Seeking jobs in the U.S.A.

Throughout history, peoples have been overcome by trends and forces that they were unable to recognize. Could the United States be losing its economy to forces economists mistake for benevolent free trade?

Traditionally, free trade has required a country’s work force to compete indirectly against the work forces of other countries in the markets for traded goods and services. Fears in the post-World War II era that U.S. wages and living standards would be undermined by imports made with cheap foreign labor proved to be wrong, since U.S. labor was better educated and worked with more and better capital and technology, which made American labor much more productive. Higher productivity protected U.S. wages and employment from cheap foreign labor.

The collapse of world socialism and the rise of globalism have made U.S. capital, technology and business know-how highly mobile. Today it is as easy — and far less expensive — for a U.S. company to produce abroad for U.S. markets. Instead of locating its capital and technology in Ohio, California or South Carolina, the company locates its facility in China, for example.

By locating in China, the company substitutes a work force that is paid less than a dollar an hour for U.S. labor that costs $26 an hour. By locating in China, the company also avoids expensive regulations, torts, employment taxes and discrimination lawsuits.

The mobility of capital and technology means that American labor now faces direct competition in global labor markets. This is a new development.

A Chinese person working with U.S. capital and technology is just as productive as an American. The Chinese worker can be hired for much less, because living standards and the cost of living are far lower in China.

The huge labor surplus in countries such as China and India means that wages are not likely to rise very rapidly in those countries. The U.S. companies that substitute Chinese and Indian labor for U.S. employees are building in lower labor costs for years to come.

Eventually, as China and India become fully employed first world economies, wages will be bid up and labor will be paid according to its productivity. By then the United States might be a third world country.

Existing mortgages, cost of living and accustomed living standards prevent U.S. wages from falling to levels that would be competitive with China’s. Americans have to seek work in their next best alternative when they lose their well-paying manufacturing and high-tech knowledge and service jobs to foreigners. By definition, these are less productive jobs paying less.

When jobs move out, skills move with them. At the rate at which the United States is losing software and computer engineering jobs, for example, how much longer will U.S. engineering schools be offering this major?

When manufacturing jobs are lost, so are jobs in trucking, warehousing, banking and insurance. There is a chain effect that reduces the overall productivity of the U.S. as a location of economic activity.

The loss of high productivity jobs takes away the ladders of upward mobility and wipes out human capital. A displaced U.S. software engineer cannot move to China or India to seek employment in his profession.

Retraining is not an answer, because almost the entire range of knowledge jobs can be outsourced. The Internet permits U.S. employers to hire people in India, China and the Philippines as stock analysts, accountants, researchers, designers, engineers, radiologists — any occupation that doesn’t require hands-on, face-to-face, local presence.

Economists assume that the substitution of foreign labor for U.S. labor is the benevolent workings of free trade. But what is being traded when U.S. employers move jobs out of the country? Many of our imports are products made for American markets by U.S. companies.

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