Four things the US should learn about losing and creating jobs

Four things the US should learn about losing and creating jobs

Overview

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The Unites States is currently facing a loss of manufacturing jobs because it is no longer competitive on the global market. Its experience is very much like that of the Eastern European countries after the fall of communism, and like those countries, it needs to quickly accept that the jobs are not coming back. The solution lies in investing in helping the people acquire new skills and boost their employability for other sectors.

Accepting you have a problem is the first step in fixing the problem

Throughout its presidential campaign, president-elect Donald Trump made a series a claims about how America has been losing and continues to lose jobs to China and Mexico. The claims are not without merit. According to a study published in the Journal of Labor and Economics, between 1999 and 2011, over 2 million jobs were lost to either importing goods from China or factory relocation. Similarly, the Public Citizen advocacy organization estimated 1 million US jobs lost since the implementation of the North American Trade Agreement (NAFTA) in 1994. The accuracy of these numbers is debatable but what is certain is that both China and Mexico are indeed attracting manufacturers seeking to reduce production costs. Playing on a global market, the US is not competitive anymore, and it lags behind even when accounting for the increase in productivity.

Before the fall of the Berlin Wall, Eastern European countries did not know what unemployment was. These former centrally planned economies, which catered almost exclusively to the Communist bloc, had to transition to a market system. As they were exposed to the global economy they learned that their manufacturing process was inefficient and that their products were of poor quality and of no demand. After years of state subsidies, most factories were privatized and millions lost their jobs in the process.

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Hourly compensation costs in manufacturing (USD), 2010 and 2013 Source: The Conference Board


There is nowhere to go

The lost in Eastern Europe gave birth to the labor migration to Western Europe. Bulgarians and Romanians headed to Italy and Spain; Polish, Latvian, and Lithuanians to Britain and Ireland. The ability of the Western, more economically developed countries to assimilate this labor migration was determined by geographical proximity; by the deficit of low-skilled labor but also by the ability of the migrants to quickly integrate into their host countries, even is the only jobs available to them were low skilled. This was how the myth of the Polish plumber was born in the UK and that of the Romanian “badante” (house maid/ caregiver) in Italy. More skilled professionals followed suit, with the result that Eastern Europe today faces labor shortages in certain sectors.

For the American workers, on the other hand, there is nowhere to go since neither Canada nor Mexico are viable labor migration destination. The two markets cannot possibly assimilate over 3 million Americans. Canada, although highly industrialized, has a good migration process in place that targets highly skilled professionals and is dismissive of blue collar workers. Mexico is focusing on tackling its own unemployment and cannot offer the conditions that American workers are used to.

The jobs are not coming back

For US companies, the dream of the cheaper labor goes beyond China and Mexico. As the wages in these countries start to rise, other destinations become attractive, such as Vietnam, Philippines, India or Bangladesh. The way the market works, the bulk of the American manufacturing jobs will never come back. The show put on by Trump with Carrier was exactly that, a show. Bribing companies with tax breaks cannot be interpreted as a sign of a healthy economy, nor it is sustainable in the long run.

Learn a new concept: “professional reconversion”

Over a time span of 15 years, Eastern European countries went from over-industrialized and state-dominated, to service-oriented markets fully integrated into global trading networks. But how can you become a service-oriented market when you still rely on a work force of unemployed, low skilled former factory workers? The answer is through professional reconversion.

The term comes from French “reconversion professionnelle” and translates in English into roughly “professional retraining”. But this translation is insufficient to render the full meaning because it is not only about re-training, but also about changing the mindsets of workers through counseling and re-orientation. Professional reconversion is funded under the European Social Fund (ESF).

The ESF supports the creations of jobs, improvement of working conditions, inclusiveness, flexibility on the labor market and entrepreneurship. It does so by co-funding national, regional and local projects brought forward by state institutions, private companies or non-profits. The objectives of the projects differ greatly and include: providing training, orientation, counseling and mentoring in businesses and entrepreneurship; increase adult literacy; acquisition of skills to boost employability; boosting employees’ flexibility in response to the financial crisis, and so on.

From 2007 to 2013, over 84 million people benefited from programs funded by the ESF, out of which 75% were unemployed or inactive, and almost half had only primary or lower secondary education. The beneficiaries accounted for 17% of the whole population of the EU. The budget allocated was 75 billion euro (roughly USD 80.7 billion), with expenditures per person of USD 960.

If the US was to recreate a similar program for 3 million people it would have to allocate a budget of almost USD 3 billion. If it wants to match EU’s 17% of the population it would have to allocate USD 5 billion. For 2017 the whole budget of the Department of Labor was USD 12.8 billion.

 

 

 

Categories: Economics, North America

About Author

Alina Harastasanu

Alina Harastasanu works as a business analyst and has over 7 years experience in consulting and international business. She holds a B.A. in Political Sciences from the University of Bucharest, a M.A. in Geopolitics and Global Security from University of Rome “La Sapienza” and an MBA degree focused on International Business and Strategy from The Ohio State University.