Innovation Is What Drives Us: The Impact of Technology on Employment

driverless_carThe inexorable march of progress continues as Google carries on with its plan to bring driverless cars to a highway near you. This form of transportation—previously found only in the annals of science fiction—could prove a boon to the auto-industry and has many other profound implications for both business and society at large.

Among other things, Google’s self-driving car has reignited the larger debate over the role of technology in our lives, especially in the jobs market—a sector that is quite important to millions of working class Americans worried about employment prospects. This concern lies in the prevalent view that advanced technology is usurping jobs that would have otherwise gone to humans. An Associated Press analysis of employment data from 20 countries found that millions of mid-skill, mid-pay jobs already have disappeared over the past five years. With this data in mind, coupled with slow economic recovery, should the American people be worried? Not as much as you might think. It is helpful to realize that this sort of technological innovation has happened throughout history and, while jobs were indeed replaced, new ones arose that more than compensated for the original loss. For example, the combustion engine decimated makers of horse-drawn carriages, saddles, buggy whips and other occupations that depended on the horse trade. But it also resulted in huge auto plants that employed hundreds of thousands of workers, who were paid enough to help create a prosperous middle class. As Nobel Prize-winning economist Joseph Stiglitz states, “What has always been true is that technology has destroyed jobs but also always created jobs.” The invention of the iPhone, for instance, has put more than 290,000 people to work on related iPhone apps since 2007, according to Apple. This suggests that innovative technology continues to create new types of jobs that require higher skills and creativity.

Like an employment phoenix rising from the ashes of a bygone industry, the American worker will undoubtedly be able to take advantage of new opportunities. For its part, the United States must continue to invest in the educational system so its students are able to take on the challenge of these new and exciting industries.

Posted by: Matthew Goldberg

Sources: Washington Post, Forbes, Associated Press, New York Times

Photo Credit: Google self-driving car in Mountain View courtesy of flickr user MarkDoliner

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The Program on America and the Global Economy Presents a Discussion:

Supply & Safety: Monitoring Imported Food

Tuesday, Feb. 5th, 2013

9:30 – 11:00 am

5th Floor Conference Room, Woodrow Wilson Center

Panelists:

Lori Wallach, Director, Public Citizen’s Global Trade Watch

Ted Poplawski, Special Assistant to the Director on Import Operations and Policy, FDA

Carmen Stacy, Director, Global Issues & Multilateral Affairs, Grocery Manufacturers Association

Les Glick, Partner, Porter Wright Morris & Arthur, Washington, D.C.

Moderator:

Kent Hughes, Director, Program on America and the Global Economy

According to the USDA, about 15% of all food eaten by Americans is imported. With the growing globalization of our nation’s food supply, imported food safety has become an increasing national concern.  This event will discuss concerns about food imports and the responsibilities of food importers and regulators for the safety of food products grown outside of the United States and their impact on the demand for certain imported products, international food trade patterns, and foreign access to U.S. markets.

Light refreshments and coffee will be provided.

Please RSVP acceptances only to page@wilsoncenter.org

For a map and directions see: http://www.wilsoncenter.org/directions

Please bring photo ID and arrive 15 minutes ahead to allow time for the security checkpoint.

Media guests, including TV crews, are welcome and should RSVP directly to elizabeth.white@wilsoncenter.org

*Media bringing heavy electronic equipment – such as video cameras – MUST indicate this in their response, so they may be cleared through our building security and allowed entrance. Failure to indicate your intention to bring video cameras 24 hours before the event may result in being denied access to the Wilson Center building, please err toward responding if you would like to attend.

Value-Added Trade: New Tracking Tool Reevaluates U.S. Trade Deficits

value_added_tradeA new database developed by the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) goes beyond traditional trade measurements by analyzing the value added by different countries during production to get a more accurate estimate of global trade balances.

