Socialist ViewPoint and analysis for working people

March 2005 • Vol 5, No. 3 •

Eight Million Jobs Lost?

By Rod Holt

During the 2004 election campaigns, there was much rhetoric on the long recession and the “jobless recovery.” Bush bragged that the economy was growing at a brisk pace, while the opposition pointed out that employment had not even begun to recover. Many economists concluded that the pronounced lag in employment was due to the increasingly popular practice of “outsourcing,” i.e., giving clerical, data entry, record keeping and accounting jobs to companies overseas where wage rates are a small fraction of those in the U.S. Computers and satellite communications have made it possible for people in China or India to accomplish tasks just as though they were next door. And they work for less than a dollar an hour.

Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, a past associate editor of the Wall Street Journal and a prolific columnist attacked outsourcing without reservation. In February 2005, he wrote “The Great American Job Sell Out,” for the conservative National Review. Quickly afterward it appeared on-line in CounterPunch and from there all over the world by e-mail.

Roberts’s central thesis is that cheap foreign labor is replacing American labor; that the consequently impoverished American worker will no longer be able to support the market, and since the market supports the capitalist, our capitalist system is doomed.

Americans are being sold out on the jobs front. Americans’ employment opportunities are declining as a result of corporate outsourcing of U.S. jobs, H-1B visas that import foreigners to displace Americans in their own country, and federal guest worker programs

President Bush and his Republican majority intend to legalize the aliens who hold down wages for construction companies and cleaning services. In order to stretch budgets, state and local governments bring in lower paid foreign nurses and schoolteachers. To reduce costs, U.S. corporations outsource jobs abroad and use work visa programs to import foreign engineers and programmers. The American job give away is explained by a “shortage” of Americans to take the jobs.

This process, says Roberts, will destroy the value of the dollar and soon lead to China and India rising to the first world status while the U.S. “falls to third world status where the only jobs are in domestic services.” Continuing:

Economists give assurances that the dollar’s decline and fall will bring jobs and industry back to the U.S. Once Americans are as poor as Indians and Chinese are today, the process will reverse. Multinational corporations will locate in America to take advantage of cheap labor and un-served markets. By becoming poor, the U.S. can become rich again.

Roberts states that today there are 760,000 fewer jobs outside of government than when Bush took over four years ago. He says, “Comparing this pathetic result to normal performance produces a shortage of 8 million U.S. jobs.” What happened to these jobs? Unfortunately, he doesn’t say. What is “normal performance?” No word on this either.

He ridicules the administration’s economists for being unable to account for the job loss, and he implicates outsourcing with rhetorical arguments:

Outsourcing proponents claim that U.S. job loss is being exaggerated, that outsourcing is really just a small thing involving a few call centers. If that is the case, how is it transforming sleepy Indian cities into “the New York Cities of Asia”? If outsourcing is no big deal, why are Bangalore hotel rooms “packed with foreigners paying rates higher than in Tokyo or London,” as the Dayton Daily News reports?

Why the Dayton Daily News should be considered the expert here is not addressed.

In the above article, “The Great American Job Sell Out,” Roberts really gives no real explanation of why he blames outsourcing for the job shortfall. A year earlier he did make a serious attempt to connect outsourcing to what he sees as the impending collapse of capitalism. Writing in Business Week (“The Future of Work,” March 22, 2004), he explains that free trade in services like computer programming, accounting, etc. is qualitatively different from free trade in merchandise. Roberts seems to think that outsourcing (free-trading) service jobs is criminal, pure and simple.

He goes on to attack the capitalist’s practice of shipping whole plants to low labor cost countries:

Companies producing for U.S. markets are substituting cheap labor for expensive U.S. labor. The U.S. loses jobs and also the capital and technology that move offshore to employ the cheaper foreign labor. Economists argue that this loss of capital does not result in unemployment but rather a reduction in wages. The remaining capital is spread more thinly among workers, while the foreign workers whose country gains the money become more productive and are better paid.

Economists call this wrenching adjustment “short-run friction.” But when the loss of jobs leaves people with less income but the same mortgages and debts, upward mobility collapses. Income distribution becomes more polarized, the tax base is lost, and the ability to maintain infrastructure, entitlements, and public commitments is reduced. Nor is this adjustment just short-run. The huge excess supplies of labor in India and China mean that American wages will fall a lot faster than Asian wages will rise for a long time.

