BusinessWeek Online features slew of stories on jobless recovery, outsourcing, etc.

Business Week Online offers a variety of views on these topics, all accessible from this link

The first piece is by Bruce Nussbaum: "Where Are The Jobs?"

It says "Many blame outsourcing. The truth is a lot more complicated."

The truth is that we are living through a moment of maximum uncertainty. . . . Outsourcing looms large as a potential threat because no one knows how many jobs and which industries are vulnerable. And productivity seems problematic because it's hard to see where the rewards for all the cost-cutting and hard work are going. Meanwhile, the Next Big Thing that is supposed to propel the economy and job growth forward after the Internet boom isn't obvious. . . .

The real culprit in this jobless recovery is productivity, not offshoring. Unlike most previous business cycles, productivity has continued to grow at a fast pace right through the downturn and into recovery. One percentage point of productivity growth can eliminate up to 1.3 million jobs a year. With productivity growing at an annual rate of 3% to 3 1/2% rather than the expected 2% to 2 1/2%, the reason for the jobs shortfall becomes clear: Companies are using information technology to cut costs -- and that means less labor is needed. Of the 2.7 million jobs lost over the past three years, only 300,000 have been from outsourcing . . . . People rightly fear that jobs in high tech and services will disappear just as manufacturing jobs did. Perhaps so. But odds are it will be productivity rather than outsourcing that does them in.

We know also where the benefits of rising productivity are going: higher profits, lower inflation, rising stocks, and, ultimately, loftier prices for houses. In short, productivity is generating wealth, not employment. . . . Corporate profits as a share of national income are at an all-time high. So is net worth for many individuals.

We know, too, that outsourcing isn't altogether a bad thing. In the '90s, high-tech companies farmed out the manufacture of memory chips, computers, and telecom equipment to Asia. This lowered the cost of tech gear, raising demand and spreading the IT revolution. The same will probably happen with software. Outsourcing will cut prices and make the next generation of IT cheaper and more available. This will generate greater productivity and growth. . . .

We know something about the kinds of jobs that could migrate to Asia and those that will stay home. . . . [T]he Internet and cheaper telecom permit routine service work to be done in Bangalore. But specialized jobs that require close contact with clients, plus an understanding of U.S. culture, will likely remain.

America has been at economic inflection points many times in the past. These periods of high job anxiety were eventually followed by years of surging job creation. The faith Americans have in innovation, risk-taking, education, and hard work has been sustained again and again by strong economic performance.

History has shown time and again that jobs follow growth, but not necessarily in a simple, linear fashion. . . . We are now experiencing the maximum pain from the wreckage of outmoded jobs while still awaiting the innovations that will generate the work of the future. While America's faith in its innovation economy has often been tested, it has never been betrayed. Given the chance, the economy will deliver the jobs and prosperity that it has in the past.

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The next Business Week piece is by James C. Cooper and a team of others: "The Price Of Efficiency; Stop blaming outsourcing. The drive for productivity gains is the real culprit behind anemic job growth"

This article makes many of the same points as the previous one, but in even more detail, with more explanation, historical analysis, and statistics. Some additional points:

A broader range of industries, particularly the service industries that account for 80% of the jobs, are benefiting from the productivity increases.

"[T]he demands for profits by a growing investor class have heightened the pressure on corporations to keep costs low."

"The soaring cost of health-care benefits is also making companies more hesitant to add workers."

"Finally, the political and economic shocks of the past three years -- the stock market bust, the terrorist attacks, the corporate scandals, and war in Iraq -- have generated unprecedented uncertainty and caution in the executive suite."

"Retailers from department stores to gas stations to restaurants are now able to move a 35% greater volume of goods and services out the door per worker than they did five years ago . . . . Home Depot . . . has self-checkout counters in almost half of its 1,707 U.S. stores, allowing it to move as many as 1,000 cashiers to the sales floor. The shift helped drive sales per labor hour up 4% last year alone. "

"Another big factor: the explosion in goods moved through e-tail sites, which have done away with salespeople, restockers, cashiers, and other posts required in traditional retailing."

And the only-slightly-optimistic conclusion:

But if outsourcing poses potential challenges over the long haul, in the coming year productivity holds the key to the jobs outlook. The pace of efficiency gains always slows as a recovery picks up steam, but no one is really sure how much. The question is how long companies can meet this big increase in demand without expanding their workforces. "We're getting up close to the point where firms will of necessity have to hire additional people to sustain the growth they see in the demand for their products and services," Treasury Secretary John W. Snow told BusinessWeek. To judge by history, business cannot lean on the workforce so heavily for much longer. The problem, however, is that in this unusual business cycle, history has rarely proved a decent guide.

