America’s Labor Pains

A four-letter word has come to dominate the discourse of the developed world: J-O-B-S. While Greece is frantically shedding workers in order to avoid a default, most of Europe is frozen with fear of a recession. The once reliable engine of global growth, the US, is teetering on the verge of a second recession. President Barack Obama’s urgent call to pass a $447-billion jobs bill is being resisted by Republicans and some fellow Democrats. Unable to agree on anything else, American lawmakers are pushing a bill to tax cheap Chinese imports, hoping that will somehow create jobs at home. Meanwhile, a movement of jobless and angry Americans, ‘Occupy Wall Street’, has begun to spread from New York to other major cities. Frustrated by Congress’s inability to end its partisan bickering, Starbucks CEO Howard Schultz has launched a programme ‘Create Jobs for USA’ to raise donations to enable small companies to create jobs. But the question remains: where have the jobs gone?


Without a clear understanding of why employment opportunities seem to have disappeared in the rich economies, one cannot even begin to look for a long-term solution. The fact is, thanks to a combination of rising automation and globalisation of business, the world economy has undergone a deep structural transformation, which has been aggravated by the bursting of property bubble in the US and parts of Europe and a global financial crisis. A consensus is now emerging about why jobs have been shrinking for a number of years. The latest IMF Economic Outlook’s summary of this consensus is likely to provide ammunition to the critics of globalisation.


One factor, of course, is rising automation. Since the 1970s, middle-income service and manufacturing jobs have been lost to labour-saving technologies, a process which has only accelerated in this century. (When was the last time, for example, that you bought a plane ticket from a clerk at an airline office?) To this steady erosion of jobs has been added the opening of world markets and the rise of supply-chain production. As a result of China, India and the ex-Soviet bloc countries joining the global economy, the available labour pool has suddenly expanded to nearly 3 billion. 


The rise of the Internet and information technology, combined with the plunging cost of container shipping, has allowed companies easy access to this vast pool of labour. The result has been elimination of blue-collar jobs in the Eurozone, Japan and the US. In fact, the IMF report says that “one-third of the aggregate decline in US manufacturing employment during 1990-2007 can be attributed to increased imports from emerging markets”. Another consequence of technology-driven, off-shored industry has been a sharp rise in income inequality in almost every developed country. The ‘Occupy Wall Street’ protesters claiming to represent 99 per cent of people are now railing against the 1 per cent who won big.


The protest against Wall Street’s money-grabbing and growing demands for a tax on the rich reflects middle-class frustrations and fears of a new Great Depression. Public displays of anger might spur reluctant Republicans to pass parts of Obama’s jobs bill that could release billions of dollars to build roads and bridges. It might make a small dent in the jobless figure (now effectively 16 per cent), but economists are in agreement that a long period of low growth and high unemployment lies ahead. If over time large-scale manufacturing does eventually return to the US, it will be driven by rising wages in the emerging countries. Re-training and re-educating workers to regain lost US ground in high-value added manufacturing will also take years.


Meanwhile, the jobs crisis is heating up international tension. As the Congress threatens to punish China for currency manipulation, Beijing has warned of a trade war. Long a source of anger China’s trade surplus is being increasingly linked with unemployment in the West. In a new book, The Coming Jobs War, Jim Clifton, chairman of Gallup organisation, says of the world’s 5 billion working-age people, 3 billion want to work, but there are only 1.2 billion full-time, formal jobs. Of course, most in the developing world make do with informal work. With their elaborate social protection regime, rich countries find the disappearance of formal jobs unbearable. But with emotions running high, this is a dangerous time to let trade conflict grow into a jobs war.