What ails the US job market

Updated: 2012-11-10 08:07

By Zhang Zhouxiang (China Daily)

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'Mitt Romney will fight for every American job." This recent advertisement referring to Chrysler's plans to shift jobs to China kicked off one of the many slanging matches between US presidential candidates Barack Obama and Mitt Romney. Throughout the election campaign both candidates talked about creating more jobs, the most discussed topic in the election campaign, by reviving the manufacturing industry.

Now that the US election is over and Obama is firmly back in the Oval Office, many would dismiss the Obama-Romney debates over jobs and China as usual campaign rhetoric.

But still - as Dieter Ernst, a senior research fellow at the East West Center, Hawaii, said recently - we need to know the challenges the US faces in job creation. In a recent presentation, "Industrial Innovation and Employment", at a seminar of new generation policymakers, Ernst attributed the persistent unemployment in the US to a significant erosion of international competitiveness and innovation barriers such as lack of investment.

From 2001 to 2011, state and lo- cal financing per student in the US declined by 24 percent despite a 72 percent increase in tuition fees. This made student loans exceed $1 trillion, more than Americans owe to credit card companies. This, along with inadequate support for industry-related research, has seriously constrained US industry's ability to create more jobs, Ernst said. It has also resulted in a skill mismatch, with 3.2 million job vacancies going unfilled because employers couldn't find suitable candidates.

Besides, US trade deficit in advanced technology products increased from $16.6 billion in 2002 to $99.6 billion in 2011, Ernst said, with the information and communications technology sector accounting for the largest share, causing jobs to flee abroad.

As Scott Thurm, senior editor of The Wall Street Journal, said in a widely quoted article in April: "Thirty-five big US-based multinational companies added jobs much faster than other US employers in the past two years, but nearly three-fourths of those jobs were overseas."

So can the US get the jobs back? "Re-shoring of manufacturing is possible, but it most likely leads to a 'race to the bottom' in wages and regulations," Ernst said. Citing the relocation of General Electric's production facility from China to Louisville, Kentucky, in 2009, he said it was made possible by a government subsidy of $17 million, "lean manufacturing" to reduce labor content and most importantly an agreement with labor unions to reduce new recruits' wages to $13 per hour. That's less than $13.97, which makes a worker with three dependants eligible for food.

Ernst prefers the advanced manufacturing partnership strategy, which says the US' competitive edge lies in its superior capability to use transformative technologies to provide packaged solutions through integrated manufacturing, services and innovation. That arguably could address the challenges, he said, but added that political division and ideological gridlock may constrain its implementation.

Ralph A. Cossa, president of Pacific Forum, Center of Strategic and International Studies, holds a similar view. Answering a question on the US presidential election and China after delivering a speech in Honolulu recently, he said, "the two parties (Democrats and Republicans) are always arguing" without solving problems and China often becomes a target of their firepower, especially concerning trade.

That's another of Ernst's concerns. The advanced manufacturing partnership neglects the consequences for international competitors like China. In a forthcoming study, "High Road or Race to the Bottom? Reflections on America's Manufacturing Futures", he analyzes the possible effects on China. If the US succeeds in the transformative technologies, for example in the emerging "3D printing" or "laser-enabled additive manufacturing", the production facilities could shift to consumer countries, leading to falling demand for imports from China, whose integration into international trade and global production networks make it vulnerable to such transformations.

But the proliferation of such technologies could also create an opportunity for US-China cooperation, he said. Both countries have a common interest in developing effective new forms of global governance to manage the risks and conflicts, and avoid a vicious circle of high-tech protectionism and trade and investment wars.

In a live web-cast speech at the China Town Hall program earlier this year, US Ambassador to China Garry Locke also said that "people from both countries are benefiting from greater economic integration" and the US would welcome "Chinese investment".

There is enough room to extend cooperation in advanced manufacturing beyond the exchange of scientific knowledge, Ernst said. Since the US is still far ahead in overall innovations despite China's recent success in the field, the later will create new markets for American firms.

Such cooperation, however, needs to be on an equal footing with reciprocity of rights and obligations on contentious issues such as maintaining the right balance between protection of intellectual property rights and China's interest in technology diffusion. The job "is not easy, but there is hope".

"Progress toward adjusted rules of reciprocity should be possible," Ernst said, "once the US and China accept that while their economic institutions and innovation systems are different, they are deeply interdependent."

The author is a journalist with China Daily. E-mail: zhangzhouxiang@chinadaily.com.cn

(China Daily 11/10/2012 page5)