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Another bad news, good news Business Week piece is by Michael J. Mandel: "Productivity: Who Wins, Who Loses; The U.S. is reaping big -- but uneven -- gains from its highly efficient workforce"

[P]roductivity gains have been carrying jobs away -- but . . . they have also generated real benefits for Americans. By BusinessWeek's calculation, the rapid growth in productivity over the past three years has added an additional $220 billion to the nation's gross domestic product, compared with what GDP would have been if productivity growth had followed the slower pace of the previous business cycle.

High productivity has enabled corporations to boost the bottom line while holding down price increases . . . , while an astonishingly low inflation rate averaging 1.5% a year since 2001 has saved consumers hundreds of billions of dollars.

In addition, the hike in productivity directly and indirectly has driven up asset prices. Rising profits, of course, have pushed the stock market nearly back to levels before the recession, benefiting investors, while low interest rates have sent home prices soaring, to the delight of many homeowners. . . .

What's lacking so far from the productivity boom -- and it's still very early -- are new and innovative industries that create jobs to replace those that are lost. In the second half of the 1990s, productivity growth accelerated as big companies became more efficient and manufacturing jobs were outsourced overseas. But overall employment rose sharply as the technology sector expanded, adding not just engineers and programmers, but also marketers, cable installers, Web site designers, and all sorts of high and low-end jobs.

With info tech employment in a slump, there's no new industry now driving the job market. True, there are plenty of possible candidates for the Next Big Thing: Biotech, telecom, energy, nanotechnology, and even the commercial exploitation of space are all capable, in theory, of making a big difference in the job picture. However, it's not clear which of these, if any, will make the leap into the economic major leagues as autos did in the 1920s, commercial aviation did in the 1950s and 1960s, and info tech did in the 1990s.

For now, the lack of a leading-edge industry means that the benefits of the productivity boom are distributed unevenly. . . .

There are two possible ways that the current productivity boom could play out. In the absence of innovative new industries, the worst fears of pessimists will turn out to be true: Job growth will stay sluggish, demand will eventually sag, and over the course of the next decade, incomes will be driven down under the continued pressure of competition from China, India, and other low-wage countries.

The other, more optimistic alternative is that a new industry arises to take the baton from information technology as the leading sector of the economy. For example, biotech today is in the same situation as info tech was in the 1980s -- a relatively small industry in terms of jobs but with enormous potential. A few blockbuster drugs -- say, a real cure for colon cancer -- could mean a tremendous explosion of jobs in research, sales, and production.

It's important to realize that the new ideas need not be created in the U.S. The World Wide Web was invented in Switzerland, and drug research has been done around the globe for years. Moreover, Europe and Asia have long taken advantage of ideas generated in the U.S., showing that innovations travel easily across national borders.

In that sense, the growth of research and development operations in China and India -- regarded as potential competition by some -- could be good news for the U.S. With more smart minds, tough problems such as cheap solar power could be solved more quickly. What's important is for U.S. companies and workers to be flexible enough, with sufficient access to capital, to quickly take advantage of new technologies and opportunities when they arise.

Still, for all the uncertainty about the future, an economy driven by productivity growth is far superior to the alternative. Even without job growth, Americans are collecting the benefits of higher productivity through rising wealth and lower prices. Consumers are still spending -- and they're still buying homes. And if jobs and wages pick up soon, today's anxiety will feel like a dim memory.

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The special Business Week jobs focus continues with commentary by former Reagan Administration Assistant Treasury SecretaryPaul Craig Roberts: "The Harsh Truth About Outsourcing; It's not a mutually beneficial trade practice -- it's outright labor arbitrage"
Joining Lou Dobbs [see this post] in challenging conventional economic wisdom, he argues that Ricardo's law of comparative advantage no longer obtains:

When Ricardo developed the doctrine of comparative advantage, climate and geography were important variables in the economy. The assumption that factors of production were immobile internationally was realistic. Since there were inherent differences in climate and geography, the assumption that different countries would have different relative costs of producing tradable goods was also realistic.

Today, acquired knowledge is the basis for most tradable goods and services, making the Ricardian assumptions unrealistic. Indeed, it is not clear where there is a basis for comparative advantage when production rests on acquired knowledge. Modern production functions operate the same way regardless of their locations. There is no necessary reason for the relative costs of producing manufactured goods to vary from one country to another. Yet without different internal cost ratios, there is no basis for comparative advantage.

Outsourcing is driven by absolute advantage. Asia has an absolute advantage because of its vast excess supply of skilled and educated labor. With First World capital, technology, and business knowhow, this labor can be just as productive as First World labor, but workers can be hired for much less money. Thus, the capitalist incentive to seek the lowest cost and most profit will seek to substitute cheap labor for expensive labor. India and China are gaining, and the First World is losing.

One factor overlooked is the advantage provided by the American culture and personality.

Indians may work cheaper, but they have been raised in an extremely hierarchical culture, and I have heard first hand reports about low productivity resulting from the constant need to consult with superiors before making the slightest decision.

