The President and Jobs

Can a U.S. president “create” or “lose” jobs in the private sector? From the campaign rhetoric you’d think the leader of the free world has merely to focus his mighty brow upon the issue and jobs can be summoned from clay or a rib like Adam and Eve (“Watch yourself – another truck-load of ribs coming through”).

But this is simply nonsense. The forces at play that promote or demote entire industries are historical, global and tectonic in nature. Roger Lowenstein tackles the subject in the NY Times Magazine:

Robert Barbera, chief economist at the brokerage firm of ITG/Hoenig, says that in his 30 years in the business, ”the notion that presidents create and lose jobs is the most grotesque mischaracterization of the economic backdrop” that he has witnessed.

….Robert Reich, secretary of labor under Clinton, says bluntly, ”Job numbers are largely a function of population and the business cycle, and the business cycle has its own rhythm.”

….the president is only one of many influences over whether a manager decides to hire or fire. Some of the others that come to mind: Alan Greenspan, the stock market, the strength of international economies, technological change, oil prices and the weather (try legislating that).

….Jobs result from growth — from employers’ desire to increase profits, not from their desire to increase payrolls. Countries that have tried to target jobs specifically — say in Europe, by restricting the freedom of businesses to lay off workers — have discovered an unpleasant paradox. Lessened flexibility in the labor market leads to more tentative hiring and fewer jobs.

Moreover, since the economy benefits when companies are able to produce more goods and services with fewer workers, maximizing the number of jobs is not always in society’s interest. If it were, we would all have wonderful memories of the Carter administration, which recorded the fastest job growth of any president since the 1960’s.

But we don’t. Which means that job numbers are one, but only one, indicator of economic well-being. Productivity — how much each job accomplishes — matters, too.

….In total, since the start of Bush’s term, payrolls have shrunk by 1.1 million. Kerry advisers are quick to point out that the economy normally adds about 150,000 jobs a month, which over four years would total 7 million. Bush has yet to get to the starting line.

This was Kerry’s theme when I caught up with him early this summer. He was addressing a rally in a high-school gymnasium in Massillon, Ohio, a depressed region in a battleground state that Bush carried narrowly in 2000 and that has been pounded by layoff notices since. The big news in Massillon was that the Timken Company, a steel and bearings manufacturer founded by a German-born inventor in 1899, had announced it would close a trio of plants in nearby Canton. As a symbol, Kerry couldn’t have done better. Timken’s chairman, Timothy Timken, is a major contributor to the Bush campaign. In 2003, while campaigning for his third tax cut, Bush came out to Timken and praised its workers and promised that his package would help ”create the conditions for job growth, so people can find work.”

Timken’s announcement, which put 1,300 jobs in jeopardy, made Bush look foolish. It is absurd to think, as a Timken official tried to persuade me, that Bush’s economic package had been the ”most appropriate” one possible for Timken. Eliminating the tax on wealthy estates hardly helped its bearings plants. But the notion loosely floating about the gym — that Bush was to blame for the shutdown — is equally absurd.

Eric Fisher, a research associate at the Federal Reserve Bank of Cleveland and associate professor at Ohio State University who specializes in international economics, just finished a year-long study trying to determine why Ohio and the U.S. in general are losing manufacturing jobs such as those at Timken. His conclusion: technology. I can see a U.S. president standing up and shouting, “We must stop the march of technological advancement which is undermining our sacred manufacturing jobs! We must turn back the hands of time and value the human over the machine, the soulless machine which benefits only the oppressor!” Sounds like the fucking Unabomber.

Fisher spoke with the Cleveland Plain Dealer:

Three factors – technology, state taxes and international competitiveness – have an effect on manufacturing employment. But the biggest one by far is technology, which is eight times as important as the rise in Ohio’s tax burden.

Is the shrinking of manufacturing jobs also happening in other industrialized countries?

In some ways the strongest evidence against the idea that we are bleeding manufacturing jobs is that almost every advanced industrial country has been losing manufacturing employment as a share of total employment – almost every one. In the United States, the percentage of people employed in manufacturing has declined from about 25 percent in 1960 to less than 12.5 percent today. [But] there is even some evidence now that manufacturing employment in China is starting to go down. If you look at the last 10 years, only one or two countries have manufacturing employment rising as a share of total employment. Two that come to my mind are Mexico and the Philippines.

Around 50 years ago, most advanced countries began to see a shift from employment in manufacturing to employment in services.

….Should government leaders try to prevent the loss of more manufacturing jobs? In your paper, you say it’s “probably not desirable to interfere with the general forces that give rise to economic prosperity,” and you hint that countries that try to maintain manufacturing employment may do so at the expense of prosperity.

If we want to look to the future, the future sources of prosperity in America and all around the world are going to be in high-tech service or service-oriented jobs. I would tell policy makers to encourage innovation and high-tech services. More Microsofts, more Googles.

….There’s no doubt that when a person loses his job, the source of his livelihood, that hurts. I don’t have any panacea for . . . adjustment in the short term. People will be hurt when a manufacturing enterprise closes down, especially when it’s an important part of the local employment base.

But in the long run, from the perspective of a state of 11 million people, we have to recognize that the future prosperity of Ohio, the United States and the world in general is in high-technology-oriented services.

