Public Comment

Our quicksand economy

Harry Brill
Friday August 04, 2017 - 11:25:00 AM

It is widely known that we live in a roller coaster economy, which economists refer to as the business cycle. We hear from the establishment that our economy is almost at full employment. According to the Department of Labor's Bureau of Labor Statistics, the June unemployment rate was 4.4 percent, which is relatively speaking very low. But most people realize that this figure is nonsense. It fails to take adequate account of the very large number of working people who have given up looking for work. They are either jobless or working part time because they are unable to obtain full time work. 

With regard to the official unemployment rate, the Bureau of Labor Statistics hides more than it reveals. There is another figure that is essential to take into account -- the labor force participation rate. This rate tells us what percent of adults is in the labor force, that is either working or actively looking for work. Ben Bernanke, a former chairman of the Federal Reserve, testified in Congress that unemployment may be higher than the official figure because it overlooks the relevance of the decline in the labor force participation rate (LFPR).  

From the year 2000 until now, the labor force participation rate has appreciably declined. In other words, a growing percent of working people for a variety of reasons are not looking for work. Consider the following - the increase since 2000 in the adult population --ages 19 to 64 -- is about 24 million. Yet less than half this number is counted as members of the civilian labor force. But why? Since those who are at least 65 are not included in this estimate, retirement is not a major factor. And nowadays many students work and want a job. The only valid explanation for the millions of these forgotten Americans is that they have given up the search for work because they are unable to find a job. 

If most of these workers are included in calculating the unemployment rate, the official unemployment rate would be at least twice the current official rate. But why are jobs so difficult to obtain? Of course there are many explanations. But especially important is that we live in a global economy. Rather than business shipping jobs mainly to low wage states, which was once the prevailing pattern, millions of jobs are being continually outsourced, that is, shipped abroad. With rare exception, these jobs are not making a round trip. The numbers are staggering. Since 2001, over 3 million jobs have been relocated to China. Many millions of jobs have been shipped to India. And as the result of the NAFTA agreement, almost 700,000 jobs have moved to Mexico. But that's not all. A partial list of some of the other beneficiaries of American jobs are Brazil, Chile, Costa Rica, Indonesia, and the Philippines.  

In the aggregate, over 2 million jobs are leaving the country every year. That's a loss of more than 20 million jobs in every decade. Manufacturing has been particularly hit hard. In 1960, about one out of four jobs were in manufacturing. The number are down not to only about 8 percent. Five million manufacturing jobs have been shed since the year 2000. 

The consequences of outsourcing are very serious not only for those who are directly affected. The growing surplus of unemployed and underemployed workers weakens the ability of a majority of the work force to improve their standard of living. It is not surprising that union density has declined from the double digits to a meager 6.4 percent As a result of the erosion of both the collective and individual bargaining power of working people, hourly wages for the majority have either stagnated or declined. And the hourly wages of 90 percent of college graduates from 2007 to 2014 have gone down. Yet since 1979 the productivity of workers has increased by 64 percent. So business could have easily afforded a higher wage for its employees and still enjoy higher profits. 

From the perspective of the economy, hundreds of billions of dollars in spending power is being lost every year. Consider the following: in 2015 over 211,00 jobs of computer programmers were outsourced. The wages lost in just this one occupation in one year were about $14 billion ( this is a gross, not a net estimate). 

In addition, large job layoffs in any business impact workers at other establishments. Economists call this the multiplier effect. For example, if an auto plant closes, workers in the steel industry will lose jobs because the demand for steel will decline. And apparel workers who supply auto workers with clothes for work will also lose jobs. According to the calculations made by the liberal think tank, the Economic Policy Institute, every hundred jobs in manufacturing supports almost three jobs elsewhere. That is why a substantial number of outsourced jobs by various businesses adversely impact almost the entire economy. 

As technology improves and employers learn more about the advantages and the ins and outs of exporting jobs, outsourcing is likely to increase. To avoid a severe economic downturn it is imperative to build a progressive movement to compel our government to radically change its agenda in favor of working people and their families rather than corporate America. But whatever is accomplished, working people will be forced to live in perpetual insecurity unless serious steps are taken to curb the massive export of jobs