It is impossible to make his argument precise. Even his notion of capital is fuzzy. But his general drift is clear: exporting jobs forces wage rates in America downward toward (say) those of the Chinese, American workers will then be impoverished, and this will destroy the American capitalism that Roberts has come to know and love. Hence the tinge of hysteria.

The White House line on outsourcing

Many people are embroiled in the outsourcing issue. President Bush’s chief economic advisor, Greg Manikiw, poked a stick in the hornet’s nest when, before the presidential election, he said:

Economists are nearly unanimous that free trade is good for the world economy. That is, it is win-win benefiting both trading partners. This has been understood since Adam Smith’s The Wealth of Nations, published in 1776.

Outsourcing is simply the latest manifestation of free trade. We are all used to goods being produced abroad and transported here on ships. We are less use to services being produced abroad and being transported here over telephone lines or the Internet. But the basic economic forces are the same. When a good is produced more cheaply abroad, it makes more sense to import it than make it domestically.

This can be difficult for workers who are displaced and need to find jobs in new growing industries. But the economy, overall, benefits. Public policy needs to help workers find new jobs, not retreat from the principles of free trade that have benefited the U.S. and economies around the world.

Ask the White House,” Jan. 22, 2004

Manikiw was answered by politicians both left and right. As an example, Robert Reich of National Public Radio wrote him an open letter:

…The tidal wave of outsourcing that’s now hitting America is very different from international trade. It’s flowing through fiber-optic cables and satellites – as quickly and easily as dialing an 800 number. It’s like having an Indian software engineer suddenly appear in the next cubicle, or a Philippine radiologist in the next lab.

Sure, if they can do it cheaper we all benefit. But … you’ve also got to consider the huge costs of retraining our radiologists and back-office workers and software engineers and everyone else whose jobs may be on the line now. And think about the difficulty of finding them new jobs that can’t be replaced in two seconds by someone else at the end of another fiber-optic cable in India or China or the Philippines.

At the very least … you’ve got to admit that the incredible ease of outsourcing is allowing businesses all over America to hedge their bets and put off permanent hires until much later in the business cycle than ever before. It’s a big reason why this jobs recovery is so anemic. And outsourcing is also undermining the bargaining power of millions of employees who now know they can be replaced instantly if they so much as even think about a raise.

NPR, February 18, 2004

This exchange between Manikiw and Reich is typical of the arguments. Outsourcing is supported as free trade or condemned as the rampant enemy of the working American. Both sides are weakened by the lack of statistics that directly support their arguments in part because U.S. corporations are not required to report neither outsourced job numbers nor dollars involved. In this vacuum, Paul Roberts can speculate as well as any.

A year later, the party line remains the same. In Foreign Affairs, (March-April, 2005) David Levey and Stuart Brown analyzed the long-term strength of American imperialism. Here they argued that the very thought of the U.S. losing its hegemony over the world’s economies is absurd. They pointed out that the public and private financial assets of the U.S. far exceed the rest of the world; our securities alone now represent over 50 percent of the world’s total. True, they admit, continuing trade deficits, increased by outsourcing, could shake confidence in the dollar’s value. “The ensuing recession, combined with the cheaper dollar, would eventually combine to improve the trade balance. Although the period of global rebalancing would be painful for U.S. consumers and workers, … it would not undermine the economic foundations of U.S. hegemony. The U.S. dollar will remain dominant in global trade, payments, and capital flows….” These two analysts conclude, “The biggest threat to U.S. hegemony, accordingly, stems not from the sentiments of foreign investors, but from protectionism and isolationism at home.” Bush, Manikiw and the U.S. Treasury are 100 percent right, you see.

Implied, but unstated, is the hope that American technological supremacy and military terror will back up Wall Street tomorrow as they have in the past.

But things might change; if the American citizen declines to be cannon fodder for the imperialist wars—Oops, I mean, anti-terror, democracy-promoting interventions—then Levey and Brown will owe us a rewrite.

Looking for the problem

We know with considerable accuracy how many people are employed. The Bureau of Labor Statistics (BLS) surveys 60,000 households weekly, and also looks at the legally required paperwork filed by employers such as W-2 forms. They even add the number the Bureau of the Census estimates as illegally employed. And we know accurately what the country’s population is, its age distribution, how many are left out of the labor statistics because they are less than 16, in hospice, in jails, the military services, etc. From these numbers the BLS compiles “civilian non-institutional population over 16,” abbreviated CNP. From here on, when we refer to the population in this essay, we mean the CNP.

