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Volume 16, Number 16 -- April 23, 2007

As I See It: Induced Labor

Published: April 23, 2007

by Victor Rozek

I've been reading a lot lately about the great American labor shortage. Boomers are beginning to retire and expire, the theory goes, and corporations are scrambling to find sufficient legions of white-collar professionals to fill the void. Having looked in all the closets and finding no professionals lurking within, they have little choice but to continue outsourcing high-tech jobs and taking reluctant advantage of foreign labor through the H-1B program.

And it sounds so probable too, except for that free market thing.

A funny thing is supposed to happen in a free market economy when there is a labor shortage: wages are supposed to go up. Fewer people chasing a surplus of jobs used to mean that the employers who wanted to fill their job openings offered better compensation than the competition. But is anyone competing for your services lately? Anyone throwing money at you? I didn't think so.

In Labor Pains, an article in the April 2007 issue of the AARP Bulletin, Elizabeth Pope provides a telling glimpse into the corporate dilemma. "A recent Ernst & Young survey," she writes, "found that more than six in ten large employers said boomer retirements would cause shortfalls. But 85 percent had no formal retention program." If that seems contradictory, that's because it is, but only if we accept the premise that corporations actually want to retain qualified workers. Pope seems to believe this is just the way of things, though curiously, she provides the smoking-gun insight in the very first paragraph of her article, although never explicitly connecting the dots.

In it, she describes a boomer job fair in Arizona, which attracted some 1,200 employment seekers and was staffed by 70 companies ostensibly competing for talent. "The garage was packed with luxury cars," a job-seeking marketing executive recalled, "and we were all dressed to the nines, but the companies were offering $8 to $12 an hour jobs." Then, in a world-class understatement he concluded: "There was a real disconnect."

Ya think?

As the Arizona job fair suggests, there is no shortage of qualified labor; there is, however, a shortage of cheap qualified labor. It's not hard to understand why a professional burdened with a mortgage, a second mortgage we call health insurance, and making payments on a luxury car would be reluctant to jump on those $8 per hour opportunities. But the reality is, that in a time when corporations are squealing from the pangs of a labor crunch, the share of national income going to wages is at a record low, while the share going to corporate profits is at a record high. Holy coincidence, Batman, maybe those two things are related!

But why should that be? Why should the sacred market and its only begotten offspring, globalization, fail us so? The answer is, they haven't. They're working as they were designed to work for those who control them. Having deliberately depressed wages through a variety of outsourcing and offshoring schemes, thus pricing qualified workers out of high-tech industries, corporations are now complaining about a labor shortage.

A common lament is that the American educational system is failing to graduate enough engineers and computer scientists, and that China and India are graduating them by the boat load. The claim has been repeated so many times that it has become a canon of faith, or at least it was until Duke University turned heretic.

As reported by eWeek.com, Duke began questioning market orthodoxy because their engineering students began questioning their future prospects. "You had the brightest kids worrying about their jobs being outsourced," said Vivek Wadhwa who co-authored the original 2005 study. "We thought, if kids at Duke were worried, then let's do a study about what's going on in education."

To their surprise, the authors discovered that India and China are not "graduating 12 times as many engineers as the United States." In fact, "the United States graduates a comparable number." Further, the study reported that there were "serious problems with the quality of Indian and Chinese bachelor-level engineering graduates, and predicted shortages in India and unemployment in China."

So, if we're producing plenty of high-tech professionals in the midst of a labor shortage, why can't they find work? Actually, they can, as the guy in Arizona discovered, as long as they are willing to work for Wal-Mart wages. For Americans, wages are no longer an issue of how many people are chasing how many jobs, but of who owns the productivity tools. Go back in time, and an American worker with a computer was for more productive than his Asian counterpart with an abacus, and therefore warranted higher pay. But as America exported its production and technology it leveled the playing field for productivity, but not for wages. Now, if an American worker is being paid four times as much, he is still expected to produce four times as much, which is both unrealistic and impossible.

The continuing massive migration of jobs and technology may be good for individual corporations, but is it in the national interest? A guy from IBM doesn't think so.

Ralph Gomory is in a position to know. He was a former senior vice president at IBM who played a prominent part in enlarging IBM's global footprint. New serving as the president of the Alfred P. Sloan Foundation, he remembers well how jobs and high-tech production were exported around the world and, in William Greider's words, "The experience still haunts him." IBM may have invented the disk drive, but it no longer makes them. The U.S. was once the world leader in semiconductors, until it "turned Singapore into a global center for semiconductor production." It was, Gomory notes, "an unforgettable transformation. And it was pretty frightening."

Greider wrote a piece in The Nation about how Gomory is challenging and changing the "infallible pretensions" of "pure trade theory." The single question Gomory kept asking himself was: "If free trade is a win-win proposition, then why did America keep losing?" To answer that question he wrote a book in collaboration with economist William Baumol, former president of the American Economic Association, and a man who knows a great deal about whatever it is economists do. Global Trade and Conflicting National Interests was largely ignored for several years, but is now gaining traction with select members of Congress who are finally working up a mild sweat over the implications of Microsoft and Google building research centers in Beijing, and Intel yanking $2.5 billion out of the economy to construct a semiconductor plant in China.

The trade-off, says Gomory, is that developing nations get a boost to their GDP, and corporations get cheap labor, subsidies and tax breaks. "However, there is another effect beyond the benefits for those two parties: high-value-added jobs leave the U.S." And in spite of the wide-spread laments about labor shortages, experts foresee huge job losses ahead, "10 million jobs or more," which will further drain American prosperity. Gomory believes corporations should be judged not on how well they maximize profit, but on their contribution to the nation's well being. Given that just 25 years ago we were the world's largest importer of raw materials and the largest exporter of finished goods, and now the reverse is true, wouldn't concern for the national welfare be refreshing?

The good news is, workers are wising up. BusinessWeek recently disclosed that "Factory managers in Ho Chi Minh City report many of their $62-a-month workers went home for the Tet holiday in February and never came back." Better to eek out a living on the land than to work long hours for $2 a day. Or, as the job seeker in Arizona may have decided, better to part with the luxury car than sell your skills for $8 an hour.

The strategies to hold down labor costs are running out of gas far sooner than many expected, BusinessWeek concludes. "The seemingly inexhaustible pools of cheap labor from China, India, and elsewhere are drying up as demand outstrips the supply of people with needed skills."

And if that trend continues, then one day soon American workers--particularly of the post-boomer generations--will benefit from that rarest of phenomena: spontaneously rising salaries.



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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik, Brian Kelly, Shannon O'Donnell,
Mary Lou Roberts, Victor Rozek, Kevin Vandever, Hesh Wiener, Alex Woodie
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Power6: Later in 2007 Rather than Sooner?

Slowing U.S. Sales Hurt IBM's First Quarter

Reader Feedback on User-Priced System i Boxes

As I See It: Induced Labor

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Merrill Lynch Takes a Closer Look at IBM's Server Sales in Q1 . . . Marywood University Offers Five-Day RPG Crash Course . . . IBM Goes Vertical with Chip Designs . . . JDA Has a "Flying Start" in the First Quarter . . . DataMirror Expands into New Digs and Operations in Europe . . . California Software Rebrands Itself as Infinite Software . . .

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