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Te attacks on middle-class jobs are
lending new meaning to the phrase "class war". The
ladders of upward mobility are being dismantled. America, the
land of opportunity, is giving way to ever deepening polarization
between rich and poor.
The assault on jobs predates
the Bush regime. However, the loss of middle-class jobs has become
particularly intense in the 21st century, and, like other pressing
problems, has been ignored by President Bush, who is focused
on waging war in the Middle East and building a police state
at home. The lives and careers that are being lost to the carnage
of a gratuitous war in Iraq are paralleled by the economic destruction
of careers, families, and communities in the U.S.A. Since the
days of President Franklin D. Roosevelt in the 1930s, the U.S.
government has sought to protect employment of its citizens.
Bush has turned his back on this responsibility. He has given
his support to the offshoring of American jobs that is eroding
the living standards of Americans. It is another example of his
betrayal of the public trust.
"Free trade" and
"globalization" are the guises behind which class war
is being conducted against the middle class by both political
parties. Patrick J. Buchanan, a three-time contender for the
presidential nomination, put it well when he wrote1 that NAFTA
and the various so-called trade agreements were never trade deals.
The agreements were enabling acts that enabled U.S. corporations
to dump their American workers, avoid Social Security taxes,
health care and pensions, and move their factories offshore to
locations where labor is cheap.
The offshore outsourcing of
American jobs has nothing to do with free trade based on comparative
advantage. Offshoring is labor arbitrage. First world capital
and technology are not seeking comparative advantage at home
in order to compete abroad. They are seeking absolute advantage
abroad in cheap labor.
Two recent developments made
possible the supremacy of absolute over comparative advantage:
the high speed Internet and the collapse of world socialism,
which opened China's and India's vast under-utilized labor resources
to first world capital.
In times past, first world
workers had nothing to fear from cheap labor abroad. Americans
worked with superior capital, technology and business organization.
This made Americans far more productive than Indians and Chinese,
and, as it was not possible for U.S. firms to substitute cheaper
foreign labor for U.S. labor, American jobs and living standards
were not threatened by low wages abroad or by the products that
these low wages produced.
The advent of offshoring has
made it possible for U.S. firms using first world capital and
technology to produce goods and services for the U.S. market
with foreign labor. The result is to separate Americans' incomes
from the production of the goods and services that they consume.
This new development, often called "globalization,"
allows cheap foreign labor to work with the same capital, technology
and business know-how as U.S. workers. The foreign workers are
now as productive as Americans, with the difference being that
the large excess supply of labor that overhangs labor markets
in China and India keeps wages in these countries low. Labor
that is equally productive but paid a fraction of the wage is
a magnet for Western capital and technology.
Although a new development,
offshoring is destroying entire industries, occupations and communities
in the United States. The devastation of U.S. manufacturing employment
was waved away with promises that a "new economy" based
on high-tech knowledge jobs would take its place. Education and
retraining were touted as the answer.
In testimony before the U.S.-China
Commission,2 I explained that offshoring is the replacement of
U.S. labor with foreign labor in U.S. production functions over
a wide range of tradable goods and services. (Tradable goods
and services are those that can be exported or that are competitive
with imports. Nontradable goods and services are those that only
have domestic markets and no import competition. For example,
barbers and dentists offer nontradable services. Examples of
nontradable goods are perishable, locally produced fruits and
vegetables and specially fabricated parts of local machine shops.)
As the production of most tradable goods and services can be
moved offshore, there are no replacement occupations for which
to train except in domestic "hands on" services such
as barbers, manicurists, and hospital orderlies. No country benefits
from trading its professional jobs, such as engineering, for
domestic service jobs.
At a Brookings Institution
conference in Washington, D.C., in January 2004, I predicted
that if the pace of jobs outsourcing and occupational destruction
continued, the U.S. would be a third world country in 20 years.
Despite my regular updates on the poor performance of U.S. job
growth in the 21st century, economists have insisted that offshoring
is a manifestation of free trade and can only have positive benefits
overall for Americans.
Reality has contradicted the
glib economists. The new high-tech knowledge jobs are being outsourced
abroad even faster than the old manufacturing jobs. Establishment
economists are beginning to see the light. Writing in Foreign
Affairs (March/April 2006), Princeton economist and former
Federal Reserve vice chairman Alan Blinder concludes that economists
who insist that offshore outsourcing is merely a routine extension
of international trade are overlooking a major transformation
with significant consequences. Blinder estimates that 42-56 million
American service sector jobs are susceptible to offshore outsourcing.3
Whether all these jobs leave, U.S. salaries will be forced down
by the willingness of foreigners to do the work for less.