The BLS statistic we hear the most about is the unemployment rate. This is the result of dividing the number of unemployed by the “civilian labor force,” which is simply the sum of the employed and unemployed, and the result is expressed as a percentage. The CNP is divided up into three parts: the employed, the unemployed (which together make up the “labor force”), and those left over, (which are called “not in the labor force”).

The participation rate

There is another number calculated by the BLS and that is what they call the participation rate. Here they divide the labor force by the CNP and express the result as a percentage. The BLS decides a person is unemployed if they have no job and are “actively look for work.” I put the phrase “actively looking for work” in quotes because it is frequently manipulated by the BLS to make the unemployment rate come out looking good. For example, when the economy dips, jobs get so scarce that people don’t waste their bus fare going down to the state employment agencies to sign up for interviews. There is a subjective component to “looking” for work just as there is for the BLS deciding someone is “actively looking for work.”

Nevertheless, the participation rate (the sum of the employed and unemployed compared to the CNP) is a useful indication of the level of economic activity of the working class.

One can see from the graph that after bouncing through the Korean War period, a steady climb started with the Kennedy boom. The flat spots of 1970, 1980, 1990 are directly attributed to discouragement among the unemployed during the recessions. However, the spreading Asian speculative collapse and currency crisis of 1997-1999 started the reversing of the 35-year upward trend. The participation rate stagnated for four years before it turned sharply down with the collapse of the “dot-com” bubble and has continued downward since. The January 2005 figures fail to show any reversal of the seven-year trend.

Some adjustments

Very, very few people work for fun, which is odd because the graph shows clearly that a higher and higher portion of Americans have been either working or looking, and now has reached the astonishing proportion of two-thirds That number gets even more amazing when it is adjusted to account for people with working disabilities, those 75 and over, spouses and relatives caring for the infirm, high school and college students who cannot work and complete their studies at the same time, and so forth.

Adjusting for workers with disabilities

Disabled workers are counted by the BLS as part of the CNP even though many are not likely to work since they need special assistance (transportation, working conditions, hours of work, etc.), are considered too old, or suffer from various mental disabilities. The census of 2000 reported that 21.38 million had a work disability, and only one-fourth of them held any kind of job. (As an example of number-bending, the official unemployment rate for workers with disabilities was stated as 9.3 percent!) In fact, 15.53 million people with work disabilities were counted as in the CNP. Why? The government lumping these workers with everybody else reflects their attitude that everybody is supposed to work.

If those with severe disabilities are discounted, the participation rate for 2000 rises to 72.6 percent from 67.2; that is, 72.6 percent of adults capable of working were, or were looking.

Adjusting for age

The CNP is not discounted for age or retirement. For example, people from 65 to 74 are counted just as are people over 16. In 2004, 18.1 million people in the CNP were in this age group including 4.1 million with work disabilities. All the people in the country in this age bracket numbered 18.4 million. The BLS didn’t leave out very many, did it?

Maybe we shouldn’t worry about the number of “seniors” included in the CNP, but with 35 million “seniors” in this country, most will continue to be counted in the CNP. If we were to adjust the CNP to account for the further 18 million of 75 and over, the participation rate would climb further to over 78 percent.

Proportionately more and more people were joining the labor force right up until 1997. Why was that? Were people enjoying their jobs? That is not likely; people were scrambling to stay ahead of the bill collector. If better paying jobs were not to be had, then put more family members to work. What kind of a life was this? Isn’t there a limit somewhere? Should every human, every last one of us in this capitalist United States whistle while we work dawn to dusk?

Paul Roberts seems to think so. He wants to restore to us eight million jobs so eight million more can go to work for the fat corporations. What a deal!

Conjuring up the eight million number

Roberts hammers the Bush administration for allowing the economy to fall short of normal. By “normal performance,” Roberts means a continuation of the past increases in the participation rate; his “normal” economy would have 68 percent of the population either working or unemployed. (His 68 percent is only a little off from the BLS prediction of 67.6 percent.) In January of 2005, the CNP was 225 million. Therefore Roberts expected the January 2005 labor force to be 153 million. However, only 148 million were actually in the labor force (the sum of the employed and unemployed) and only 140 million of these had jobs. There were therefore 13 million people counted by the BLS as workers looking for a job but without one.

