We're SUPPOSED to Lose those Jobs Overseas

Stephen Colbert had a piece on the other night about goats stealing American jobs (see below) that cracked me up, but also got me thinking about posting on this topic. So much has been made about Americans losing their jobs to illegal immigrants (though this isn't exactly true - they do the jobs few Americans are actually willing to do) and workers in China and India, especially in this tough economy. Many candidates use the "I'll keep American jobs at home" line while campaigning. (Other popular campaign tactics this year: bigotry, profanity, and porn - Carl Paladino does all 3! Way to go, Carl!). Of course, the dirty little secret is: we're supposed to lose these jobs. It is a function of larger economic issues. The truth is, you can't fix this problem simply by going at corporations - yes, I know, I can't believe I just wrote that. You have to address the education system, instead, something that most ignore.

So, here's how it works. We're a rich country. We happen to be capital rich (vs. labor rich), like most (if not all) developed industrial countries. If we do the economically efficient thing, we should focus on capital, not labor - capital is our comparative advantage. In the long-run, we want to export our abundant factor, capital, while importing the scarce factor, labor. Pretty simple...do what you're best at, and buy from others the thing you're not so good at (labor), which they happen to be best at. Each part of this maximizes economic efficiency, which lets us all get optimal goods for the lowest price (labor rich countries get capital for lower prices than they would if they decided to produce these factors themselves - hence the importance of international capital in poor countries).

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By the way...what is capital vs. labor? Think of it like this...capital doesn't create the products you buy directly...it creates things that lead to those products. Thus, machinery and (especially in the current climate) human capital are big drivers of capital. Labor...you work directly with the product you sell. In this example, the sales/service industry is one of the big forms of labor these days.

Now, back to the story. There's a big problem. We've had a big change in our economic structure over the past 30 years. Instead of focusing on capital, we've shifted more and more to labor. This is seen by the rise in service industry jobs and the decline in manufacturing, etc. This is a huge issue. You see this in every Bureau of Labor Statistics (BLS) report. I realize I'm jumping to a factor (labor) argument from a sector (service industry) finding, but I don't think it is a problem in this case, since the vast majority of jobs in the service industry are labor-intensive, not capital-intensive.

Since we're not labor-rich, we can't do these labor jobs as well (and most importantly, as cheap) as India and China. They have tons of poor workers and fewer labor laws, which means they can get 10 people for the price of one US worker (I'm making this number up, but the idea is correct - fewer labor laws = cheaper labor AND they have a much larger pool of labor to choose from). This is a bigger issue in itself - don't we need some international labor laws? - but one I'll leave for another time. Fact is, even though you may not like the mechanisms of it, labor is their comparative advantage...which means we are at a disadvantage - unless we become a labor-rich economy (which wouldn't be good, because it would mean we've downgraded our economy), we simply can't compete with labor-rich countries on labor. They do it better and cheaper than us...BECAUSE THEY'RE SUPPOSED TO!!!

The shift from capital to labor-rich factors in this country over the past 20-30 years is, thus, hugely problematic. The service jobs we're losing overseas are jobs we're supposed to lose. We shouldn't be in these industries to the extent that we are, as a capital-rich country. Sorry, folks, that is simply the truth. If we keep trying to compete with labor-rich countries for jobs related to labor, we will lose - they're better at it than we are. So, to fix the problem of outsourcing, we need to fix some larger economic issues...namely, we need to get back to capital, not labor.

How do we fix this? Well, most research on the topic uses education as a proxy for skill, which is an indication of factors - higher skill = capital, lower skill = labor. This feeds back to our education system...which explains much of what's happening. And the education system...it 'ain't doing so good. Test scores, funding crises, etc., America's schools need help.

It's no surprise we've shifted more to labor recently....we simply are failing at the most important step, providing good education to our kids. Poorly educated kids = lower skill level = opt for labor jobs, such as telemarketers, sales representatives, customer service representatives. Well-education kids = higher skill level = go on to be engineers, business leaders...people who produce capital. While some research suggests education is a proxy for world view and not skill, that actually still works - better-educated young people are less prone to xenophobia and better-informed about sound economic policies. These people, whether it's through skill or cosmopolitanism, will be more likely to possess high levels of human capital, which help us produce capital-based goods, something that is supposed to be in our comparative advantage.

The more young people we bring up through the education system this way, the better off we will be, because they will create and seek capital-based jobs, not labor-based jobs, like telemarketing and sales. This will (more than likely) move us away from the service industry, reversing a trend that has ultimately hurt our economy. Those jobs will continue to get "outsourced" to India, China, etc., but fewer Americans will be working in those fields, anyway.

Anyway, this is all to emphasize one point: we need to improve the education our children are getting. We need to provide them with the tools to excel as best as they can as they grow up. We need to do what we can to steer them away from jobs as sales clerks, etc., and instead, focus on human capital - that's how they'll help all of us moving forward. What does that actually entail? Well, there are lots of varying views on improving the education system. The tea party is advocating going all private, which is an insane position (can anybody say class warfare?). Some say the problem is teachers - I'm sure some of the blame lies with them. The union has come under fire a lot lately...there is something to be said about firing next to nobody when schools are failing so badly. I'm not saying this is the root of the problem, I'm just saying it probably does play a part.

My thought is, poverty is a fundamental issue, however. Poor kids have a multitude of other problems that have a serious deleterious impact on their success in school. Some of them go to class hungry. Some of them don't have heating in their homes, and are too cold to focus on homework. Some of them don't have stable households for a variety of reasons related to poverty - one of which could simply be that their parent(s) isn't around to help them with schoolwork or encourage them because they're always working to help make ends meet. Some of them don't have health insurance, and suffer from prolonged illnesses.

The fact is, though, we need to step up and really work on this issue. A lot of politicians are bringing this up ("we need to improve our education system") without any real ideas on how to do it - or proposing dangerous ideas, like some tea party members. We also need to clearly point out how the education problem is directly linked to the issue of economic outsourcing. Instead of scapegoating companies or foreign countries (I still can't believe I just typed that), we need to understand that, for the vast majority of these jobs, we're not supposed to be able to compete to keep them here. We don't do labor...we do capital. And by neglecting the schools and poverty for so long, we've created a generation of less-well-educated kids who look for labor-based jobs more and more. Those jobs will leave our shores quickly...because they're supposed to. The only way to redress this problem is to get to the root of it...we need to produce better students who can better equip our nation to be competitive in the global economy. Doing so will force us to look at some serious problems in our society - especially poverty and racism. If we ignore it, we will pay a heavy cost sooner than later.