Software engineers and information
technology workers have been especially hard hit. Jobs offshoring,
which began with call centers and back-office operations, is
rapidly moving up the value chain. Business Week's Michael
Mandel4 compared starting salaries in 2005 with those in 2001.
He found a 12.7 per cent decline in computer science pay, a 12
per cent decline in computer engineering pay, and a 10.2 per
cent decline in electrical engineering pay. Marketing salaries
experienced a 6.5 per cent decline, and business administration
salaries fell 5.7 per cent. Despite a make-work law for accountants
known by the names of its congressional sponsors, Sarbanes-Oxley,
even accounting majors, were offered 2.3 per cent less.
Using the same sources as the
Business Week article (salary data from the National Association
of Colleges and Employers and Bureau of Labor Statistics data
for inflation adjustment), professor Norm Matloff at the University
of California, Davis, made the same comparison for master's degree
graduates. He found that between 2001 and 2005 starting pay for
master's degrees in computer science, computer engineering, and
electrical engineering fell 6.6 per cent, 13.7 per cent, and
9.4 per cent respectively.
On February 22, 2006, CNNMoney.com
staff writer Shaheen Pasha5 reported that America's large financial
institutions are moving "large portions of their investment
banking operations abroad." Offshoring is now killing American
jobs in research and analytic operations, foreign exchange trades,
and highly complicated credit derivatives contracts. Deal-making
responsibility itself may eventually move abroad. Deloitte Touche
says that the financial services industry will move 20 per cent
of its total costs base offshore by the end of 2010. As the costs
are lower in India, the move will represent more than 20 per
cent of the business. A job on Wall Street is a declining option
for bright young persons with high stress tolerance as America's
last remaining advantage is outsourced.
According to Norm Augustine,
former CEO of Lockheed Martin, even McDonald jobs are on the
way offshore. Augustine reports that McDonald is experimenting
with replacing error-prone order takers with a system that transmits
orders via satellite to a central location and from there to
the person preparing the order. The technology lets the orders
be taken in India or China at costs below the U.S. minimum wage
and without the liabilities of U.S. employees.
American economists, some from
incompetence and some from being bought and paid for, described
globalization as a "win-win" development. It was supposed
to work like this: The U.S. would lose market share in tradable
manufactured goods and make up the job and economic loss with
highly educated knowledge workers. The win for America would
be lower-priced manufactured goods and a white-collar work force.
The win for China would be manufacturing jobs that would bring
economic development to that country.
It did not work out this way,
as Morgan Stanley's Stephen Roach, formerly a cheerleader for
globalization, recently admitted. It has become apparent that
job creation and real wages in the developed economies are seriously
lagging behind their historical norms as offshore outsourcing
displaces the "new economy" jobs in "software
programming, engineering, design, and the medical profession,
as well as a broad array of professionals in the legal, accounting,
actuarial, consulting, and financial services industries".6
The real state of the U.S. job market is revealed by a Chicago
Sun-Times report on January 26, 2006, that 25,000 people
applied for 325 jobs at a new Chicago Wal-Mart.
According to the BLS payroll
jobs data,7 over the past half-decade (January 2001 - January
2006, the data series available at time of writing) the U.S.
economy created 1,050,000 net new private sector jobs and 1,009,000
net new government jobs for a total five-year figure of 2,059,000.
That is seven million jobs short of keeping up with population
growth, definitely a serious job shortfall.
The BLS payroll jobs data contradict
the hype from business organizations, such as the U.S. Chamber
of Commerce, that offshore outsourcing is good for America. Large
corporations, which have individually dismissed thousands of
their U.S. employees and replaced them with foreigners, claim
that jobs outsourcing allows them to save money that can be used
to hire more Americans. The corporations and the business organizations
are very successful in placing this disinformation in the media.
The lie is repeated everywhere and has become a mantra among
no-think economists and politicians. However, no sign of these
jobs can be found in the payroll jobs data. But there is abundant
evidence of the lost American jobs.
During the past five years
(January 01 - January 06), the information sector of the U.S.
economy lost 644,000 jobs, or 17.4 per cent of its work force.
Computer systems design and related work lost 105,000 jobs, or
8.5 per cent of its work force. Clearly, jobs offshoring is not
creating jobs in computers and information technology. Indeed,
jobs offshoring is not even creating jobs in related fields.
U.S. manufacturing lost 2.9
million jobs, almost 17 per cent of the manufacturing work force.
The wipeout is across the board. Not a single manufacturing payroll
classification created a single new job.
