The Disappearing Jobs

By: David Chapman | Fri, Jan 9, 2004
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In the 1992 US election Presidential candidate H. Ross Perot said that if the North American Free Trade Act passes "you will hear a giant sucking sound of jobs going south of the border". Ross should have looked further a field especially to the east in Asia. Since 2000 it is estimated that the US has lost upwards of 3 million jobs at its peak. While some point to the recession in 2001 by most standards it was mild. The prime reason jobs are being lost is that jobs are being "outsourced" or as some call it "offshoring". And this phenomenon is not expected to stop with estimates of outsourcing expected to grow by 30-40 percent per year over the next 5 years. One business consulting firm estimated that upwards of half a million jobs or 8% of total employment of banks, brokerages and insurance companies will go overseas within 5 years.

While the US has been hit harder it is also occurring in Canada. And the job losses are not just in manufacturing as white collar professions are now being hit including accounting, air craft design, medicine, research, financial management and many more including the most obvious of call centres and back offices. Stories abound of former software developers and other high tech employees now holding two or even three low paying service jobs just to make ends meet as a result of losing their jobs to outsourcing.

English speaking countries such as Ireland and Israel have been attractive for some of the jobs. But other countries where English is widely spoken such as India, the Philippines, South Africa, Ghana and Sri Lanka have received jobs. Russia and some other Eastern European countries have been the destination for some high tech jobs where there are well-educated tech professionals. And of course China and Mexico have absorbed numerous manufacturing jobs over the years.

The massive growth of the Internet and communications has been a prime mover behind the jobs leaving. This is like a third revolution in terms of the industrial revolution where first the invention of the steam engine allowed the costs of moving goods to fall sharply, then when the costs of moving people fell sharply millions immigrated to the USA and Canada for a better life. Now because of the communications revolution the jobs are migrating back to the third world countries where production is a fraction of the cost it is in North America.

Of course in its wake are left workers whose jobs and therefore lifestyle is now severely threatened as the quality jobs are not being replaced. This in turn is giving rise to the McJobs economy where some are holders of high paying jobs and the vast majority are in low paying service industry jobs with little chance of upward mobility. What this means in terms of the social structure going forward is unknown at this time but generally it gives rise to a small have population and a huge have not population and the middle class is increasingly squeezed.

Of course the outsourcing has helped contribute to the bottom line of companies and increased productivity. This may be behind some of the seeming strong economic numbers seen recently. This also explains the low inflation numbers, as the outsourcing of jobs is actually deflationary despite the fact that commodity prices have been rising and are at their highest levels in years. But overall and in the long run the loss of the jobs and the turning of society into McJobs is not a positive event. While this type of loss of jobs is not the first time it has occurred the movement of low paying manufacturing jobs in the 1950's and 1960's to Japan, Korea, Taiwan and other Asian tigers did not have the same impact as equal or better ones came along. This time that does not appear to be happening.

While on one hand workers are being squeezed into McJobs even those jobs are being further squeezed due to the Walmartization of the economy. Here the Wal-Mart formula is adding another dimension of concern. Wal-Mart's rivals themselves are all being squeezed. Sears, Target, Safeway, Kmart, JC Penney, Kroger combined sell fewer goods than Wal-Mart. Wal-Mart has become in some people's eyes too efficient.

Wal-Mart squeezes everyone, employees and suppliers. The suppliers who feel grateful to getting the large orders soon discover that with Wal-Mart they are highly dependent on the business. At that point they are squeezed to decrease their prices 5% annually, and they only have a short delivery window and if they can't make it Wal-Mart cuts them lose and gets someone else. The result is that now thousands of companies supply Wal-Mart (over 20,000 by estimates) and are dependent on them. To meet Wal-Mart's demands they themselves slash workers and move operations offshore to find lower prices. If they don't they are guaranteed bankruptcy.

While this always guarantees for Wal-Mart to maintain its motto of "Always low prices" it adds another dimension of deflation. And of course not only does it squeeze its suppliers but it also squeezes its competitors to do the same thing or die. And it has been well known to squeeze all business especially in smaller towns or cities where at the end the only place to get anything is Wal-Mart as everyone else goes bankrupt because they could not survive against Wal-Mart's relentless predatory practices. At the other end as Wal-Mart increasingly becomes the only game in town employees are squeezed in their wages, and benefits (if any) and a rapid sometimes-brutal put down of any attempt to unionize.

Outsourcing or offshoring at one end and Walmartization at the other end in endless series of McJobs are changing the face of the economy. Consumers are over indebted having gone on a spending binge in the late 1990's and have been unable to break the habit so far in the early 2000's with both mortgages and consumer credit card debt at record levels. As a result of the squeeze on jobs on one hand and record debt levels on the other we face a potential meltdown once we actually go into a recession. Consumers are 70% of the economy and if they don't have jobs they don't consume.

Bankruptcies and defaults have continued at record paces despite the so called booming economy. Credit card delinquencies have reached an all-time high. While there had been some indications that there was going to be an improvement in the job market the most recent employment numbers have thrown cold water on that theory. It sometimes seems that we see announcements daily of plant closings and lose of a few hundred jobs here and few thousand jobs there while moving the production or function offshore. The unemployment rate has shown little signs of actually falling guaranteeing a further rise once the current debt and money fuelled economy comes to an end which it will. And when it does it won't be pretty and the current level of disappearing jobs will accelerate further.


David Chapman

Author: David Chapman
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