dollar or by intervening to support the dollar? Obviously, when balance returns to U.S. trade, it will not come through traditional means.

One way balance can return is by the United States oversupplying the world with dollars to the point at which the dollar is abandoned as the reserve currency.

Another way is through the limit placed on Americans' ability to consume that results from replacing manufacturing and engineering jobs with waitress, bartender and hospital orderly jobs. A country that loses high value-added jobs and gains low value-added jobs is in danger of losing its prosperity. Offshoring raises corporate profits in the short-run at the expense of destroying the domestic consumer market in the long-run.

Most economists are confused about offshoring. They mistakenly think offshoring is an example of free trade bringing mutual benefit through the principle of comparative advantage. It is not. Offshoring is an example of companies obtaining absolute advantage by combining high-tech capital with low-cost labor. The gains from absolute advantage are asymmetrical or one-sided. The cheap-labor country gains, and the expensive-labor country loses.

As Morgan Stanley economist Stephen Roach pointed out on April 7, "average hourly compensation of Chinese manufacturing workers is only 3-4 percent of levels in the United States, 10 percent of the pay rate of Asia's newly industrialized economies, and 25 percent of levels in Mexico and Brazil." Roach also notes that with a rural population of 745 million (about two-and-a-half times the total U.S. population) and headcount reductions of more than 60 million workers from state-owned enterprises, China will not experience a labor shortage anytime soon.

This means that it will be a long time before Chinese wages rise enough to offset the benefits of offshoring. The same can be said about India. Consequently, a large percentage of U.S. jobs is vulnerable to being moved abroad.

COPYRIGHT 2006 CREATORS SYNDICATE INC.

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Is your job safe? Not if it can be done abroad. The only safe jobs are in domestic services that require a "hands-on" presence, such as barbers, hospital orderlies and waitresses. For a number of years, the Bureau of Labor Statistics' monthly payroll jobs...
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Wednesday, 19 April 2006 12:00 AM
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