| April
18 , 2006
Another Grim Jobs Report
How Safe is Your
Job?
By PAUL CRAIG ROBERTS
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 US 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 US
economy no longer creates jobs in export or export-competitive sectors.
Wholesale
and retail trade, waitresses and bartenders account for 46% of the
new jobs. Education and health services, administrative and waste
services, and financial activities account for another 46%. (Wholesale
and retail trade jobs for March were 40,000. These jobs would be
sales clerks ringing up sales on registers, people stocking the
aisles at Wal-Mart, Home Depot, etc.
Leisure
and hospitality (primarily waitresses and bartenders) accounted
for 42,000 March jobs.) In contrast, computer system services accounted
for 3,600 jobs.
The
biggest item (half) in education and health services is "ambulatory
health care services."
This
has been the profile of US 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 US 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, US 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 US work force.
Offshoring
has contributed to the explosion of the US trade/current account
deficit over the past decade to $800 billion annually and rising.
The US 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 US has to turn over to foreigners ownership
of its accumulated wealth. This worsens the current account deficit
as the income streams on the US based assets now accrue to foreigners.
Many
economists pretend that the whopping US 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 US that causes
the trade deficit, whereas the simple fact is that it is the US
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 US for three reasons:
(1)
The US dollar is the world’s reserve currency. The dollar
can be used to settle all international accounts. Therefore, there
is a world demand for dollars. This demand absorbs what would
be an excess supply for any other country running such large deficits.
(2)
China pegs its currency to the dollar, thus preventing an adjustment
in the price of the two countries goods and services. Other countries,
such as Japan, intervene in currency markets by purchasing dollars
in order to support the dollar and prevent its currency from rising
in dollar value.
(3)
Offshoring turns US production into imports. Much of the US trade
deficit results from offshoring, not from traditional trade competition.
The collapse of world socialism and the advent of the high speed
Internet made cheap foreign labor available to US companies. US
firms use foreign labor to produce offshore the goods and services
that they market to Americans. For example, more than half of
the large US trade deficit with China is comprised of goods and
services produced by US companies in China for American markets.
How
can the US 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 US trade, it will not come through
traditional means.
One
way balance can return is by the US 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
per cent of levels in the US, 10% of the pay rate of Asia’s
newly industrialized economies, and 25 per cent of levels in Mexico
and Brazil.” Roach also notes that with a rural population
of 745 million (about two and one-half times the total US population)
and headcount reductions of more than 60 million workers from state-owned
enterprises, China will not experience a labor shortage any time
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 US jobs is vulnerable
to being moved abroad.
Paul
Craig Roberts was Assistant Secretary of the Treasury in
the Reagan administration. He was Associate Editor of the Wall Street
Journal editorial page and Contributing Editor of National Review.
He is coauthor of The Tyranny of Good Intentions.He can be reached
at: paulcraigroberts@yahoo.com
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