The declines in some manufacturing
sectors have more in common with a country undergoing saturation
bombing during war than with a "supereconomy" that
is "the envy of the world." In five years, communications
equipment lost 42 per cent of its work force. Semiconductors
and electronic components lost 37 per cent of its work force
. The work force in computers and electronic products declined
30 per cent. Electrical equipment and appliances lost 25 per
cent of its employees. The work force in motor vehicles and parts
declined 12 per cent. Furniture and related products lost 17
per cent of its jobs. Apparel manufacturers lost almost half
of the work force. Employment in textile mills declined 43 per
cent. Paper and paper products lost one-fifth of its jobs. The
work force in plastics and rubber products declined by 15 per
cent.
For the five-year period, U.S.
job growth was limited to four areas: education and health services,
state and local government, leisure and hospitality, and financial
services. There was no U.S. job growth outside these four areas
of domestic nontradable services.
Oracle, for example, which
has been handing out thousands of pink slips, has recently announced
two thousand more jobs being moved to India.8 How is Oracle's
move of U.S. jobs to India creating American jobs in nontradable
services such as waitresses and bartenders, hospital orderlies,
state and local government, and credit agencies?
Engineering jobs in general
are in decline, because the manufacturing sectors that employ
engineers are in decline. During the last five years, the U.S.
work force lost 1.2 million jobs in the manufacture of machinery,
computers, electronics, semiconductors, communication equipment,
electrical equipment, motor vehicles, and transportation equipment.
The BLS payroll jobs numbers show a total of 69,000 jobs created
in all fields of architecture and engineering, including clerical
personnel, over the past five years. That comes to a mere 14,000
jobs per year (including clerical workers). What is the annual
graduating class in engineering and architecture? How is there
a shortage of engineers when more graduate than can be employed?
Of course, many new graduates
take jobs opened by retirements. We would have to know the retirement
rates to get a solid handle on the fate of new graduates. But
this fate cannot be very pleasant , with declining employment
in the manufacturing sectors that employ engineers and a minimum
of 65,000 H-1B work visas annually for foreigners plus an indeterminate
number of L-1 work visas.
It is not only the Bush regime
that bases its policies on lies. Not content with moving Americans'
jobs abroad, corporations want to fill the jobs remaining in
America with foreigners on work visas. Business organizations
allege shortages of engineers, scientists and even nurses. Business
organizations have successfully used pubic relations firms and
bought-and-paid-for "economic studies" to convince
policymakers that American business cannot function without H-1B
visas that permit the importation of indentured employees from
abroad who are paid less than the going U.S. salaries. The so-called
shortage is, in fact, a replacement of American employees with
foreign employees, with the soon-to-be-discharged American employee
first required to train his replacement.
It is amazing to see free-market
economists rush to the defense of H-1B visas. The visas are nothing
but a subsidy to U.S. companies at the expense of U.S. citizens.
Keep in mind this H-1B subsidy to U.S. corporations for employing
foreign workers in place of Americans as we examine the Labor
Department's job projections over the 2004-2014 decade.
All of the occupations with
the largest projected employment growth (in terms of the number
of jobs) over the next decade are in nontradable domestic services.
The top ten sources of the most jobs in "superpower"
America are: retail salespersons, registered nurses, postsecondary
teachers, customer service representatives, janitors and cleaners,
waiters and waitresses, food preparation (includes fast food),
home health aides, nursing aides, orderlies and attendants, general
and operations managers.9 Note than none of this projected employment
growth will contribute one nickel toward producing goods and
services that could be exported to help close the huge U.S. trade
deficit. Note, also, that few of these job classifications require
a college education.
Among the fastest growing occupations
(in terms of rate of growth), seven of the ten are in health
care and social assistance. The three remaining fields are: network
systems and data analysis with 126,000 jobs projected, or 12,600
per year; computer software engineering applications with 222,000
jobs projected, or 22,200 per year; and computer software engineering
systems software with 146,000 jobs projected, or 14,600 per year.10
Assuming these projections
are realized, how many of the computer engineering and network
systems jobs will go to Americans? Not many, considering the
65,000 H-1B visas each year (bills have been introduced in Congress
to raise the number) and the loss during the past five years
of 761,000 jobs in the information sector and computer systems
design and related sectors.
Judging from its ten-year jobs
projections, the U.S. Department of Labor does not expect to
see any significant high-tech job growth in the U.S.The knowledge
jobs are being outsourced even more rapidly than the manufacturing
jobs. The so-called "new economy" was just another
hoax perpetrated on the American people.