According to the OECD, “traditional measures of trade, that record gross flows of goods and services each and every time they cross borders, may not accurately reflect modern trade patterns and could, if taken alone, lead to ill-informed policy decisions.” The conventional gross-value approach to measuring trade does not take into account the value of intermediate goods into the finished products. For example, while an iPad is “Made in China,” according to a study by the Personal Computing Industry Centre, the U.S. adds $275 to the total production cost, while China only adds $10. Using these figures, the Economist estimates that while iPads accounted for around $4 billion of America’s reported trade deficit with China in 2011, the deficit was only $150 million if China’s exports were measured on a value-added basis. These kinds of misleading estimates apply to more than just iPads. The database statistics show that the trade deficit with China has been drastically overstated in traditional measurements and is actually 25% lower when evaluated in value-added terms.

With modern supply chains becoming increasingly interdependent, the value-added approach better represents today’s interconnected world.  Hopefully U.S. policy-makers will take this new database seriously and use it to more accurately assess the magnitude of U.S. trade deficits, while also recognizing the benefits that the U.S. receives from international trade.

Posted by: Matthew Goldberg

Sources: The Economist, OECD, Bloomberg

Photo Credit: made in china courtesy of flickr user twicepix

Is Having the Right Skills Enough to Get Hired in Post-Recession America?

skills gapOne of the most common explanations for the persistent high unemployment in America since the 2007 recession is the skills gap. An Accenture report estimates that, “about a third of employers worldwide are experiencing critical challenges filling positions due to a lack of available talent, and almost three-fourths of employers are affected by talent shortages to some degree”.  Technology and globalization processes have increased the demand for talented and high-skilled workers, and many say that the nation’s education institutions have not risen to meet the challenge effectively.

The Brookings Institute issued a report that includes eleven “new learning skills in the 21st century” that are crucial for our students. These include: simulation, multitasking, and distributed cognition (effectively utilizing tools that enhance mental capacity). Meanwhile, the Center for 21st Century Skills advocates six different skills: information literacy, creativity & innovation, collaboration, problem solving, communication, and responsible citizenship. Proponents of the skills gap view see unemployment as structural, a product of supply falling behind demand in the skilled labor market. A recent Wilson Center publication by Paul Vallas argues that the skills gap “poses a major threat to the United States’ long-term economic competitiveness”. The American education system is falling further behind the performance of other countries, and addressing the “massive achievement gap present within the U.S. between minority and socio-economically disadvantaged students and their more affluent peers” should be a national priority.

However, many disagree with this assessment of a skills gap as the main cause of high US unemployment, and propose a demand-side rebuttal that focuses on the drop in real household wealth associated with the recent recession. This has decreased household demand nationwide and thus crippled job growth. Research done by the Economic Policy Institute  argues that persistent unemployment at all levels of education, and in most major sectors of the economy indicates that the current high rates of unemployment are caused by more than just a skills gap. They also attribute the rise in educated labor as a percentage of the total labor force to the rapid growth in sectors that demand high-skilled labor. Other research  at the Economic Policy Institute points to record corporate profits in the past year, saying that businesses learned during the recession how to make money with lower labor costs, and now don’t need to hire as many people to make higher rates of profit. Some of this can be explained by the fact that traditionally labor intensive industries have been the hardest hit by the recession, while high-tech companies with lower labor demands have seen the most growth.

To create policy that will improve the state of the economy, it is important to understand the causal linkages for the unemployment problem in America. . For example, structural unemployment cannot be solved with demand-side economics such as stimulus packages. On the other side, education initiatives and on the job training is the answer to a skills gap.

Posted by: Ben Copper

Sources: Accenture, Brookings Institute, Economic Policy Institute, CNNMoney, Commerce Department

Photo Credit: flickr user, Dita Margarita

American Manufacturing Starting to Make Sense Again

reshoringIn the past decade, offshoring was considered an obvious business decision for companies that wanted to reduce costs and increase profits. However, this trend may soon begin to wane as many American companies, both large and small, return to the U.S.