We watched Michael Moore’s first film Roger and Me over the weekend, his chronicle of the decline of Flint, Michigan (his hometown) in the late-’80s brought about by the closing of GM plants. I hadn’t seen it n 15 years and was shocked at how crappy, humorless and disingenuous a film it is: yes, it is undoubtedly sad that the plants closed and that thousands of people lost their manufacturing jobs. The industrial Rust Belt has been hit hard over the last 30 years as the inexorable process of technological advancement has set in, improving productivity and reducing the number of employees required to produce a given item. This sucks – point made.

But the implication that then-GM chairman Roger Smith is personally responsible for this – or that anything other than retraining, the migration of people to where there ARE jobs, and a retooling of the local economy – can or should be done about it is simply false. As with all of his other work, Moore heads over to the Big Barrel and starts shooting the fish and doesn’t stop for the next couple of hours. How this is edifying, entertaining, or even informative is beyond my ken. I find it boring, misleading, maudlin, and ultimately self-pitying.

Why Flint, Michael? Because you’re from there? Well, Mike, it’s all about you isn’t it? Pandering, self-aggrandizing, disingenuous, class-baiting humorless asshole. I feel much better – I was pissed as hell after that prick wasted another two hours of my life.

But back to Lowenstein:

One thing to understand about the job numbers is that while they squiggle around from month to month and year to year in response to what happens at companies like Timken, over the long term they tend to keep pace with the growth in the labor force. In fact, if you look at the 11 1/2 years of the Clinton and Bush II administrations as a whole, employers have added 21.5 million jobs, or 156,000 a month — right in step with demographic trends.

The curent Timken situation in Ohio is very similar to Flint’s GM in the ’80s:

officials at the United Steelworkers local, Wall Street analysts — confirm that the employment picture at Timken is more complicated than the simple layoff story suggests. For one, Timken isn’t cutting jobs overall. It has added jobs at some locations and cut them elsewhere. (Timken has 42 plants in the United States in addition to operations overseas.) The Canton facilities are simply the dinosaurs of the lot. They are old and inefficient, and the workers earn more than those at competitive plants. Average pay is just above $50,000 a year, plus full health care coverage.

So, ever conscious of Wall Street, Timken is going to make its bearings at other, more efficient, plants (mostly, but not entirely, in the United States).

….The widely watched jobs stat registers only the net change in employment; it obscures the furious process of both creation and destruction, the dynamism that we witness every time a friend or neighbor loses one job and finds another. In a typical year, some 32 million Americans are hired and about 30 million lose or leave their jobs.

What CAN the government do?

Presidents can promote jobs via basic research, though the effects will not appear until they are writing their memoirs. For instance, there is a government initiative in nanotechnology, the science of downsizing industrial operations to molecular levels. In the future, this could lead to new and high-paying companies — just like what happened when the Department of Defense developed the Internet or as may occur in the federally financed genome project. But mostly the jobs of the future aren’t foreseeable.

The Krueger conjecture reassures us that as long as the ”graduate” gets a decent education, he will adapt to opportunities as they evolve. But given how hard it is to visualize those future jobs, people’s second instinct is to demand that we hang on to the familiar jobs that are disappearing. (Think Canton.) This is almost always a mistake.

Just before World War II, nearly 20 percent of Americans worked in agriculture; today, fewer than 2 percent do. Had we ”protected” the displaced 18 percent — had we kept them on the farm — our agriculture would be less productive and our economy would be weaker. The agriculture of 2004 is, of course, manufacturing.

….In the late 19th century, as railroad tracks were knitting the country together, lumber mills in Ohio suddenly found that they were competing with the Pacific Northwest. Armies of unemployed roamed the middle states angrily demanding that the government provide them with work. If you can imagine the tracks stretching to Shanghai or Bangalore, you get a sense of the anxiety in the labor market today. This is why, after a period of liberalism under Clinton, the pressure to legislate trade is also at a cyclical high.

Intellectually, protecting the United States from Asia or Europe is akin to protecting Ohio from Oregon a century ago. Tactically, it’s like fighting a war of attrition in which two billion Chinese and Indians are on the other side. I asked Jacob Jabs, a Colorado retailer who imports furniture from the Far East, what the government could do to save the jobs of domestic furniture makers. ”It’s a lost cause,” he said. ”Protectionism is a lost cause.”

So what to do? The answers aren’t surprising:

The most basic form of job training is education. There is a big paradox here: nothing Bush or Kerry does to boost the level of education will move the job numbers during either’s presidency. Yet over the long term, nothing affects the labor market, and the quality of the jobs that it offers, more.

….If the next president wants to make the job numbers in 2012 look better, he could start thinking about all of these: education, comprehensive retraining along the model of the Army and the Job Corps and wage insurance-type incentives. Will this ”create” jobs? The U.S. economy is a big liner; it isn’t easily turned. But thinking in such terms will accomplish more than the never-ending tinkering with the tax code. And it is surely better than the alternatives that try to freeze the economy in place by restricting trade or supporting shrinking industries.

So there you have it – it doesn’t get much more plain than that. There is NOTHING different now than at any time in the history of economic mankind: jobs, companies and entire industries come and go, efficiency and technology progress, and it’s up to the individual to try to stay on top of the trends and always look to the future, and it is the business of government to foster an environment of continued growth and help mitigate individual pain for those caught in the nexus of inevitable change.