Where Have All the Jobs Gone?

If President Obama wants the United States to manufacture again, he must change foreign and domestic priorities.

In May, the unemployment rate rose to 9.1 percent. The economy added only 54,000 jobs, much fewer than the 300,000 that the economy requires each month to make a dent in that rate. Even the better April figure (222,000 new jobs) did not match what was necessary.

After two years of recovery, why are the job numbers so weak? Each month when the numbers disappoint and unemployment insurance applications rise, commentators talk about the weather, rising oil prices, an earthquake abroad, or a holiday at home. But manmade and natural road bumps happen all of the time. Clearly, something else is going on that eludes the continually surprised economists and commentators.

The nation’s pattern of job growth over the past twenty years offers clues. We can divide the economy into tradable and nontradable sectors. The tradable sector consists of the goods and services that can be produced in one country and consumed in another (autos, computers, wheat). It is subject to fierce international competition. Activities in the nontradable sector must be produced and consumed in the same country (firefighting, nursing, home construction). This sector is immune from international competition, but not from the downward pressure on wages that affects the tradable industries.

Between 1990 and 2008, the economy added 27.3 million jobs to the base of 121.9 million. But 26.7 million of those jobs were in the nontradable sector. Government and health care topped the list in job growth, followed by real estate and retail. In the tradable sector, manufacturing lost jobs, which were off-shored. (This decline was matched by some additions in high-end management and consulting services, computer-systems design, finance, and insurance.) Virtually all of the new employment was in the nontradable sectors. Unemployment was low, but because many of the new nontradable jobs paid less than those lost, inequality rose. Americans kept up their consumption by increasing their household debt—sustained by low interest rates, which nations like China and Germany kept down by using dollars accumulated from their trade surpluses to purchase U.S. debt. Because the United States was making fewer products but consuming the same amount, the trade deficit rose to nearly 5 percent of GDP by 2008.

Then came the Great Recession. In previous downturns, government spending and/or tax cuts and low interest rates brought people back to work. But the pattern of economic and job growth of the last twenty years cannot be restored. Given the pressure on government budgets, continued gains in public employment seem unlikely. Indeed, local and state governments are cutting employment. Similarly, health care already absorbs a large enough fraction of GDP (16 percent) that expansion in that sector is questionable. Growth in retail, which had been driven by debt-financed consumption, seems to have hit a limit. The overexpansion of housing that precipitated the recession means that construction and related industries have little margin to grow in the short run.

President Obama understood this. He told CNN in September, 2009, “We can’t go back to the era where the Chinese or the Germans or other countries just are selling everything to us, we’re taking out a bunch of credit card debt or home equity loans, but we’re not selling anything to them.” But his deeds did not match his words. The largest item in the $787 billion stimulus was tax cuts (32 percent), which were mostly saved rather than spent. The rest supported living-standard programs like food stamps and unemployment insurance, state and local employment, and some research and infrastructure. Money went scattershot to different energy projects and some transportation projects, but there was no plan to get the nation making things again.

If President Obama wants the United States to manufacture again, he must change foreign and domestic priorities. The United States is more committed to maintaining its open market than to providing jobs for Americans. The Obama administration awarded a Chinese enterprise a contract to produce turbines for a wind farm in West Texas. The federal funds used to replace much of the California Bay Bridge went to a Chinese fabricator. The border fence with Mexico is built with Chinese steel. The United States could shut these Chinese companies out if it wanted to. China did not sign the Government Procurement Agreement that mandates nondiscrimination among signatories. Its own large and targeted stimulus required spending to go to Chinese companies.

The other part of the U.S. stimulus, low interest rates and the quantitative easing of the Fed, also aids the global as much as the American economy. Banks and multinationals are using cheap money to invest in emerging markets, not in the United States. Thus, the large American chemical company Huntsman Corp used the Fed’s cheap money to refinance its long-term debt, saving it a huge amount of money. This allowed it to invest more, but its biggest investment plans are for operations in Asia. American companies borrow cheaply in the United States, as intended by the stimulus efforts, but are free to invest that capital elsewhere. That may be good for their investors, but it is not good for American workers.

So, the United States is going to have to decide. Does it want jobs for the unemployed or markets and liquidity for the world? Once upon a time, the United States was rich enough to do both. Today, it must choose.

(From Dissent)


Judith Stein

Judith Stein is a professor of history at the City College of New York Graduate Center.