Federal Triangle: Jobs in an Era of Structural Change
It does little good to tell a person who just lost their job about structural or cyclic shifts in industrial economics. But these things are integral to the employment foundation and must be understood for insight into jobs at the macro and micro levels. The Bureau of Labor Statistics employment projections for the 2002 to 2012 period give an outlook in macro terms. The U.S. economy will grow from $9.4 trillion to $12.6 trillion and the labor force from 144.9 million to 162.3 million over the period, an annual growth rate of 1.1%. Net employment growth of 21.3 million new jobs plus 35 million replacement jobs will create a market of 56.3 million job openings. Self employment should decline 2.3% from 11.5 million to 11.3 million and the unemployment rate is predicted to be about as today, 5.2%. The good news is that GDP should grow 3% and productivity 2.1% per year.
Readers of this journal may not like BLS predictions that manufacturing jobs will continue to shrink in number, although a few sectors may experience relatively fast job grow including metalworking machinery manufacturing (4.9% annual growth with job increases from 217 to 251,000) and forging and stamping (4.5% increase per year with job growth from 114 to 132,000). But across the board U.S. manufacturing employment will continue to decline, and by 2012 is projected to shrink by 0.7% to 15,149,000. However, manufacturing output should surge 19.9% from $3,880.3 to $6,504.7 in "gross duplicated output," a term that relates labor needs to reach production goals. What it says is that the U.S. manufacturing sector of our economy will grow due to enhanced productivity and continue on its historical path of increasing capital intensity. When manufacturing becomes more efficient, fewer employees are required. This is not only an American phenomenon; all countries including China and India are losing manufacturing employment per unit of output.
The popular demons today about job loss are foreign competition and outsourcing but remember that 40 years ago it was automation. In March 1964, liberal pontificates reported to Lyndon Johnson that "the combination of the computer and the automated self-regulating machine" will require less labor and without massive federal spending, the U.S. will suffer joblessness and poverty. Those demons did not appear. The U.S. leftist intelligentsia is often technophobic and seeks isolationism, protection from results that others achieve through resourceful capitalism, such as reduced taxes and realistic energy supply policy. Further, it is my view that the macroeconomic condition of our industrial economy is in reasonably good health, quite robust compared with others, and this jobless recovery has cathartic benefit.
Studies by the Federal Reserve Bank have evaluated employment changes during recessions and concluded that in downturns of the 1970s and 1980s, job losses were equally split between cyclic shifts and structural shifts. A cyclic shift is a temporary layoff that returns a worker's job during recovery but a structural shift is a permanent reallocation of workers and capital. In the 2001 downturn 79% of job losses were structural, resulting from the 1990s period of overexpansion, innovations to promote lean staffing, and the improved monetary and fiscal policies of the banking system to minimize cyclic shifts. Despite a paucity of new jobs, U.S. unemployment is relatively low and real wage growth has been strong for a recession and recovery period. Recall that manufacturing output in the past twenty-four years has risen 93% and the industrial production index rose 2.2% last year alone. There is no deindustrialization in America, just efficiency gains that have allowed manufacturing employment in the total workforce to decline from 28.4% to 11.7% since 1960. But, selling this idea to the fellow who just lost his job or the factory owner who is about to close the doors, is difficult.
Healthy manufacturing firms in the U.S. have money to invest after this structural correction is completed. Federal Reserve studies indicate an investment surge will come after resolution or clarification of issues such as oil price shocks (a $10 per barrel rise in price ripples into a 0.33% drop in GDP), corporate scandals that lead to reform, high health care costs that industry shares, class action litigation madness, the decline in levels of worker education, government regulation, terrorism and political manipulation of business taxation, an area where the U.S. lags behind other industrial economies. Meanwhile, industry outsources those jobs where U.S. costs are significantly higher; a $1 offshore investment has a $1.14 net onshore gain, according to a McKinsey & Company study, enabling companies to gather that pot of money to invest in next generation technology to spur tomorrow's productivity.
It is essential that American manufacturing managers retain a perspective of both micro and macro economics on a global level. Firms must be realistic about the source of real problems and avoid blaming the popular demons. We all must remember that survival belongs to those who adapt to change. IH