China is making great strides, but let us not forget that it is still a politically and religiously repressive regime, factors which seriously undermine morale, productivity, and creativity.

Speaking of which, here (finally) is the most optimistic of the Business Week articles: The Future Of Work; Flexible, creative, and good with people? You should do fine in tomorrow's job market (by Peter Coy and a host of others)

This article speaks of the value of skills I believe are less likely to be found in some of these other countries because they are encouraged by the American culture of creativity and freedom.

Changes in the economy in recent years have made some people more valuable and secure than ever, while pushing others -- even those with skills that were recently regarded as highly valuable -- to the margins.

What makes the difference? New research by economists at Massachusetts Institute of Technology and Harvard University concludes that the key factor is whether a job can be "routinized," or broken down into repeatable steps that vary little from day to day. . . . [T]he jobs that will pay well in the future will be ones that are hard to reduce to a recipe. These attractive jobs -- from factory floor management to sales to teaching to the professions -- require flexibility, creativity, and lifelong learning. They generally also require subtle and frequent interactions with other people, often face to face.

The good news is that a substantial majority of the jobs in the U.S. economy are nonroutine. And when you think about it, that has to be the case. In the relentless pursuit of productivity, the U.S. has already demolished millions of routine jobs in manufacturing, clerical work, programming, and other fields. . . .

The surviving secretaries, for example, have moved up from typing and answering phones to planning meetings, keeping books, and other more complex tasks. Bank tellers now spend more time handling special requests, while ATMs have taken over much of the job of taking deposits and dispensing cash. The factory workers most likely to keep their jobs will be those who make themselves experts on a variety of computer-controlled machines, or who excel at quick turnaround of custom orders. Those jobs aren't going away.

As the economy evolves, two kinds of jobs will remain impossible to routinize . . . . One kind involves complex pattern recognition. Such skills as spotting business opportunities or repairing a complicated machine fall into this category. The other relies on complex communication skills, such as those required to manage people, devise advertising campaigns, or sell big-ticket items such as cars. . . .


[S]ome jobs that are highly compensated today could soon be routinized. Powerful computers, advanced software, and speedy communications have vastly increased the vulnerability of routine work. Well-paid legal researchers, tax preparers, and accountants, for example, are seeing their jobs outsourced abroad. The jobs require intelligence and technical knowledge, of course, but because the procedures are highly standardized, they can be done at a distance by well-educated workers willing to do the job for far less. . . .

The people displaced from those jobs are shifting into jobs that can't be so easily standardized. And clearly, the growing importance of nonroutine work increases the value of education. . . .

While the debate over the future of work pervades the whole economy, information technology is where it's most pointed now. That's because the IT sector is being split in two. More routine tech jobs . . . are vulnerable to automation or outsourcing. In contrast, there's still plenty of demand in the U.S. for people who combine technical skills with industry-specific knowledge and people skills. . . .

To be sure, automation and globalization will be tough on those people who prefer comfortable, routine jobs, or who lack the education to tackle challenging new tasks. Some of those people will find work as barbers, truck drivers, hospital orderlies, or waiters. While those jobs will be protected by the fact that they can't be done in a foreign country or by software, wages will be depressed because so many people will be competing for the slots.

Still, there's no reason that automation and globalization have to create an underclass. In time, people displaced from routine jobs can study up for more challenging occupations. . . . [A] century ago, half the U.S. population worked in agriculture, and many people didn't know how to read or write. History has proved that they and their descendants were capable of much more. . . . Those who can [rise above the routine] will find that computers amplify their powers and globalization extends their reach.

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The final Business Week jobs piece gets political. It's a commentary by Mike McNamee(and others): "Stow The Rhetoric; Bush and Kerry need to move past politicking and get real about jobs"

[I]nstead of debating smart policies, both parties are backsliding into hot-button rhetoric. Kerry, a lifelong free-trader, threatens to veer into protectionism and border-closing, rolling back Bill Clinton's historic gains in moving Democrats toward open markets. And Bush has been reduced to singing the praises of a small fiberglass outfit that's set to hire two -- count 'em, two -- new employees, because he has little to offer stymied job seekers besides tax cuts on income that they won't earn.

As the campaign gets into full throat, it's time for both parties to deal with the real issue: How government can best help Americans adjust to a world where productivity grows rapidly, demand for skills changes constantly, and global competition threatens even well-educated service workers? Arming Americans to compete in that world -- without undercutting the flexibility and innovation that makes the U.S. economy so productive -- will demand more careful thought and more sensitive policies than either campaign is serving up. . . .

Neither candidate emphasizes the right policies to help Americans adapt to global job pressure in the long run. And there are ways that Washington can help. Start with the right balance on trade. . . .

The article goes on to offer some concrete policy suggestions.
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Kudos to Business Week. This collection of articles is some of the best stuff I've read on this complex and extremely important subject.