The Future of American Labor

Brad DeLong: Need We Fear the Robot Uprising? — "The global division of labor that had previously been near-exclusive property of American workers, had allowed workers elsewhere in the world to use their new-found bargaining power to extract resources for their own consumption. This was to the detriment of America's blue-collar working and middle classes."

In a speech yesterday at Northwestern University, President Obama said, "American manufacturing has added more than 700,000 new jobs."  But since Obama first took office in 2009, we've actually had a NET LOSS of 400,000 manufacturing jobs. In December of 2009, the number bottomed out at 11.4 million (Source: BLS). We now have 12.2 million manufacturing jobs — for an actual gain of  681,000 manufacturing jobs since December 2009 — out of over 10 million jobs created since that time. While that's good news (that we have more jobs in manufacturing), most of the net new jobs created have been low-paying jobs in the service industry — and judging by past history, we can expect that trend to continue.

In his remarks, Obama also praised the auto industry. But during the auto bailouts, the unions agreed to a new two-tiered pay system that paid new (second-tier) hires about $14/hr. (About half of what they used to earn). And manufacturing jobs (while maybe not as many) are still being offshored to low-wage countries (until robots can do most of the work). Domestic production might only increase in proportion to domestic consumption. As for the auto industry, many of their domestic manufacturing jobs have moved to low-paying non-union "right to work" Southern states (just like Boeing).

FORBES: Reshoring Or Offshoring: U.S. Manufacturing Forecast 2015-2016 (September 2014) "Companies that have tried to bring production back into the United States often face labor challenges. They report difficulty finding workers who can pass drug tests, do basic math needed for the job, and come to work regularly ... Products that are made with relatively little labor will be more likely to reshore ... The trend to reshoring will continue, but it will be limited to a few industries ... Further offshoring will probably be limited—those companies that would benefit from offshoring have already made their moves ... Looking forward, additional offshoring will be roughly offset by reshoring ... don’t expect manufacturing employment to grow along with production. The fastest-growing parts of manufacturing will be those that use the least labor. Productivity in factories continues to improve, so the best jobs picture we can hope for is flat. The peak year for U.S. manufacturing employment was 1979, and we’re not going back there."

This is what "globalization" has really been all about for US-based multinationals for decades — not global competition, but destroying America's middle-class for corporate profits and higher stock prices (Kodak began offshoring jobs in 1989 and filed for bankruptcy in 2012). Yes, if someone has a pension or 401k, they also benefit from high share prices — but most Americans don't. Just under a third (30 percent) of retirees receive income from either a traditional pension, a retirement savings account (such as a 401k), or an individual retirement account (IRA). It's mostly the mangers of these funds, the large institutional investors (banks, hedge funds and private equity firms) and the billionaires and corporate execs (with stock-option grants for "performance pay") who benefit far greater from the rise in stock prices than do average American workers — especially if company profits are not being reinvested in creating jobs (in the US) and raising wages.

And to ease their conscience (or to excuse themselves to the American public), these corporate execs say that by offshoring, they're helping other people all around the world by pulling them out of poverty. But do you really believe American multinationals are offshoring jobs for charity? Do you really think they care about the working, living or economic conditions of other people on the other side of the globe when they could care less about their own fellow citizens? (And what are their "foundations" and "initiatives" really for? Hint: Tax subsidies, tax avoidance, and more influence over public policy. Read: Democracy and the Donor Class)

The Atlantic: The Rise of the New Global Elite: The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.

Virgil Bierschwale, a former software developer who runs the website Keep America at Work, explains:

They decided to do this originally because there are billions of potential customers in China and India, and to them, that equates to billions of dollars, if not trillions. But there is a great big difference in the purchasing power of these 3 groups, even though the population is nearly the same:

• America and Europe total nearly a billion people with a purchasing power of $50,000 per person.
• China has a billion people with a purchasing power of $5,470 per person.
• India has a billion people with a purchasing power of $1,860 per person.

And this is most important: China and India will never reach $50,000 per person, because as we put America and Europe out of business by sending their jobs offshore, they can no longer purchase — and India makes its money via software (Infosys, tata, etc.) and China makes its money selling to the American and European consumers. When you put America and Europe out of work, you ALSO put China and India out of work, simply because their money comes from their best customers — which is America and Europe. And just as these people are sending jobs to low-wage countries (because wages got too high), they are now sending them to even lower-wage countries, because wages in China and India are getting too high.