If outsourcing jobs offshore
is good for U.S. employment, why won't the U.S. Department of
Commerce release the 200-page, $335,000 study of the impact of
the offshoring of U.S. high-tech jobs? Republican political appointees
reduced the 200-page report to 12 pages of public relations hype
and refuse to allow the Technology Administration experts who
wrote the report to testify before Congress. Democrats on the
House Science Committee are unable to pry the study out of the
hands of Commerce Secretary Carlos Gutierrez. On March 29, 2006,
Republicans on the House Science Committee voted down a resolution
(H.Res. designed to force the Commerce Department to release
the study to Congress. Obviously, the facts don't fit the Bush
regime's globalization hype.
The BLS payroll data that we
have been examining tracks employment by industry classification.
This is not the same thing as occupational classification. For
example, companies in almost every industry and area of business
employ people in computer-related occupations. A recent study
from the Association for Computing Machinery claims, "Despite
all the publicity in the United States about jobs being lost
to India and China, the size of the IT employment market in the
United States today is higher than it was at the height of the
dot.com boom. Information technology appears as though it will
be a growth area at least for the coming decade."
We can check this claim by
turning to the BLS Occupational Employment Statistics.11 We will
look at "computer and mathematical employment"12 and
"architecture and engineering employment".13
Computer and mathematical employment
includes such fields as "software engineers applications,"
"software engineers systems software," "computer
programmers," "network systems and data communications,"
and "mathematicians." Has this occupation been a source
of job growth? In November of 2000 this occupation employed 2,932,810
people.14 In November of 2004 (the latest data available), this
occupation employed 2,932,790, or 20 people fewer. Employment
in this field has been stagnant for four years.
During these four years, there
have been employment shifts within the various fields of this
occupation. For example, employment of computer programmers declined
by 134,630, while employment of software engineers applications
rose by 65,080, and employment of software engineers systems
software rose by 59,600. (These shifts probably merely reflect
change in job title from programmer to software engineer.)
These figures do not tell us
whether any gain in software engineering jobs went to Americans.
According to professor Norm Matloff, in 2002 there were 463,000
computer-related H-1B visa holders in the U.S. Similarly, the
134,630 lost computer programming jobs (if not merely a job title
change) may have been outsourced offshore to foreign affiliates.
Architecture and engineering
employment includes all the architecture and engineering fields
except software engineering. The total employment of architects
and engineers in the U.S. declined by 120,700 between November
1999 and November 2004. Employment declined by 189,940 between
November 2000 and November 2004, and by 103,390 between November
2001 and November 2004.
There are variations among
fields. Between November 2000 and November 2004, for example,
U.S. employment of electrical engineers fell by 15,280. Employment
of computer hardware engineers rose by 15,990 (possibly these
are job title reclassifications). Overall, however, over 100,000
engineering jobs were lost. We do not know how many of the lost
jobs were outsourced offshore to foreign affiliates or how many
American engineers were dismissed and replaced by foreign holders
of H-1B or L-1 visas.
Clearly, engineering and computer-related
employment in the U.S.A. has not been growing, whether measured
by industry or by occupation. Moreover, with a half million or
more foreigners in the U.S. on work visas, the overall employment
numbers do not represent employment of Americans.
American employees have been
abandoned by American corporations and by their representatives
in Congress. America remains a land of opportunity but
for foreigners not for the native born. A country whose
work force is concentrated in domestic nontradable services has
no need for scientists and engineers and no need for universities.
Even the projected jobs in nursing and school teaching can be
filled by foreigners on H-1B visas.
The myth has been firmly established
here that the jobs the U.S. is outsourcing offshore are being
replaced with better jobs. There is no sign of these jobs in
the payroll jobs data or in the occupational employment statistics.
When a country loses entry-level jobs, it has no one to promote
to senior level jobs. When manufacturing leaves, so does engineering,
design, research and development, and innovation itself.
On February 16, 2006, the New
York Times reported on a new study presented to the National
Academies that concludes that outsourcing is climbing the skills
ladder.15 A survey of 200 multinational corporations representing
15 industries in the U.S.and Europe found that 38 per cent planned
to change substantially the worldwide distribution of their research
and development work, sending it to India and China. According
to the New York Times, "More companies in the survey
said they planned to decrease research and development employment
in the United States and Europe than planned to increase employment."
The study and the discussion
it provoked came to untenable remedies. Many believe that a primary
reason for the shift of R&D to India and China is the erosion
of scientific prowess in the U.S. due to lack of math and science
proficiency of American students and their reluctance to pursue
careers in science and engineering. This belief begs the question
why students would chase after careers that are being outsourced
abroad.
