Employment and Globalization

It seems to me….

Globalization is not a monolithic force but an evolving set of consequences – some good, some bad, and some unintended. It is the new reality.” ~ John B. Larson[1].

While local loss of jobs is frequently stated as the primary reason for opposition to globalization and off-shoring, what is usually ignored is that they also have lifted millions of people out of poverty and into the global middle class. Many middle-class U.S. manufacturing jobs have been eliminated and those displaced workers have a right to be angry but contrary to what is commonly believed and repeatedly stated by self-serving politicians, many manufacturing jobs have returned to the U.S. over the last decade due to lower dependable energy and transportation costs and to rising labor costs abroad.

Many of those jobs lost to offshoring were the type of jobs that would have been eliminated by automation. Technological advancement is changing the entire manufacturing process eliminating entire segments of traditional employment. Future manufacturing jobs will go to those who can program, run, and maintain fast-evolving high-tech equipment in the age of robotics and are sufficiently flexible and resourceful to succeed in many different roles[2].

The U.S. economy is quite dynamic and creates/destroys around 5 million jobs each month. While almost 6 million manufacturing jobs were lost between 1999 and 2011, only a fifth of that decline resulted from Chinese competition. Those who lost jobs generally did not find new ones nearby nor did they go in search of work elsewhere. Instead there was almost a one-for-one increase either in unemployment or, more frequently, in people leaving the workforce entirely – often to claim disability benefits, which 5 percent of Americans aged 25-64 now receive. Consequently, job losses from off-shoring are more concentrated and longer-lasting than initially had been assumed.

Advocates of freer trade have always known that some employees lose out even as the great majority benefit[3] but no one suffers more from an imposition of tariffs than the poorest workers. Free trade still deserves full support even if greater care needs to be taken of those it hurts. While much is heard regarding overseas flight of manufacturing (offshoring) and its devastating effects on abandoned areas, rather than being in decline, many of those areas are becoming hubs of developing entirely new industries and technological innovation. The problem is that the majority of the jobs created require higher educational preparation than those eliminated.

The shock caused by China’s emergence also exposed fault lines in the U.S. economy. Workers seem less willing to switch jobs or move to another state than in the past. Part of the explanation may be rising home ownership anchoring people to declining areas or pricing them out of vibrant ones. Whatever the explanation, free trade can impose high costs on a few locations.

The worst possible response to such fears is the protectionism that trump is peddling. The surge in cheap imports of clothing, shoes, furniture, toys, and electronics from China and elsewhere in Asia has greatly increased the spending power of those on low incomes. It has also added to the variety of goods they are able to buy. One study by economists at the University of California – Los Angeles, and Columbia University calculated that median income earners in the U.S. would lose 29 percent of their purchasing power if we were closed to trade but that the poorest would forfeit as much as 62 percent since they spend proportionately more on goods that are traded. Add to the reckoning the eventual benefits of a richer Asian market for exporters, the spur to innovation in the U.S. from global competition, and the low-cost inputs for consumer goods, such as the iPhone, that raise the productivity of U.S. designers and arguments in favor of free trade are overwhelming.

Globalization admittedly has its flaws: though the great majority benefit, some lose out. More must be done to tackle these downsides. The backlash against trade is just one symptom of a pervasive anxiety about the effects of open economies – more must be done to help those who lose out from offshoring and technological displacement. The idea that globalization is a scam that benefits only corporations and the rich could scarcely be more wrong.

Much of the problem is of our own making. The U.S. spends only 0.1 percent of its GDP, one-sixth of the wealthier nation average, on policies to retrain workers and help them find new jobs. New policies are necessary to deal with all sources of disruption, from cheaper robots to new technologies such as 3D printing. Protectionists want to turn back the clock. It is significantly better to benefit from the permanent overall gains from trade while preparing the workforce for additional future changes.

The U.S. has also lagged behind other advanced nations in “active” labor-market policies. More could be done to help workers who lose jobs to find new ones through job exchanges and free training to add relevant skills. There may be a case for providing relocation grants for workers hurt by trade. Displaced workers complain that alternative jobs in the service sector do not pay as well or come with the same healthcare or pension benefits that big manufacturers previously provided – a strong argument for a system of portable benefits that go with workers when they change jobs. A system of wage insurance might deserve additional consideration.

