Each of the presidential candidates has talked about bringing jobs back to America and creating jobs in America as an enticement to the battered middle class suffering from job loss and income stagnation.
There has been much written about stagnant wages, job loss tied to the closing of manufacturing plants and the movement of manufacturing overseas, but few offer real solutions, just pious or not-so-pious platitudes.
Who or what are the culprits? A discussion of the culprits must include China, productivity, the decline in labor fluidity, stagnant wages, and, of course, NAFTA.
China, as we all know, has a long history of currency manipulation and low wages, which has clearly contributed to the off-shoring of substantial manufacturing activity. It is also important to note that much of the manufacturing done in China is not high-tech. Taking real steps to attack Chinese currency manipulation would have serious consequences. I question the US public’s ability to withstand consequences such as higher pricing for goods if, in fact, they were made in America. There have been attempts at retailing (such as MadeInUSAForever.com) that have had modest success, while some buy-local programs have been somewhat more successful, but very limited in terms of geography and GDP impact.
The decline in labor fluidity has had a significant impact on job growth as well. A decline in mobility during economic downturns is not a surprise, such as during the great recession; however, fluidity has not returned to the marketplace, which means if jobs are available in one region of the country, those out of work are not relocating to take advantage of those opportunities. I suspect part of the issue is that, in many cases, the number of jobs being created by an individual employer is relatively small as compared to 40 and 50 years ago when plants hired thousands. Word gets around when there is that much opportunity to get a job in another geographic region. A recent New York Times article identified the 10 states that have the most fluidity. Most states losing fluidity are west of the Mississippi, and those with the least loss are east of the Mississippi, including Ohio, Illinois, New York and the Carolinas. When we analyze the lack of fluidity, it is important to focus on the job skills of those who are not relocating, the level at which they would enter the labor pool, determine whether or not the decision to remain in place is in actuality a rational economic choice. If my job opportunity requires an expensive relocation with an offer of a job for a wage of $20 per hour or less, the relocation expense may take years to recover. This is coupled with a recent report from the Associated Press-NORC Center for Public Affairs Research and an earlier study by the Federal Reserve, both of which indicate that most households lacked even $1000 to meet an emergency. So where would the relocation dollars come from?
NAFTA is also frequently identified as a major job killer, particularly in the manufacturing sector. There are many economists who believe that NAFTA was a relatively small player in that process. An announcement of a plant “moving” to Mexico captures headlines, but doesn’t tell the full story. We know that cross-border supply chains such as automobile production along the U.S.-Canadian border have at least maintained manufacturing jobs in the US, and grown others.
The onset of greater productivity has, of course, created an economy that is able to produce more with fewer people. If we look at manufacturing output between 2002 and 2008, it increased by 25 percent with declining employment, while wages increased by 15 percent. Robot sales have grown significantly in recent years, which means, in fact, machines are replacing people. Manufacturing jobs have grown by 7 percent since 2010, and the United States is second to China as the world’s two most competitive manufacturing nations. In a recent New York Times article on productivity, Professor Sachs is quoted as saying “robots lead to nirvana and hell” and the two scenarios may be “side by side.” Greater use of robots results in higher productivity and fewer jobs, so what are we to do?
In comparison to China, the United States relies on innovation, a robust legal system, IT infrastructure and a significantly greater supply of skilled workers, while China relies on low wages and currency manipulation.
The presidential candidates need to acknowledge that there is in fact very little that can be directly done by them to return or create jobs to the United States. The idea that cancelling free trade agreements, raising tariffs, or building a wall will create an environment that will substantially increase jobs is foolish, particularly when productivity continues to increase through the use of robots.
We missed an opportunity in 2008 and 2009 to get into the game of infrastructure: roads, bridges, broadband and investing in innovation and education, which are activities much less reliant on robots. It is also important to analyze whether the message that everyone should go to college is, in fact, the right one. There is an enormous need for skilled tradesmen such as carpenters, plumbers, electricians, and machine operators; as we see the movement towards more productive machines, these skills will become even more important in sustaining our economy.
If I were giving advice to the next president, I would strongly suggest that we refocus on investment in education and infrastructure in the ways described above, and then set our sights on realigning the relationship between investors and workers. This would boost wages, which in turn would boost spending, thus creating greater profits. Maybe not exciting, but it’s what needs to be done. We also need a robust discussion on how robots will change manufacturing and our lives—think driverless cars.
Mr. Owens is a former member of Congress representing the New York 21st and a Senior Advisor to Dentons.
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