The main author of the study,
Georgia Tech professor Marie Thursby, believes that American
science and engineering depend on having "an environment
that fosters the development of a high-quality work force and
productive collaboration between corporations and universities."
The dean of Engineering at the University of California, Berkeley,
thinks the answer is to recruit the top people in China and India
and bring them to Berkeley. No one seems to understand that research,
development, design, and innovation take place in countries where
things are made. The loss of manufacturing means ultimately the
loss of engineering and science. The newest plants embody the
latest technology. If these plants are abroad, that is where
the cutting edge resides.
The denial of jobs reality
has become an art form for economists, libertarians, the Bush
regime, and journalists. Except for CNN's Lou Dobbs, no accurate
reporting is available in the "mainstream media."
Economists have failed to examine
the incompatibility of offshoring with free trade. Economists
are so accustomed to shouting down protectionists that they dismiss
any complaint about globalization's impact on domestic jobs as
the ignorant voice of a protectionist seeking to preserve the
buggy whip industry. Matthew J. Slaughter, a Dartmouth economics
professor rewarded for his service to offshoring with appointment
to President Bush's Council of Economic Advisers, suffered no
harm to his reputation when he wrote, "For every one job
that U.S. multinationals created abroad in their foreign affiliates,
they created nearly two U.S. jobs in their parent operations."
In other words, Slaughter claims that offshoring is creating
more American jobs than foreign ones.
How did Slaughter arrive at
this conclusion? Not by consulting the BLS payroll jobs data
or the BLS Occupational Employment Statistics. Instead, Slaughter
measured the growth of U.S. multinational employment and failed
to take into account the two reasons for the increase in multinational
employment: (1) Multinationals acquired many existing smaller
firms, thus raising multinational employment but not overall
employment, and (2) many U.S. firms established foreign operations
for the first time and thereby became multinationals, thus adding
their existing employment to Slaughter's number for multinational
employment.
ABC News' John Stossel, a libertarian
hero, recently made a similar error. In debunking Lou Dobbs'
concern with U.S. jobs lost to offshore outsourcing, Stossel
invoked the California-based company, Collabnet. He quotes the
CEO's claim that outsourcing saves his company money and lets
him hire more Americans. Turning to Collabnet's webpage, it is
very instructive to see the employment opportunities that the
company posts for the United States and for India.
In India, Collabnet has openings
(at time of writing) for eight engineers, a sales engineer, a
technical writer, and a telemarketing representative. In the
U.S. Collabnet has openings for one engineer, a receptionist/office
assistant, and positions in marketing, sales, services and operations.
Collabnet is a perfect example of what Lou Dobbs and I report:
the engineering and design jobs move abroad, and Americans are
employed to sell and market the foreign-made products.
Other forms of deception are
widely practiced. For example, Matthew Spiegleman, a Conference
Board economist, claims that manufacturing jobs are only slightly
higher paid than domestic service jobs, so there is no meaningful
loss in income to Americans from offshoring. He reaches this
conclusion by comparing only hourly pay and leaving out the longer
manufacturing workweek and the associated benefits, such as health
care and pensions.
Occasionally, however, real
information escapes the spin machine. In February 2006 the National
Association of Manufacturers, one of offshoring's greatest boosters,
released a report, "U.S. Manufacturing Innovation at Risk,"
by economists Joel Popkin and Kathryn Kobe.16 The economists
find that U.S. industry's investment in research and development
is not languishing after all. It just appears to be languishing,
because it is rapidly being shifted overseas: "Funds provided
for foreign-performed R&D have grown by almost 73 per cent
between 1999 and 2003, with a 36 per cent increase in the number
of firms funding foreign R&D."
U.S. industry is still investing
in R&D after all; it is just not hiring Americans to do the
research and development. U.S. manufacturers still make things,
only less and less in America with American labor. U.S. manufacturers
still hire engineers, only they are foreign ones, not American
ones.
In other words, everything
is fine for U.S. manufacturers. It is just their former American
work force that is in the doldrums. As these Americans happen
to be customers for U.S. manufacturers, U.S. brand names will
gradually lose their U.S. market. U.S. household median income
has fallen for the past five years. Consumer demand has been
kept alive by consumers' spending their savings and home equity
and going deeper into debt. It is not possible for debt to forever
rise faster than income.
The United States is the first
country in history to destroy the prospects and living standards
of its labor force. It is amazing to watch freedom-loving libertarians
and free-market economists serve as apologists for the dismantling
of the ladders of upward mobility that made the America of old
an opportunity society.
America is seeing a widening
polarization into rich and poor. The resulting political instability
and social strife will be terrible.
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