Jobless Economic Growth?

Note: This blog took an unofficial summer sabbatical, but I hope to start posting again as the school year gets rolling.

Why does a company like Apple boom at the same time that few jobs are being created?

Over the last few years the U.S. economy has been growing (according to GDP figures) and corporate profits have been solid (record-setting, in Apple's case). But job creation is stagnant. What gives?

One big reason is the spread of automation, outsourcing, and cloud computing (using networks of others' computers to complete tasks). Today's New York Times ran a prominent  story on Amazon's cloud computing services with two rather telling quotes in it.

First was a quote from the founder of a young company called Cue, which scans huge amounts of data and provides personalized services with it. Its founder said,

I have 10 engineers, but without A.W.S. [Amazon Web Services] I guarantee I’d need 60,” said Daniel Gross, Cue’s 20-year-old co-founder. “It just gets cheaper, and cheaper, and cheaper.” He figures Cue spends something under $100,000 a month with Amazon but would spend “probably $2 million to do it ourselves, without the speed and flexibility.”

So his company may become profitable (as will Amazon) but he can employ a fraction of the engineers he once would have needed.

Another quote reinforces the point. This was from the CEO of Good Data, a company that sifts through data to help with sales:

“Before, each company needed at least five people to do this work,” said Roman Stanek, GoodData’s chief executive. “That is 30,000 people. I do it with 180. I don’t know what all those other people will do now, but this isn’t work they can do anymore. It’s a winner-takes-all consolidation.”

From 30,000 to 180. And we wonder why profits and unemployment (even among tech-savvy groups like engineers) are both up at the same time?

American Manufacturing and Globalization

Jason Reed/Reuters

Yesterday in a speech at the University of Michigan, President Obama stated that "when manufacturing does well, then the entire economy does well." He's trying to press colleges to lower their costs and make higher education more affordable, in the hope that they'll train more wealth-creating workers. Leaving the domestic politics aside, it was an interesting week to make this case, because two stories highlighted how globalization and technological change are hurting American workers.

Maddie Parlier at Greenville Standard Motor Products
Photo credit: Dean Kaufman for Atlantic Monthly

First, the current issue of the Atlantic Monthly ran an excellent story by Adam Davidson on how difficult it is for moderately educated workers to compete in an increasingly global, increasingly automated manufacturing workplace. Davidson, my favorite economics journalist at NPR, focuses on the plight of a 22-year old single mom named Maddie Parlier who has two kids and no college education. She's working an entry-level job at a plant that makes fuel injectors, making around $13 an hour, with little prospect of advancement.

In order to move up a level on the payscale to "Level 2" and boost her pay by about half, Maddie would need to learn a lot more in order to have the necessary skills to program the machines she currently mans. As Davidson puts it,

It feels cruel to point out all the Level-2 concepts Maddie doesn’t know, although Maddie is quite open about these shortcomings. She doesn’t know the computer-programming language that runs the machines she operates; in fact, she was surprised to learn they are run by a specialized computer language. She doesn’t know trigonometry or calculus, and she’s never studied the properties of cutting tools or metals. She doesn’t know how to maintain a tolerance of 0.25 microns, or what tolerance means in this context, or what a micron is.

Maddie's plight illustrates why President Obama is pushing college affordability and job-training programs.

And Davidson's piece reminds us why workers with limited skills are struggling to keep up these days. Their jobs are being replaced by machines and/or Chinese workers.

Second, speaking of China, the New York Times ran two stories this week in a series on "The iEconomy." The first one, "How the U.S. Lost Out on iPhone Work" made quite a splash, while the second one will disturb anyone who's bought an iPad.

In the first story, the most striking passage captured why China (and not the U.S.!) is getting so many jobs out of the explosion of demand for iPhones:

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

I'm afraid the executive is half right. American plants could probably match the Chinese speed and flexibility, but they would have to pay their thousands of workers a princely sum to be ready at a moment's notice. And then they would have to pay overtime to convince workers into grueling shifts. We just can't match China at a cost-effective rate.

Apple is currently the most valuable U.S.-based company and the symbol of American ingenuity, but it "employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s" (Duhigg and Bradsher).

Globalization of the manufacturing process is not creating enough American jobs to absorb workers with lower skills. How do we get out of this mess?

