Americans & Job Loss: Assessing Responsibility

Labor and all associated traits, components, and concerns are of immense interest to economic geographers. Of particular interest is the movement of labor-intensive manufacturing jobs from historically manufacturing based economies, such as the United States, to low-wage, low-skill, low-income states, like China, Vietnam, and other Southeast Asian countries.

Low-income states, such as Vietnam, China, or Cambodia, represent pools of labor willing to work for pennies an hour. The alternative for these workers could literally mean no income for the day, and a few dollars per week. Employment earning $10/day or more might represent 5-10x increase over their previous earnings. Who would not want that type of earnings change, right?

Regardless of the potential of worker exploitation – that may not be for our Western temperament to judge – local labor and people do benefit from these employment opportunities. And, there may be other issues associated with the globalization of labor, perhaps dilution of culture, or loss of local culture. Some geographers note that these fears may be overblown. Local cultures do not throw away their culture in favor of a new “normal,” but adapt to new traits, called “indigenization.” For instance, McDonalds builds, yet offers a completely meat-free menu due to local customs. Or, offers lamb or falafal items.

When jobs traditionally held by Americans move abroad, many Americans want to point fingers, want to blame someone. People blame CEOs, blame “greedy Corporate America,” for selling out our American jobs to China. The problem with this Blame Game is that many other factors are selectively ignored or are not realized merely out of blind ignorance.

In response to our bias, I have compiled a list of parties that should share in the collective blame:

1. American consumers
2. Unions
3. Shareholders
4. Market Analysts/Stock Brokers
5. CEOs/Corporations

And, pretty much in that order.

Unions
Unions negotiate for vacations, sick leave, and retirement benefits. One of the biggest issues with General Motors was not simply the fact that people found their vehicles undesirable, but was compounded by their huge and extravagant benefits and entitlement packages enjoyed by former employees. Unions protect ineffective employees. Ineffective employees hurt efficiency besides damaging workplace morale. Unions interfere with a businesses need to move dexterously to address changes in markets forces. And, negotiate for higher wages, when higher wages might not be warranted.

Shareholders
Stockholders in a company have at least two simple desires. First, stockholders want share prices to increase. Second, they want to get paid a dividend. A company needs to continually examine profitability to ensure those events occur, to keep investors happy. If you have a mutual fund, an IRA, a 401k, this means you.

Stock Brokers/Financial Analysts
Stock Brokers and Financial Analysts set and manipulate share prices. Any who says they do not doesn’t pay attention to Jim Cramer, or Squawkbox (MSNBC). At one time, a CEO who was interviewed could expect the share prices of his company to increase dramatically in the first three months after his appearance on MSNBC. This effect was even given a name, “The Squawkbox Effect” (CNNMoney). These Financial Actors can influence markets and economic sectors simply by making comments in favor of, or opposed to, movements by corporations. These Actors seem to reward nimble corporate market adaptations, and seem not to reward long-term plans that include innovation. Conversely, these actors also seem to expect corporations like Microsoft, Apple, HP, or Motorola, to be constant innovators. Corporations that make significant changes to their business model, either through selling off divisions, corporate mergers, or the acquisition of other companies or technologies, may not result in a favorable response. Therefore, these Financial Actors can exert influence in how a company examines its finances.

CEOs / Board of Directors
CEOs and Board of Directors are probably the least to blame. I’m sure that sounds contrary to popular opinion. But, ask yourself this, For what purpose are CEOs hired? To make a company profitable, and, keep a company profitable. Simply put, they are hired to make money. And, if reducing the costs of labor help make the company more profitable, then the shareholders – the investors win. If you have a mutual fund, for retirement, for education, then you win. Profits keep shareholders happy. Profits keep the Board of Directors happy. How does a CEO manage to keep everyone happy? That is why they get paid the big bucks, why are they rewarded handsomely when they succeed, and why they do not get paid as much when they fail. Not as much when they fail.

Consumers (You and I)
I saved the best for last. Best, and the top reason jobs move abroad. Yes, you and I are pretty much the reason why jobs move overseas. How dare you! you might scream. Before you light the stake, follow this rationale.