VOX Study (October 2, 2014) Disappearing Routine Jobs: "Labor markets around the world have experienced a profound polarisation in recent decades. The share of employment in middle-wage jobs has declined, while employment in high- and low-wage jobs has increased. In the US, this ‘hollowing out of the middle’ has been linked to declining per-capita employment in occupations with a high content of routine tasks [that are] relatively easy to automate. As recently as the late-1980s more than one in three American adults was employed in a routine occupation; currently, that figure stands at about one in four ... Where are these unemployed workers going instead? Are they switching into high- or low-paying non-routine occupations? Do they remain unemployed or leave the labor force? To answer this, we distinguish between two subsets of routine occupations that differ markedly in terms of their demographic composition. This first subset, routine manual jobs, includes occupations such as machine operators and other blue-collar jobs that tend to employ men with relatively low education levels. The second subset, routine cognitive jobs, includes occupations such as clerical and administrative support jobs that are generally female-dominated with higher levels of education." (VOX concludes that both these routine manual AND routine cognitive middle-wage jobs are in decline. Currently 50% of all wage earners in the U.S. make $27,519 OR LESS a year.)

From the Dallas Fed: Deindustrialization Redeploys Workers to Growing Service Sector (Sept. 2014)

The decline [in the U.S. industrial sector since 1980] has prompted debate about offshoring—outsourcing operations overseas and trade protection. Displaced workers whose jobs moved to other countries have reason to be concerned ... The U.S. experienced a declining share of agricultural employment, a rise and subsequent decline of industrial employment and, most recently, a rise in service employment. This process is known as "structural transformation".

In China, the share of industrial employment increased from 17 percent in 1978 to 30 percent in 2013 ... Wages in China have risen dramatically and it faces the challenge of transitioning to a service-based economy ... Globalization and international trade allow the U.S. to engage in high-value-added manufacturing and services while importing low-tech goods from emerging economies ... U.S. manufacturing cannot compete with emerging economies’ low labor costs for unskilled workers. Instead, the comparative advantage of the U.S. and advanced economies is in producing high-tech and high-value-added goods and services, which is why these countries’ wages and standards of living are higher.

Policies that aim at protecting the manufacturing sector in the U.S., such as import tariffs, export subsidies and restrictions on offshoring, ultimately interfere with the process of structural transformation and can reduce long-term growth. Expanding U.S. industrial employment would require an increase in world demand for American manufactured goods, which can be achieved only by reductions in U.S. wages and living standards." (NOTE: The mushroom policy. Keep them in the dark and feed them BS.)

From MSN Money: The Fed would be Crazy to Worry about Runaway Wages: "Inflation hawks at the Federal Reserve says inflation is becoming our greatest economic worry. They want the Fed to raise interest rates soon to keep the unemployment rate from dropping too far and to prevent American workers from getting a raise."

The Fed goes on to say: "Instead, policymakers should acknowledge the importance of a growing service sector and consider focusing resources on compensating displaced manufacturing workers and incentivizing them to acquire skills to engage in higher-value-added activities."

NOTE: More B.S. — Every American worker could have a PhD in a service industry-related job, but having that education alone won’t create a job (at least, not a job with a real living wage). College grads today are taking jobs that only require a GED, displacing high school grads. And nothing prevents those jobs from being offshored or replaced with an H-1B worker for lower wages. The Fed (whose job it is) has not been promoting job or wage growth for American workers, but have been more interested in protecting the asset values for the very wealthy. Rather than using the "helicopter" approach with direct cash transfers to the real job creators (people who spend money), they've been giving money away with QE to criminals who hoard cash in offshore banks, manipulate commodity prices, conspire on the libor rates, launder money for illegal arms dealers and drug cartels, and who crashed the housing market and economy with credit default swaps and sub-prime mortgages — then took "government bailouts" to pay themselves huge bonuses. The bankers are so powerful (and so ruthless), that the U.S. Attorney General was too afraid to charge any of them with a crime. The banks have more power than governments: "Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild

