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Thursday, April 05, 2007
Alan Reynolds :: Townhall.com Columnist
Layoffs in Perspective
by Alan Reynolds
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Lou Uchitelle of The New York Times has made a career of writing passionately about the plight of laid-off workers. This is not a challenging journalistic mission. Even at the peak of economic booms, it is never difficult to find laid-off workers who face difficulties and are delighted to tell reporters what they think about the boss.

Uchitelle recently penned "The End of the Line as Detroit Workers Know It." For any reporter determined to find bad news in the labor market, Michigan was definitely the place to be. The February unemployment rate was 4.5 percent for the nation but 6.6 percent for Michigan, which had lost 55,300 jobs in a year. For the nation, payroll employment was 2 million higher than a year before. No other state lost jobs.

"The End of the Line" noted that 42,300 people left Michigan last year, which sounds like a sensible thing to do since every other state was adding jobs. To Uchitelle, however, nothing and nobody should ever move. Change is just too scary. "The exodus," in his wild imagination, "is reminiscent of the Dust Bowl migration from the prairie states in the 1930s."

Michigan's Dust Bowl experience cannot be blamed entirely on the auto industry, which is now mainly located in states like Tennessee, Kentucky, California, Texas and Missouri. Before the recent layoffs, Michigan accounted for only 22 percent of all jobs in motor vehicles and parts. Employment in motor vehicles and parts was 1,023,000 this February, down 54,100 from 1,077,100 in February 2006. That is, Michigan lost more jobs than were lost in the nationwide auto and parts industry.

Uchitelle is determined to convert Michigan's unique job woes into what he has called a "festering national crisis." To do that, he simply had to do what New York Times economic journalists do best -- make up numbers.

"Across America," wrote Uchitelle, "more than 30 million people have been forced out of jobs since the early 1980s, the Bureau of Labor Statistics reports, and regaining lost incomes has not been easy. Nearly 50 million new jobs have been created over that same period, according to the bureau, so there are always new opportunities, but more often than not at lower pay."

Comparing nearly 50 million new jobs with "more than 30 million" lost implies a net job gain of less than 20 million since 1984 (the first year these data about displaced workers were collected). In reality, employment rose from 105 million in 1984 to 144.4 million in 2006 -- a net gain of 39.4 million.

If new jobs actually involved lower wages and benefits "more often then not," then real compensation per hour would have fallen dramatically since 1984. On the contrary, the BLS index for real hourly compensation rose from 91.1 in 1984 to 111.5 in 2000, or 1.4 percent per year. Real wages and benefits rose by 1.6 percent a year since 2000, to 120.8 in 2006.

Uchitelle claims that "among those who have lost work, only a third held new jobs two years later that paid as well as those that were lost, according to the bureau's surveys of displaced workers. Another third of those displaced were in jobs that paid, on average, 15 to 20 percent less than their previous employment -- while the final third had dropped out of the labor force entirely."

The ominous remark about dropping out of the labor force is ironic because he began by explaining how GM, Ford and Chrysler are offering six-figure checks to departing workers, many of whom are in their 60s. "Many who left or are leaving were eligible for retirement," he wrote, "having already worked the necessary 30 years." When people retire, they drop out of the labor force entirely.

In the most recent report on the current status of workers displaced within the past three years, the bureau found that 30 percent were not working or seeking work during the survey month of January. That consisted of 12 percent of those under the age of 55, 27 percent of those between 55 and 64, and 64 percent of those over the age of 65. Combine those figures, and 30 percent appear to have "dropped out of the labor force entirely," which means most retired.

The claim that "only a third held new jobs two years later that paid as well as those that were lost" is deceptive because about one third accepted buyouts to retire early, go to college or start their own business. The article mentions one man who is using his $100,000 buyout to finish college. It notes that such a "lump-sum payment ... could be used to start a small business or to buy into a franchise."

But people who begin working for themselves are no longer counted as wage-earners, and neither are those who attend college or retire. Uchitelle counts them all as not receiving a wage as high as before, but that is because retired people, students and small business owners are not earning a wage.

The BLS finds that "of these re-employed full-time workers who reported earnings on their lost job, 51 percent were earning as much or more in their new jobs as they had earned on the job they lost ... (while) 29 percent reported earnings losses." That is not an entirely pretty picture, but it is not nearly as dark as the Dust Bowl image Uchitelle attempts to paint.