Americans, in general, have become Irrational Consumers. I enter into evidence the “Average American Credit Card Debt: $15,799 (creditcards.com) . I also enter the “Mortgage Crisis of 2008” as my second exhibit. My third exhibit is the inability of the U.S. Congress to efficiently manage Revenue v. Debt over the last 30 years, and for their complicity in encouraging Americans to “buy” and adopt horrible financial behaviors. I could also add in our reticence to restrain our thirst for oil, that we are the largest consumers of electricity in the world despite having only 5% of the population.

Rational Consumers will purchase what they can afford, through savings, or through buying off-brands. Rational consumers will abide by common financial practices of setting aside 10%-15% of income to retirement. Rational consumers will maintain a debt load of less than 30% of income. Rational consumers will use the rule of 2-1/2x’s annual income for determining the affordability of housing.  Many financial web sites are available to assist people in making good choices.

People do not want to make good choices, or do not have the experience in making good choices. Shopping at Wal-mart or Target or CostCo may superficially seem like a good cost-saving measure, but not if you spend more than earn.

However, people do seem to want value for their money, even if that money is really VISA or MASTERCARD. That purchasing power, whether credit/credit cards or cash is The Voice that CEOs listen to. In the 1970s and early 1980s, televisions were available from both United States and Asian manufacturers. Eventually, U.S. makers were forced to close factories in the U.S. and contract with factories in China, Malaysia, Taiwan, and Japan. Were their TVs better? No, not really. But, they were cheaper. Same quality, but less expensive.

Thus, if you were shopping in the 1980s, you might go to K-Mart. In the electronics department of K-Mart, you would see a U.S.-made RCA TV for $199.99. Next to the RCA is a similar TV made by Japan’s LG or Sony for $169.99. All things being equal, which one did you buy? I’ll tell you; you bought the Sony and saved $30. You, and a bunch of other Americans opted for the less expensive TVs. RCA, after a few years of seeing profits decline, had a difficult choice to make. Close; or stay in business but move manufacturing to Asia. RCA got the message, though; Americans would rather have a cheaper TV than a more expensive TV made in the United States.

The Price of Labor is crucial in remaining competitive. See, raw materials are pretty much priced on the global market. Everyone pays pretty much the same price for leather, fabric, plastic, etc., all the inputs for products. The other major cost for products is transportation. While transportation can be expensive, it is expensive for everyone equally. That leaves labor.

Americans require benefits, health insurance, dental insurance, eyecare insurance. Americans require paid vacation and paid sick leave and maternity leave. Americans want retirement plans. Americans want a minimum wage and regular raises. Americans want unemployment insurance and retraining benefits when we lose our jobs. None of this is free.

Furthermore, as none of this is free, someone has to pay for it. That someone is you, but not exclusively you. Your employer also chips in. In fact, you as an employee cost your employer an addition 25% to 40% above and beyond your wage (MIT Sloan School of Management). In other words, if you make $9/hr, you are costing your employer at least $12/hr.

Pretend you are an employer, you have your own company making TVs. You now have a choice: are you going to try to make TVs in the United States, and pay your workers minimum wage (good luck) $7.35/hr, which is a cost to you of about $9/hr per employee, $72/day per employee, $1,440/month per employee? Or, are you going to hire a Chinese worker for $4/day, or maybe $120/month? Because that is the reality.

Well that isn’t fair! I’ve heard that, too.

Do you want a Free Market economy, or not? If so, that has to apply to labor, as well. Otherwise, as a U.S. company owner you might petition the U.S. government to pass an excise tax on incoming products from China. That might be good for you; a TV coming in from China now has $30 added on to it so now it is equal in cost to yours. But, when Americans find out that they are paying $30 more for that TV than what they could pay, someone is going to be upset.

In the Grander Scheme of Things, eventually those workers in Vietnam, Malaysia, wherever, will eventually want higher wages. When that happens, those worker might get higher wages. The cost of those additional wages will be passed along to the consumers, us. This is happening already in the maquiladoras along the U.S./Mexico border. And, it is happening in isolated cases, in southeast China. People upset over their wages, or working conditions, are striking, acting-out. Apple, for example, has negotiated with a Chinese factory, FoxConn, to improve the working environment. That is one isolated case.

Bottom line is that you and I, our parents, our grandparents, and our kids and grandchildren, all made choices of buying the best and cheapest stuff that matched our budgets, or that we could squeeze on our VISA or Discover Card. And, doing that helped move American jobs overseas.

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