Naked Capitalism: Rising Tides Lift All Yachts – Why the 1% Grabs all the Gains From Growth:

As Hyman Minsky argued back in the 1960s, if you want to reduce poverty you must include job creation as a central component of your War on Poverty. He (correctly) predicted that the Kennedy-Johnson War on Poverty would fail because it did not contain such a program. Further, he argued that once you’ve provided jobs to all who want to work, you need to gradually shift the distribution of income toward the bottom. You do that by holding down income growth at the top while gradually increasing pay at the bottom. We did neither, of course. Inflation-adjusted minimum wages have plummeted since the 1960s. Joblessness has risen. As documented by many, while labor productivity has continued to rise on trend, inflation-adjusted median wages have stagnated since the early 1970s.

As mentioned in a previous post, ever since Bill Clinton granted permanent normal trade relations to China (and after he also signed on to NAFTA), the US has lost at least 5.8 million good-paying manufacturing jobs and over 64,000 manufacturing facilities. And this doesn't include jobs lost in the tech and service industries.

Report: The Hackett Group (September 10, 2013) - Large companies in North America and Europe are now losing over 250,000 jobs each year in IT, finance, and other key business services areas, due to the combined impact of offshoring, technology-driven productivity improvements, and the low-growth business environment, according to a new research update from The Hackett Group, Inc. While the number of jobs being lost annually will decline over the next few years, The Hackett Group now estimates that by 2017 nearly half of all back office jobs at these companies that existed in North America and Europe in 2002 will have disappeared -- a total loss of 3.7 million jobs.

* For the year 2000, the BLS reported there were 2,932,810 jobs in computer and math occupations. Currently the BLS reports 3,696,180 — for a NET GAIN of 763,370 jobs in this industry from 2000 to 2014. There doesn't appear to be any reliable data as to how many IT jobs have been offshored since the tech boom, but Virgil (a Navy Vet and unemployed computer programmer) at Keep America at Work, estimates that 774,798 IT jobs have gone to H-1B visa holders over the last 6 years alone (more than what the BLS says were created over the last 14). In an email Virgil writes:

It's very simple. In the beginning, there were more jobs in IT than we had qualified people, so we began to import visa holders. But over time, as we imported more and more visa holders, this began to force out the less pedigreed people like myself. (You probably aren’t aware of this, but they didn’t even have computer classes in college when I taught myself how to program them.) So now we have reached a point where the visa holders get the jobs and the Americans, once they are out, can’t seem to get back in. As I have heard many people say over the years, "I feel like I’m outside a window looking in, but I can’t get in." ( Virgil's last job in IT was in 2010, but nowadays, he can’t even get a job mopping floors at the Veteran's hospital, and remains one of the millions of uncounted long-term unemployed.)

From a report titled "Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers" (by Linda Levine, Specialist in Labor Economics, December 17, 2012) "One analysis by the BLS estimated that in 2007, 30 million people were employed in service-providing occupations it found to be potentially offshorable ... an estimated 14 million jobs in 49 service occupations have attributes that could allow them to be sent overseas ... The occupational groups identified as being vulnerable to offshoring include office support (e.g., data entry and payroll clerks), auditors and tax preparers, computer programmers and software engineers, medical transcriptionists and paralegals, and technical writers. They are concentrated in such industries within the service sector as information, finance and insurance, and professional and business services ... Blinder added to the conservative estimate those occupations in category III he ranked as most susceptible to being offshored to create a moderate estimate totaling 25.6% of all U.S. workers. His aggressive estimate includes all of category III and totals almost 40 million workers or 29.0% of all U.S. jobs" [that were still prone to offshoring].

Several polls now show that most voters oppose politicians who support “NAFTA-Style” trade deals. So why then would a "populist" President like Obama or a "new" Democrat like Hillary Clinton support the TPP trade agreement? (We already know why the Republicans would.) Why are our government leaders completely deaf to the American people's opinions, wants and desires?

It's simple: because both major political machines have been captured and are controlled by the banks and corporate interests — and the Supreme Court made campaign finance reform almost impossible (it would require an amendment to the constitution). The Supreme Court has already made it easier to buy elections, now they also just made it harder for people to vote in those elections. And because of gerrymandered congressional districts, many people aren’t truly represented in Washington (unlike the lobbyists). And because a third party vote could split a vote, many people hesitate to take a chance of getting somebody worse by voting for the lesser of two evils that currently represent our two major political parties (excluding the Progressive Caucus).