Mass layoffs are unfortunate, but this is one of those cases where the cure is much worse than the disease. Uchitelle has long urged the United States to adopt Europe's regulations and sanctions that make it difficult and costly for employers to fire workers. Yet such policies always backfire, making employers extremely reluctant to hire in the first place and particularly afraid to give inexperienced young people a chance.

Citizens of Michigan's cities are entitled to ask state and local officials some tough questions about why their state and-or city appears so unattractive to prospective employers. The Tax Foundation, for example, has some cautionary advice about replacing the nefarious Single Business Tax, which is to be phased out next year.

The last thing the people of Michigan should be asking for is the sort of "job protection" policies that produced unemployment rates of 8.6 percent in France, 9.3 percent in Germany and 11.5 percent in Belgium.

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Typical Doom and Gloom

Anyone who wants to escape a low paying wage can do so in a variety of ways.

This is America, there are opportunities !

No surprise this journalist Uchitelle urges Euro like job market strategies, he is a Socialist !

We need to avoid adopting measures that inch us closer to Euro style anything !

America losing its manufacturing indstry
My concern is the large amount of manufacturing that is leaving America and relocating to Red China, due to the "managed trade" agreements. We are quickly turning into a service economy. Last time I checked, economies that lost their manufacturing industry, ultimately did not fare too well.

Liberty
You are correct that manufacturing jobs are leaving America. However, these jobs can be done cheaper in other countries. If you were a business owner, you wouldn't expect to keep employing people in the U.S. who demand $25 or more per hour when the income of the business doesn't support it, if you could get it done for $5 an hour overseas. There is nothing wrong with being a service worker. There is more money in service work than in manufacturing jobs that were paying wages made artifically high by the demands of unions. The United States is strong enough economically to adjust its labor force to work in jobs that pay better than labor jobs through the use of brain power in service jobs. Most people who lose their jobs in these overseas transfers find better and better paying jobs here. Never underestimate the ability of Americans to make the most out of whatever happens in the job market.

Alan Reynolds
Alan Reynolds is the sharpest, smartest, and most sensible sob writing today.

Alan Reynolds
As pappy michael pointed out, the Uchitelle's in America see socialism as the answer.

The American socialists fail to point out the American unemployment numbers are under 5% while Europe's is around 10%.

It's really all about the owner of the NYT (and many others) attempting to destroy free-market capitalism and install socialism in America.

Why? After all, socialism has never proven to be economically effective in any country that has embraced it. There must be a reason people want to stifle free-market capitalism in a country that has personal freedom and constant economic success.

IMO, it's a matter of ignorance and greed. Some (like Pelosi and Reid) feel that socialism will gain them more power. Others are simply ignorant regarding socialism, thinking that the redistribution of wealth will make them rich.

As many liberals in the US want to ignore Islamo-fascism, so too do the power-grabbers and the uneducated ignore the evils of socialism.

Do ANY of YOU live in Michigan?
Well I do, and the small town of Sturgis, Michigan lost Kirsch Co, and another company to Mexico, then Mexico has exported around 1,000 of its citizens to this same community.
Want to know the starting wage there??? If you are a blue collar worker (which used to pay well in the trailer factories, NOW indunated with illegals) the starting wage at the employemnt agencies is $8.50/hour!!! Think ANY of you can raise a family, and pay for your house,
Some of you say it is easy, pull up stakes and move, well excuse me, but the illegals have flooded the market with houses NO ONE wants to buy, they all want to pull up stakes and get the hell out of there! $8.50/hr, isn't bad when you have 3 or 4 families living in one house! But what about the families who lost their job to the Mexicans???
AND another thing, another large business Burr Oak Tool and die, did move a large portion of their business to China, upped and moved because the Chinese told them if they wanted to keep their business, they had to move that portion to China. Got the picture folks? Michigan is in the toilet, and one of the problems is it is not favorable to businesses. AND another is the large illegal alien contingent doing the work of my Son, construction!!! Where is the INS when you need it?

Michigan Isn't the Only Place
There are structural changes going on in the economy. Two things are happening 1) technology is making many manufacturing jobs redundant, and 2) Wall Street is seeking higher profit margins by lowering wages.

I recently visited a new manufacturing plant. One thing that struck me was that includes a painting operation. In the old days two men would spray paint vehicle bodies for about two hours. Today the entire vehicle is painted by computer controlled spray guns in about ten minutes and comes out of the booth dry with no waste. The booth paints two colors at a time and only the overlap area needs to be touched up. What do those two guys do today? I don't know. The plant is far more productive (i.e., more units go out the door for less cost) than before.

At the other end of spectrum if a job can be done adequately for $1.00 per day than who would pay $40 per day to do it.