I'm not sure anybody's figured that out yet. And even if someone did figure out how to start fixing this deep-seated problem, can our politicians implement such policy solutions without politicizing them?

I guess we'll see in the next few years.

Updates: The Occupy Movement and the J-1 Visa Program

Globalization continues to breed contention. Two recent examples:

The Occupy Wall Street protests mushroomed over the weekend to the point that even my little town of Canton, OH saw a protest downtown, with at least 70 protestors. It looks like we are seeing the growth of a social movement that may rival the Tea Party in its energy. As with that earlier wave, new media are a key part of mobilizing and energizing participants. All in all, it's a fascinating development, worth watching closely.

The New York Times reported today on the foreign student cultural exchange visa program that contributed to a work stoppage at Hershey's Chocolate company earlier this year. (For details see earlier posts.) The subcontractor that brought students over, the Council for Educational Travel USA, comes out looking pretty bad. All in all, it looks like the kind of program that was open to abuse, subjecting some of the young people from overseas to some rough treatment. All along, though everyone agrees that they got an all-too-accurate picture of American culture in the process. As one participant was told,

“You wanted a cultural exchange . . . . This is America and this is the way we do things here.” 

Indeed. Subcontracting and exploiting workers? Guess it's just part of our culture.

Update on Hershey's Funky Globalization

In my previous post, I discussed the State Department's J-1 visa program, which brings over foreign students for alleged cultural exchanges. The program was tied to a series of abuses at Hershey's packaging facility that led to a walkout by student workers and two stories in the New York Times.

What's the deal with this visa program? In reality, it turns out to be a way to import cheap workers for the summer, on a larger scale than I realized.

According to an op-ed piece by Fordham University law professor Jennifer Gordon in the New York Times, this program

has become the country’s largest guest worker program. Its “summer work travel” component recruits well over 100,000 international students a year to do menial jobs at dairy farms, resorts and factories — a privilege for which the Hershey’s students shelled out between $3,000 and $6,000. They received $8 an hour, but after fees and deductions, including overpriced rent for crowded housing, they netted between $1 and $3.50 an hour. Hershey’s once had its own unionized workers packing its candy bars, starting at $18 to $30 an hour. Now the company outsources distribution to a non-union company that hires most of its workers from the J-1 program.

Why would employers like Hershey go for such a program? Gordon writes,

the J-1 program is attractive to employers because it is uncapped and virtually unregulated; companies avoid paying Medicare, Social Security and, in many states, unemployment taxes for workers hired through the program. One sponsor authorized by the State Department even offers a “payroll taxes savings calculator” on its Web site, so potential employers can see how much they would save by hiring J-1 visa holders rather than American workers. Visa holders can be deported if they so much as complain, and cannot easily switch employers.

Well, that explains it. Companies get compliant summer workers and save on payroll taxes. The sponsors and contractors who arrange it all make good money. But the young people have little or no recourse to alter their situation and are stuck here (at least for the summer). Everybody's happy, it seems, but the foreign students who were expecting cultural exchanges. And if they don't like it, they can get deported.

As Gordon points out, these students are getting a taste of today's corporate America, which relies on outsourcing and subcontracting to avoid responsibility. It turns out that they do get real cultural exchange, a real taste of real America. Unfortunately, it's a bitter taste, not all the sweetness of Hershey's chocolates they were expecting.

Students, welcome to America!

Lent: Bahrain Crackdown and Japanese Horror

It's Lent. And there are all kinds of horrible things happening in the world.

Somehow that seems right, since Lent is about entering into the stories of suffering, pain, and death in the life of Jesus (see chapter 6 of the book for more on Lent).

Because of globalized media, we hear and see all kinds of stories across the world. And the most compelling and gripping stories are those like the devastation in Japan. We cannot help but be gripped by the stories we see and hear. There are live amateur videos of the wave of water sweeping into villages and towns, steadily leveling everything. Nuclear meltdowns are looming. It's overwhelming.

But it's Lent.

On a smaller scale, our family is gripped by today's crackdown on peaceful Bahraini protestors. After hoping for dialogue for a few weeks, at least a thousand Saudi troops swept over the causeway into Bahrain on Monday, reinforcing the Bahraini security forces so they could burn down the encampments on Pearl Roundabout (see video below). In this tiny country that we love, it's sad and depressing.

But it's Lent.