A Long-Term Jobs Recovery? — Outsourcing

This short post is a follow-up to yesterday's important article A Long-Term Jobs Recovery? Think Again. I strongly suggest you read that post before reading this one if you haven't already done so.

Yesterday I cast doubt on a long-term jobs recovery in the United States. One plausible scenario says it won't be until 2019 that we recover all the jobs lost during the "Great" recession. What that means, in effect, is that the American economy will not actually add any jobs above and beyond the 2007 level until 2019. Even if this scenario is too pessimistic, it is impossible in 2010 to concoct a scenario under which the economy will add anywhere close to the millions & millions of jobs required to achieve "full" employment in 2019.

For two decades now, just about every economist in the United States has extolled the virtues of globalization and free trade. It's what they learned in school. Unfortunately for us, the real world differs considerably from the flawed models economists use at universities.

One "benefit" of globalization has been the outsourcing (aka. offshoring) of American jobs. Americans have been forced to watch millions of jobs go to Mexico, India, the Philippines, China, Thailand, and elsewhere as they stood by and waited for the miraculous benefits of globalization to hit home. They're still waiting for the miracle.

A recent article in the Los Angeles Times reminds us that this trend is continuing. The longer it goes on, the harder it will be to restore the jobs lost during the meltdown. The graph and text below are from U.S. jobs continue to flow overseas—

Though some American firms are bringing overseas work back home, evidence is growing that companies are moving more jobs than ever to China and other countries — a trend that could exacerbate efforts to bring down the nation's stubbornly high unemployment rate.

One sign of increased offshoring is the rising number of applications for federal Trade Adjustment Assistance, which usually goes to factory workers who lost their jobs because their work was sent overseas or was undercut by cheaper imports.

For the six months that ended Sept. 30, workers at about 1,200 offices and plants nationwide were approved for federal Trade Adjustment Assistance. That's about 20% more approvals than in the same six-month period last year, according to the U.S. Labor Department.

In addition, the most recent Commerce Department data show that employment at the foreign subsidiaries and affiliates of U.S. multinational firms grew by 729,000 in two years, to 11.9 million in 2008 from 2006. Over that same period, domestic employment by such firms slipped by 500,000 jobs, to 21.1 million [data graphed below].

And here's the Decline Of The Empire paragraph—

"The paradigm has shifted," said John Challenger, chief executive of outplacement and consulting firm Challenger, Gray & Christmas. "Most companies see the next phase or era of growth as global.… That'll still create jobs here, just not on the scale when they were focusing on growth in the U.S."

That trend could further stall the recovery...

Who's doing the outsourcing? And where are the jobs going?

Among the companies that have recently sent jobs overseas are Hewlett-Packard Co. in Palo Alto, CKE Restaurants, Inc. in Irvine and Hilton Worldwide, the McLean, Va., hotelier that maintained a reservations center in Hemet employing 295 people.

Hilton's filing and comments indicated it was moving the center to the Philippines to save money. "Across all aspects of its business, Hilton Worldwide is committed to maximizing operating efficiencies while maintaining service levels," Hilton said in a brief statement.

Also moving to the increasingly popular Philippines this year were JP Morgan Chase's telephone banking operations, from Troy, Mich., and CKE is moving its technology assistance desk there.

HP is laying off an undisclosed number of human resources employees in California and nine other states, transferring their functions to Panama...

One popular observation among economists and bloggers is that jobs growth comes primarily from small businesses. You can easily see one of the reasons why that's true—the big multinationals are doing all the outsourcing. Almost all of those 11.9 million jobs moved overseas (as of 2008) aren't ever coming back.

I said at the outset that it will likely take until 2019 to recover all the jobs lost during the recession. But if the current outsourcing trend continues, or even accelerates—and why wouldn't it?—it could take much longer to achieve any real job growth (over the 2007 level) in America.

There it is. Read it and weep.

Comments

[Brian M]

I, too, have a very hard time figuring out where jobs growth could come from. All the trends are away from jobs growth, not towards it. The only growth area that I see right now is growth in high-paying financial jobs. Good work if you can get it, but limited in total numbers. I see no evidence of an opportunity for high-paying productive jobs in this country, that is jobs that actually do something useful. With some form of mild recovery (if that were possible), you might see the continuation of the trend of increasing numbers of low wage service sector jobs of the type from which most Americans run screaming. Even if those jobs were created, it seems that they would currently mostly be filled by either a) the working poor or b) immigrant labor of some type.

Trying to find any source of middle income job growth remains, to me, an act of futility. Where can it come from? Housing and construction? Not now. Not for years. Retail? Mostly low wage work, but increasingly dire anyhow (see Consumer Metrics Institute and/or Gallup). How is this giant consumer buying spree going to be financed? Housing? Not. Real wage growth? Not. One has to assume that the only logical answer is that the Fed aims to jack up the stock market so everybody feels rich and can start borrowing and spending again. Possible? Maybe, maybe not. Sustainable? Forget it. There aren't enough good credit risks to support the system. Besides, in the very near future the boomers will be trying to offload assets of all types to fund the old age existence, and that should drop the hammer on most of your major asset classes.

How about high tech? More of those jobs are being off-shored every day. How about green technology? Again, other countries are the leaders and there seems to be neither the money or political will to drive the industry at a pace that would generate meaningful numbers of jobs.

Increasingly, I am left to conclude that jobs in America will come when one or both of the following happen...1) immigrants give up on the jobs they are doing here and return to the sanity and comparative good times of their native lands, leaving those jobs for Americans who previously wouldn't touch them, or 2) the food system in the US breaks down due to peak oil, climate change, peak fresh water or name your favorite, and Americans are forced to return to the fields to grow their food in numbers not seen since the advent of the fossil fuel age.

Read it and weep indeed.