Banish Execs (and families) To Corporate Headquarters.

Grunt Work

Stephen Pizzo is a financial journalist who lives in Sebastapol, California.


Treasury Secretary John Snow this week declared Americans should buckle up. The sluggish economy is about to shift into high gear. The unemployed should get their work clothes washed and pressed. American companies, Snow said, will soon be creating 200,000 jobs a month!

What Snow didn't mention was that a good hunk of those new jobs, should they actually materialize, might require a big pay cut and a very long commute.

Since President Bush took office nearly three million American workers have lost their jobs. While proponents of free trade contend there is absolutely no connection, the number of domestic jobs lost nearly matches the number of jobs that U.S. firms moved offshore during the same period. (Note: Remember the U.S. economy must create 150,000 jobs each month just to absorb immigration and natural population growth.)

In recent years, the public's attention has largely focused on two wars, economic recession and corporate scandals. But behind these headlines a deep and profound change has occurred in the basics of the domestic and global economy. A robust and unsupervised worldwide labor trading floor has emerged, where higher-wage U.S. jobs are bartered with developing nations in return for low wage, low tax, unregulated workplaces. And the backlash is a lack of good new jobs at home.

"For a long time, you had a group in the United States, white-collar service workers, who could enjoy some of the benefits of free trade—lower prices for clothing, for example—but felt themselves immune from the downside. Now they realize that's not always true," said Josh Bivens, an economist with the Economic Policy Institute.

This globalizing is proving to be capitalism in its rawest form—a true marketplace—not government, unions or the courts—that determines where new jobs are created and how much worker's labor is worth.

American companies, under pressure from Wall Street to maximize returns by keeping costs low, have responded enthusiastically to this opportunity. Forrester Research has predicted the United States will lose at least another 3.3 million jobs to lower-wage countries over the next few years—along with the $136 billion in wages that would have gone into the pockets of American workers. What's different this time, however, is the jobs moving overseas will not be just in manufacturing but will also be skilled, white-collar jobs.

This trend began back in the mid-1990s. Then, Americans were mesmerized by the Internet and the related technology-sector bubble. At the time, newspapers contained regular reports of vintage U.S. manufacturers shuttering factories and moving to the Philippines or China in search of cheaper labor. But politicians and economists assured us that these were just transitional dislocations. Those were "old economy" jobs, they said, saying a "new economy," with new jobs and new wealth, was ascendant.

The Internet-led information economy lasted about five years, during which the high-tech and telecom industries grew like tumors. Job openings went unfilled, wages were high and companies were even importing skilled white-collar workers. Of course, the boom proved more hype than reality and when it crashed hordes of displaced workers started looking for work in traditional industries—only to discover those jobs were long gone.

So perhaps Americans should have worried about the loss of all those manufacturing jobs after all. Yet the hemorrhage of 'traditional' jobs continues to this day. In September, non-farm payrolls shrank by 93,000, bringing the total job losses since January to nearly 600,000, according to federal employment statistics.

Sung Won Sohn, chief economist for Wells Fargo, believes these employment figures no longer reflected typical cyclical economic changes, but something much more profound—a deep structural change which he says is best reflected in the flood of U.S. jobs being moved offshore. "We have simply seen the tip of the iceberg," Sohn said. "And, I think it will get worse, not better."

Analysts who follow business trends predict over half a million information technology jobs—roughly one in 20—will be exported in the next year or so, and the reasons are as easy to understand as they are compelling. A U.S. computer programmer earns around $60,000 a year. An equally skilled Indian programmer can be hired for a tenth of that.

Nevertheless, those who reassured us about the export of manufacturing jobs a decade ago are back and reassuring us again. We're told not to worry about losing high-paying white-collar jobs to venues like India. We don't need them, we're told, because the economy is changing again—morphing into a 'service economy.'

"Globalization—whether it's for products or services—may feel like it hurts, but at the end of the day, it creates economic value all around," said Vivek Pal, whose firm arranges offshore moves for companies like Microsoft.

The result, according to the Organization for Economic Cooperation and Development, is the service sector now accounts for about 70 percent of all new jobs among the world's richest nations. "Service industries are the biggest and fastest-growing part of our economy," said Census Bureau analyst Paul Zeisset, noting the domestic impact.

What does this trend truly mean? If you sit behind a desk or in front of a computer, it is likely your job could be done just as well overseas, but for a fraction of its U.S. cost. At many American companies, management knows this. The big picture, however, is that the United States is not merely losing jobs to developing countries, but those exported jobs are applying downward pressures on U.S. wages.

Take Fluor Corp. of Aliso Viejo, Calif., as an example. Fluor employs 1,200 engineers and draftsmen in the Philippines, Poland and India who produce plans of industrial facilities. Fluor's chief engineer in the Philippines earns just $1,100 a month. Fluor is one of the prime contractors for the United States in Iraq.

"This train has left the station. The cows have left the barn. The toothpaste is out of the tube," said John McCarthy, director of research at Forrester Research. "You're not going to turn the tide on this just as we couldn't turn the tide on the manufacturing (job) shift."

Common sense and simple math tells us that sooner or later, something has to give. This cannot be a zero-sum game. There are identifiable losers and winners—call it the Yin and Yang of a globalized labor market. The domestic losers, unfortunately, are going to be American jobs and our national climate of economic opportunities.

On one hand American liberals, who worry about the human condition in developing nations, should be pleased. These exported jobs pay well—by Third World standards—so these jobs will better their lives immeasurably. And, conservatives, who like to blame every economic headache they suffer on unions, taxation and government regulations here in the United States, now have alternative venues free of such annoyances.

So, the problem is the impact of these macro-economic trends on the fundamentals of the domestic economy. Even if Treasury Secretary John Snow is correct that the economy will soon create 200,000 jobs a month, the question is what kind of jobs will these be—and at what pay scale? Those questions remain to be answered.