Roberts now allows for unemployment. Substantial unemployment is essential to the capitalist system because as unemployment drops wages begin to rise. Historically, unemployment should exceed four percent or else consequent steep wage increases cut deeply into profits. (This profit squeeze is given various bad names, “inflationary pressure” or “wage-push” by the likes of Alan Greenspan, the Wall Street Journal and the U.S. Treasury.) The minimum unemployment rate is generally accepted as four percent; therefore, 147 million of the “normal” 153 million labor force should be working. Robert’s complaint is that there are only 140 million working. instead of 147 million, a gap of seven million employed workers. Roberts calls this gap in employment a gap in jobs. Although seven is not eight, it is close enough considering the uncertainties in all the numbers.

These are a very real seven million jobs, and there are seven million unemployed who would like them. But to get them by continuing the trend of forcing a yet higher participation rate will push our society towards a deeper desperation: more children neglected, more high school drop-outs, more people without sleep and working when they are sick.

The falling participation rate

Paul Roberts is not unemployed; that is not the reason for the high pitched tone. Rather, the capitalists see a trend in the economy, one that is now over five years old and persistent; people are dropping out of the labor force in a serious way, not just reflecting a recession blip. For the first time since World War II, there is major decline instead of growth. The figures indicate a steady slip of 0.3 percent per year in the participation rate, which is a huge reversal from the growth over the previous 40 years of 0.2 percent per year. Today this 0.3 decline is equivalent to about 700,000 workers per year. As the U.S. population grows, so does the labor force, but that clashes with the declining participation rate, so the labor force will grow at only 65 percent of government projections. Now that number is a heart-stopping glitch for the capitalists’ plans.

Roberts and many others would like to blame the dropping participation rate on disappearing jobs, to outsourcing. But a little arithmetic shows that this is not the story at all.

If the economy loses jobs, it won’t affect the participation rate. If two million jobs leave, two million are newly unemployed but the size of the labor force stays the same (assuming no one stops looking for work). Therefore, the participation rate stays the same. The practice of importing workers will raise the participation rate. Suppose two million workers suddenly arrived on our shores at the end of January 2005 with 100 percent of them looking for work. The CNP goes up by two million, and the number of unemployed goes up by two million. What happens to the participation rate? It goes from 65.8 percent to 66.1 percent, which is something, but not much. As an aside: do you think Bush’s immigration policy might be aimed at keeping the participation rate up by making a deal with Mexico?

The extent of outsourcing is exaggerated according to business consultants, the actual number of outsourced service jobs is 10,000 to 20,000 per month. This is 5 to 10 percent of the usual net job growth, not enough by itself to shape America’s future (they say).

If Roberts gets his miracle and outsourcing stops, the unemployment rate will perhaps go down, but it will not reverse the long-term decline in the participation rate. The American economy can no longer grow by making a higher and higher proportion of its people work.

Why should everybody work?

Why should everybody have to work? The growth of the productivity of labor in the United States has been incredible. No one needs a bunch of statistics here, but a few won’t hurt. In manufacturing, output per hour has doubled since 1980, and that is measured by the number of units produced, (tons of steel, number of cars, etc.) not by dollars. In agriculture, 4.5 million workers not only grow sufficient produce for 290 million Americans, but enough to export corn to Mexico and rice and chicken to China.

Would someone explain why the U.S. economy needs more than 7 of every 10 working today when the country prospered fifty years ago with only 5 of 10 working? The prosperity of 1950-1960 was real. The gross national product (GNP) doubled and new car sales reached 9.3 million, a new car for every 5 households in 1955 compared with a new car for every 12 households in 2000, and unemployment stayed below 4 percent the whole decade, which is a lot better than the situation today. And all the while the participation rate drifted from 59.2 to 59.3 percent.

Why is it that today American workers allow their capitalists to be the wealthiest and most powerful in the world while workers put in 40 percent more hours into the economy than in 1980? Isn’t it about time to ask for a share of the benefits of labor instead of asking for more jobs?

It is time to renew that slogan of “30 for 40”; 30 hours of work for 40 hours pay. That will be a big move in the right direction and we won’t need Roberts’s eight million jobs.

Top | Home | Contents | Subscribe | Email Us!