This so called “Reshoring Movement” has been generating a large amount of buzz, especially as high profile companies such as General Electric and Apple plan to start manufacturing more products back home. This reverse course is based both in public relations and sound economic reasoning. While larger companies often leave the majority of their manufacturing abroad, they are still able to benefit from the positive publicity of selling some American-made goods. For smaller businesses, it makes clear economic sense primarily due to soaring wages in low-cost countries. For instance, the pay and benefits for the average Chinese factory worker increased by 10% a year between 2000 and 2005 and rose to 19% a year between 2005 and 2010. This increase has made offshoring only marginally cheaper, and firms still have to deal with other problems such as intellectual property theft and unwieldy supply chains.

This trend ties in nicely with the issue over consistently high US import levels and enormous trade deficits. Harry Moser, head of the Chicago-based Reshoring Initiative, states that “since the 1950s, about three million manufacturing jobs have been lost to imported goods. So to balance the deficit we’ll need to bring back three million jobs.” While “reshoring” has only brought back around 50,000 jobs in terms of offsetting trade imbalances, it is an interesting development that is worth further exploration.

Posted by: Matthew Goldberg

Sources: The Economist, MIT Technology Review, Forbes

Photo Credit: World Class Manufacturing Academy courtesy of flickr user Chrysler-Group

The Consequences of Underinvestment in Infrastructure

trafficTraffic jams may be the least of our worries according to a recent report released on Tuesday by the American Civil Society of Engineers. The report, entitled “Failure to Act,” focuses on the economic cost of continued underinvestment in our nation’s infrastructure. It estimates that by 2020, infrastructure woes could cost the U.S. 3.5 million jobs and a projected $3.1 trillion loss in GDP. Overall, according to the report, “The results show that deteriorating infrastructure, long known to be a public safety issue, has a cascading impact on the nation’s economy, negatively affecting business productivity, gross domestic product, employment, personal income and international competitiveness.” However, with an additional investment of $157 billion a year between now and 2020, the U.S. can eliminate this drag on economic growth.

Similarly, the San Francisco Federal Reserve has found that increasing federal highway grants can provide substantial economic benefits. The article states that highway grants led to a fiscal multiplier in which “each dollar of federal highway grants received by a state raises that state’s annual economic output by at least two dollars.”

While appropriate infrastructure spending is an essential part of economic growth and prosperity, Washington also must reign in its out-of-control deficit and focus on essential budget cuts. The current situation has made talks of spending across the board less likely. However, this tension between budget cuts and necessary spending is a thorny issue that must be addressed if the US is to maintain high level economic productivity.

Posted by: Matthew Goldberg

Sources: Reuters, American Society of Civil Engineers, Federal Reserve Bank of San Francisco

Photo Credit: New York City Traffic courtesy of flickr user Scott Mcleod

Labor market figures show modest signs of growth into 2013

unemploymentThe month of November featured the highest level of job openings in five months. The total of 3.68 million was an increase by 11,000 compared to the month of October. Though the gains are modest they are positive signs that the U.S. economy might be heading on the right track to a more robust recovery.

Brian Jones, senior economist at Societe General in New York, commented that labor market indicators all point towards improvement. In total, 155,000 jobs were added in December and 161,000 in November. Perhaps more importantly than the sheer number gains in jobs added is the fact that the hiring was accompanied by gains in wages and a longer workweek. What further adds to this positive trend is the unemployment rate, which in November stood at 7.7% – the lowest level in more than four years. Some economists believe that if the unemployment rate continues to drop at this pace it will reach about 7.1% by the end of 2013.

One problem that continues to linger, however, is that of discouraged workers who are not considered part of the labor force and therefore technically not “unemployed”. The labor participation rate in November stood at 63.6% – a figure that according to Nigel Gault of HIS Global Insight remains low by historical standards. In fact, much of the improvement in the unemployment rate over the past two years can be attributed to people dropping out of the labor force. In some ways, determining how to decipher the statistics released by the Department of Labor becomes a question of interpretation with the bigger question of an American economic recovery still lingering.

Posted by: Samuel Benka

Sources: Bloomberg, TIME, The New York Times

Photo credit: 2008 Fall Career Days 005 courtesy of Flickr user pennstatelive