Germany has been able to constantly upgrade the skills of its workforce thanks to its system of apprenticeships. The U.S. also needs to expand available apprenticeship programs to a level commensurate with that in other advanced nations as they have been shown to be a very cost-effective way for prospective employees to obtain highly sought-after middle-skills. There needs to be a reduction in red tape and overly rigid requirements while encouraging broad-based industry standards for administering those programs. These programs typically are a three- or four-year endeavor allowing the apprentice to acquire new skills under the watchful eyes of a trained mentor. One or two days each week are dedicated to classwork at a local community college or technical school without accruing any college debt. Apprentices are able to earn while they learn and studies have shown that most (90 percent) are gainfully employed by the conclusion of their apprenticeship.

U.S. community colleges in depressed areas show promise in bridging the skills gap but there is still too much emphasis on an expensive four-year university education and too little on vocational training. Secondary education at public colleges and vocational schools should be free to all who qualify.

Export-led growth and foreign investment have dragged hundreds of millions out of poverty in China and transformed economies from Ireland to South Korea. Exporting firms are more productive and pay higher wages than those that serve only the domestic market. Half of the U.S.’s exports go to countries with which it has a free-trade deal even though their economies account for less than a tenth of global GDP.

Openness delivers other benefits. Migrants improve not just their own lives but the economies of host countries. Foreign direct investment delivers competition, technology, management know-how, and jobs which is why China’s overly cautious moves to encourage foreign direct investment (FDI) were somewhat disappointing.

In general, greater opportunity makes people better off and there are more and more varied opportunities in open economies than in closed ones.

That’s what I think, what about you?

[1] John Barry Larson is the U.S. Representative for Connecticut’s 1st Congressional district.

[2] Bremmer, Ian. Trump And Sanders Have Tapped Into A Dangerous – And Wrong – Anti-Trade Sentiment, Time, 25 April, 2016, p10.

[3] The Case For Free Trade Is Overwhelming. But The Losers Need More Help, The Economist, http://www.economist.com/news/leaders/21695879-case-free-trade-overwhelming-losers-need-more-help-open-argument?cid1=cust/ednew/n/bl/n/20160331n/owned/n/n/nwl/n/n/NA/n, 2 April 2016.

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About lewbornmann

Lewis J. Bornmann has his doctorate in Computer Science. He became a volunteer for the American Red Cross following his retirement from teaching Computer Science, Mathematics, and Information Systems, at Mesa State College in Grand Junction, CO. He previously was on the staff at the University of Wisconsin-Madison campus, Stanford University, and several other universities. Dr. Bornmann has provided emergency assistance in areas devastated by hurricanes, floods, and wildfires. He has responded to emergencies on local Disaster Action Teams (DAT), assisted with Services to Armed Forces (SAF), and taught Disaster Services classes and Health & Safety classes. He and his wife, Barb, are certified operators of the American Red Cross Emergency Communications Response Vehicle (ECRV), a self-contained unit capable of providing satellite-based communications and technology-related assistance at disaster sites. He served on the governing board of a large international professional organization (ACM), was chair of a committee overseeing several hundred worldwide volunteer chapters, helped organize large international conferences, served on numerous technical committees, and presented technical papers at numerous symposiums and conferences. He has numerous Who’s Who citations for his technical and professional contributions and many years of management experience with major corporations including General Electric, Boeing, and as an independent contractor. He was a principal contributor on numerous large technology-related development projects, including having written the Systems Concepts for NASA’s largest supercomputing system at the Ames Research Center in Silicon Valley. With over 40 years of experience in scientific and commercial computer systems management and development, he worked on a wide variety of computer-related systems from small single embedded microprocessor based applications to some of the largest distributed heterogeneous supercomputing systems ever planned.
This entry was posted in Apprenticeships, Asia, Certifications, China, College, Columbia University, Community College, Education, Employment, Employment, Energy, GDP, Germany, Globalization, Health, Healthcare, Insurance, Insurance, Ireland, Jobs, Manufacturing, Middle-Class, Offshoring, Poverty, Robotics, South Korea, Technology, trade, Transportation, University, University of California - Los Angeles, Vocational and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

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