Also, many people vote against their own best economic interests because of religious beliefs and/or wedge issues — and/or because they are kept “dumbed downed” by those in the media, ideological think tanks, lobbyists, business trade groups and the politicians — most who are bought and paid for by corporate America. Few people have the time or the inclination to dig through the tons of information that's being pelted at them from both the left and right — so it's difficult to make informed choices. And because they're so busy working (or looking for work) and just trying to survive, who can really blame them?

A recent New York Times/CBS Poll (page 16), by a margin of 50 to 38, shows voters now think Republicans would do a better job on the economy. And a recent Gallop poll shows by a margin of 49 to 40 that "Americans give the Republican Party an edge as the party better able to keep the country prosperous" (despite 30+ years of failed "trickle-down" economics.) But it doesn't really matter who is in charge of the government these days, because over the last 30+ years BOTH political parties have sold the American worker down the river for their own personal, financial and political gains. One can vote, but "the people's" voice is rarely heard any more. When they protest to make their voices heard, the corporate media presents them as malcontents, disgruntled workers, anarchists or communists — or as Glenn Beck once said, "Socialists and un-American."

According to one source, just last year alone, 2.6 million U.S. jobs in manufacturing, IT services, R&D, distribution and call centers were offshored/outsourced. Too many jobs have already left our shores. Currently, the U.S. has over 6.3 million working-age Americans who want a job who are not even included in the unemployment rate. Where are the jobs? Well first, the jobs went to places such as China. Nike alone uses over 1 million workers in 777 factories in 43 countries. Now the jobs in China (and elsewhere) might be going to robots. Foxconn, who makes Apple's iPhones and iPods (and employees over 1 million workers) is now attempting to replace its human workers with thousands of robots.

Angry Bear: “One of the most popular memes in today’s society of the self is to claim that folks who do regular jobs are not worth the money they are being paid. To listen to some folks, everybody else is lazy and overpaid, and the problems of our society would all be solved is we simply bucked up, worked hard and paid people what they’re worth (which usually demeans anyone who performs physical labor of any sort). It’s a toxic variation on the myth of meritocracy that ultimately treats human labor as merely an input to production and eschews any concept of human dignity or the value of honest labor.” (Robots aren’t lazy or over-paid, they have no dignity, and they never have to worry about supporting a family.)

Asymco analyst Horace Dediu claims that each iPhone only costs about $30 to manufacture at the facilities of Apple's main manufacturing partner, Foxconn. According to an ABC Nightline report, each iPhone takes 24 hours to produce and that each worker on the production line makes roughly $1.78 per hour. The production process includes both human labor and some robotic automation. However, this labor cost is a very small part of the overall cost structure for the iPhone (accounting for only 2% to 5% of the sales price). Apple actually spends more on transportation and warranty expenses (as much as $60 per unit).

Apple CEO Tim Cook is on record as saying labor costs have nothing to do with the decision to manufacture in China. Their iPhones would not be significantly higher if manufactured here. Supposedly, the issue is, it isn't possible to make an iPhone here because we no longer have the required manufacturing facilities. (Because they all went overseas!) Emerging economies are getting in on the act too with iPhones now being assembled in Brazil. There are Apple suppliers in more than 30 countries around the world. Comparecamp.com quips: "Who knows, China might one day, under pressure to cut costs, outsource jobs to us." That might well happen, when America becomes the next "emerging market".

What's been helping to drive this mass exodus of U.S. manufacturing overseas are base pointers and monopsonies such as Walmart (because of their economy of scale) as Charles Fishman demonstrates in his book The Wal-Mart Effect (forcing manufacturers within the U.S. to compete for lower prices, so they have to offshore production). And in this race to the bottom for lower wholesale prices, the same applies to wages as well. Paul Krugman wrote:

"The continuing dire state of the labor market enhances the bargaining position of employers, increasing their power. There’s no rule saying that firms have to do worse in a depressed economy; they could actually do better...A slack economy could in effect serve as a coordinating device for firms; one way to think about it is that it keeps firms from competing too hard for workers, enabling them to exert more monopsony power".