Creative destruction yes. The question is how to get folks to retool themselves. Don't think this is happening in just the manufacturing economy. Microsoft has a lot of its code done in India and some large engineering firms use virtual design shops to work 24x7 on projects.

Manufacturing....
While it is true that manufacturing JOBS are quickly disappearing, manufacturing production in the US is at its highest level in history. We're replacing expensive workers with machines, and where that isn't profitable, we ship the jobs to nations that have cheaper labor.

This is the same thing that happened in the agricultural industry in the 20th century. In 1900, about 60% of the labor force was in the agro business, yet we barely produced enough crops to feed our own population. Today only about 3% of the labor force works in agro, yet we produce about 25% of the WORLD'S agro products.

Yes, it is true, we, like every other modern nation on the planet, are a services economy, but that is not a bad thing. While McDonald's burger flippers are "services" jobs, so are lawyers, doctors, engineers, professional basketball players, teachers, police officers, and corporate executives. Service sector jobs are the highest paid jobs on the planet.

The unemployerment [sic] rate
Dear Alan,

In addition to your wonderful descriptions of the destructive creativity [another sic] of the US economy - adding 40MM net new jobs over the last two decades at higher real wages (which is actually about 290MM jobs gained and 250MM jobs lost) - one thing I hope some great economist will start doing is keeping track of the unemployERment rate.

We employees leave our jobs far more often than we lose our jobs. That is the terrific dynamism of the US economy. As the needs change, we find better opportunities or simply adapt to the changes. In fact, given that the average American now changes jobs every three or four years, that implies an unemployerment rate of around 25%-33%, which is at least 6-7 times higher than the dreaded (evil?) unemployment rate.

Best regards,

Tim Cranston

PS: Fletch, the only quibble I have with your otherwise excellent post is that the biggest sucking sound of those jobs that go overseas is not toward China or even Mexico, but to Europe.

PS2: Mimimary, my condolensces for your job loss(es). But your plight shows the inevitability of our need to continue to adapt, which requires that we not learn how to do one job in our lives and try sysyphianesque to hold onto it forever, but to get a well-rounded, nimble education in the liberal arts so that we will forever have the tools to respond to the opportunities created by the dynamism that is US democratic-republican capitalism.

Retooling
I worked 19 years for a personnel firm, and lost the job after the company was sold. My only experience was at this personnel firm. When job hunting I accepted a position with a brokerage firm. I had no experience in the industry so had to learn everything about the stock market, investing, trading, etc.... on the job... sink or swim. Six years later I'm still here, so I guess I succeeded. Yes it was fightening. Yes it was hard work, but if you understand this is your future and you must adapt you will. By the way, I'm a high school grad, no college degree, no connections. Just enough common sense to take charge of my life and do what needs to be done to make a living. And in a few years when my boss retires I'll have to change again....such is life.

Not Only Michigan II
Its odd, after writing my first comment on this article earlier today I came home to find that my next door neighbor had just been laid off by his furniture company. The irony is that his job had involved traveling to Asia to assure that their plants were running properly. Most of those plants were in China. The US Deptartment of Commerce has just recently increased the tarif on their imports from 7% to 58% in an effort to preserve American Manufacturing jobs. The result was a $4,000,000 tarif bill retroactive to August of 06.

I also noted that the North Carolina Departemnt of Commerce says that new manufacturing plants require about 10% of the employees that were needed in the 80's for the same amount of product. As I noted above there are big structural changes occuring in the economy. Tom Peters noted this about ten years ago and predicts that the service sector is next.

BTW the bright folks who want to raise the minimum wage are just making it happen faster.

Fat At the Top
Tonight's TV news (and you can find it now on google) reported that Ford paid its top six executives $62 million during the same year (2006) it posted a $12.6 billion loss. Ford CEO Alan Mulally, hired in September, had by the end of the year been paid $28.2 million in salary and perks (such as a $7.5 million signing bonus)---that's for four months' work.

I am curious: do townhall conservatives see anything wrong with a CEO getting that kind of compensation from a company that is meanwhile forced to close plants and lay off tens of thousands of workers? We hear the argument that CEO's are worth that money because they guide the company so well---but they get it even they fail. I remember a Disney CEO getting the boot after about a year during which he was paid something like $40 million.

This sounds like a system in which the cards are stacked against labor and shareholders alike. Why does the country put up with this system, in which American CEOs are paid hugely more than CEOs in any other industrialized country---google "comparative CEO pay" for a shock.
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