But what's Apple's reason for offshoring? According to one market research firm (Isuppli), the cost of parts make up the greatest share of the cost for an iPhone (not including shipping, advertising, software development or patent licensing). The Economic Policy Institute reports that all agree: Foxconn’s assembly cost is only a miniscule part of the iPhone’s cost. Apple’s profit per phone is more than 20 times the labor cost. So why use robots or offshore jobs to lower wage counties? Is this how new technology is supposed to benefit human-kind? By making human labor obsolete? By denying people the means of earning a living in the quest for higher corporate profits that mostly benefit the very few?

A recent Vox study says, "Like many other high-tech products, the iPod is designed in the US and is made of components produced all over the world and assembled in China. Though most production jobs are offshored, a significant number of high-skill engineering jobs and low-skill retail jobs are created in the US, and more than 50% of the value added of the iPod is captured by domestic companies. With more limited offshoring, some of the production jobs may have stayed within the US borders, increasing the demand for the services of low-skill production workers. But this would have also increased the cost and price of iPods, reducing employment, not only in engineering and design occupations, but also in retail and other related tasks.”

And when wages get too high in China, if not “robotized”, the jobs will move to Vietnam or elsewhere for lower wages. According to Bloomberg, American companies, including Apple, hold almost $2 trillion in profits offshore to avoid tax, rather than invest in American workers. Instead, U.S. multinationals would rather just hoard profits. And when they're not hoarding, they have been spending billions of dollars in mergers and acquisitions — or spending gobs of profits on "share buybacks" (to increase the stock-option values for corporate execs). The Street reports that over the past 12 months more than $500 billion has been spent repurchasing shares of US stocks. This is standard procedure:

Angry Bear: From the fourth quarter of 2004 through the third quarter of 2008, the companies in the S.& P. 500 — generally the largest companies in the country — reported net earnings of $2.4 trillion. They paid $900 billion in dividends, but they also repurchased $1.7 trillion in shares. As a group, shareholders were paid about $200 billion more than their companies earned ... The “safe-harbor” stock-buyback provisions of Rule 10b-18 of the Securities Exchange Act, passed in 1982, gave C-suite executives carte blanche to extract rents for their own benefit via stock-price manipulation. (NOTE: And then there's also the "corporate inversion scam" — moving their HQs offshore to avoid taxes. Not to mention, these corporate execs pay a lower tax rate on their capital gains than do middle-income wage earners. Just ask Warren's secretary.)

This is the corporate strategy, rather than profit-sharing with their employees in the form of higher wages and investing in America by creating more jobs. This excludes all the money corporations spend in lobbying against raising the minimum wage or busting labor unions, or electing politicians for more favorable tax breaks and less safety and environmental regulations, or advocating for more guestworker visas — all of which amount to nothing more than political bribes. (Remember those checks from the tobacco companies on the floor of Congress?)

From the Washington Post, in a survey of our job creators: America’s top execs seem ready to give up on U.S. workers — "Three-quarters said their firms would rather invest in new technology than hire new employees. More than two-thirds said they’d rather rely on vendors for work that can be outsourced, as opposed to adding their own staff. A plurality said they expected to be less able to pay high wages and benefits to American workers."

Joseph E. Stiglitz recently wrote: "The hope is that lower corporate taxes will stimulate investment. This is sheer nonsense. What is holding back investment (both in the United States and Europe) is lack of demand, not high taxes." (If employed human beings are earning a living wage, they can afford to spend $600 on an iPhone. Robots don't need iPhones.)

What came first, the chicken or the egg? Supply or demand? On December 3, 1861, the first Republican President said: "Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." On September 18, 2014 Speaker of the House John Boehner gave a speech at the American Enterprise Institute and criticized America's unemployed, saying they'd "rather just sit around."

And speaking of $600 iPhones (that only cost $30 to make), does anybody want a gold-plated iPhone? Prices range from $4,495 for the gold-plated models to $8,395 for those with a diamond logo (the $30 cost of human labor is included in the price.)

* As an aside: If all those jobs didn't go to factories in Asia, with our environmental laws in the US, maybe there would be far less pollution in the world and a little less climate change — because our "job creators" wouldn't be offshoring smog either.