Candidate Trump told America that he would bring back, “Good, well-paying jobs, with benefits.” Which is what we want. We don’t just want low paying jobs without time off or health benefits. However, as Trump has learned, just the health care part of the job can take quite a bit of effort to define and deliver. When we take a look at what Trump is doing, and the bills that he supports, it’s difficult to imagine how his action will yield the sort of jobs we want, yet his approach may provide some benefits to the economy… just not the ones we expect. We need to dive into this issue and see just what Trump is doing to “Make America Great”.
Bring back jobs or create jobs – At the low end of the labor market, we don’t have a shortage of jobs. Quite the opposite, we have millions of jobs that Americans cannot or will not fill. There are 5–20 million more jobs in the US than we can fill. America’s illegal immigrant issue is really an illegal labor problem. Most of the “illegals” in the US are here to work. They would like to pay taxes, but to do so could get them arrested and deported. Some politicians admit that if illegals paid taxes everyone would be better off… But it creates the problem of illegal workers getting the same or similar treatment as legal workers and citizens. Individual morality is in conflict with economics.
In the 20th century, the illegal worker issue was largely restricted to agricultural work and agricultural states. In the last half of the 20th century, women entered the workforce in large numbers. Two income families became common, which caused an explosion in the service industry. With both parents working, America “outsourced” day to day functions… Fast food restaurants, cleaning services, lawn care, etc. The average American was making more money and wanted professional jobs. Services fell to illegal workers.
The estimated 11 million illegal workers were able to find jobs because there were so many jobs that Americans will not take, at least not at the wages that are currently offered. Even during our last economic downturn, Americans refused to take jobs such as picking lettuce. Politicians debated over whether this was true or just an urban rumor. Well, during the summer of 2017 we had a chance to test this theory.
The shrimping industry in Texas was an excellent test. The season is determined by nature and shrimp breeding rules. The shrimping season happens during the summer in Texas. One of the hardest jobs, that has to be performed on the boats during hurricane season, is taking the heads off of shrimp. Before 2017, shrimpers brought in labor. Some from Mexico, but most from the Caribbean and Africa. In 2017 the Federal Government told shrimpers that were needed to use American labor. Taking the heads off of shrimp is low paying $7.25 per hour (minimum wage in Texas), dangerous (bad weather), requires expertise to do correctly and is very hard work.
The results were that not enough workers would be hired. Often “newbies” would find that they could not do the work while they were in a storm, and the ship needed to return to port. The summer harvest is down by 75% due to these labor issues (expect a sharp rise in shrimp prices later this year). Similar outcomes were experienced in restaurants in tourist areas… but for different reasons. You see, even if you can get American workers for these restaurants, most American workers are young college students. They need to return to school 30 days BEFORE the high season ends. These restaurants make most of their profit for the year in these last 30 days. They cannot shut down, and they cannot change the season. For different reasons there are many other jobs, seasonal and permanent, that American’s cannot fill. If the US government does not allow foreign workers next year, tens of thousands of small businesses could go out of business in 2018.
Create good jobs – Candidate Trump talked about good jobs, workers rights, workers having a say in outsourcing, jobs with health care and other benefits, etc. Trump sounded surprisingly like a 20th century union boss… “Trust me and I will make it happen, I will make America Great Again”.
Notice the similarity between “Make America Great again” with the old union ad for “Made in America”. Made in America was an ad campaign by the Amalgamated Clothing and Textile Workers Union. Trump clearly borrowed from the earlier campaign, yet it is telling that Trump’s campaign materials (flags, hats, etc), were all made in China.
This lack of awareness flows through Trump’s pro-worker policies. Trump stated that he is for the common worker, but he has also signed or requested bills that slash the budget for the Department of Labor. Remember, the one Federal agency that is supposed to protect American workers is the DOL.
Trump has stated his opposition to unions, but that’s almost a requirement for any Republican. But while candidate Trump asked for worker rights, President Trump has backed legislation that makes it harder to join a union and he has supports court decisions that reduce overtime payments to workers. Trump may genuinely sympathize with workers, and want the same kind of jobs that unions pushed for in the past, but when it comes to specific actions or laws, he goes against his campaign promised. Trump may be thinking about the good of America’s workers, but we have as yet to see Trump acting for the good of workers.
American made – To understand how much the American labor market has changed, let’s go back to that “Made in America” ad. Back in the 1980’s when the ad was running, producing textiles required a lot of manpower, even though the automation of textile manufacturing began more than a century earlier. American textiles were some of the best in the world. But the economy changed, and big factories moved south, first to the southern states, then to mexico and South America. Eventually it moved to India and Bangladesh. No place on earth has a lower textile manufacturing cost than Bangladesh.
“Made in America” was created to stop the flow of work offshore. A century ago, New York City was a major manufacturing location. It was a center of textile manufacturing, that worked with the design industry in NYC, which was also one of the to markets for high quality textiles. It made sense for all of these industries and workers to be near each other. As communications technology improved (telephone, computers, etc.) it became possible to gain the advantages of offshore markets (low cost labor) while still being able to manage all of the suppliers, regardless of where they are. This is the logic that led to offshoring from the middle of the last century to about a decade ago. Importantly, this is the business logic that President Trump was raised on.
Now, new technologies have changed this equation. It makes business sense to build products in America once more. BUT just moving the work to America doesn’t mean that you’re building American jobs.
Consider running shoes. This was one of the first significant industries that totally moved out of America. Brands like Reebok and Converse defined the running shoe as an American icon. Yet, by the 1970’s the manufacturing of American running shoes started to move offshore. By the 1990’s, no running shoes were manufactured in America or in Europe. But starting in 2016, Adidas opened its first shoe factory in Germany, and then another one just outside of Atlanta in 2017. This is only the first of a huge wave of “re-shoring” that will hit starting in 2018.
There’s just one problem. Moving work to the US will not create many new jobs. Automation is now capable of performing more jobs, at a lower price. Athletic shoes… and a growing list of other products… can now be manufactured on shore for just slightly more than the offshore price. When you eliminate the time and cost of shipping goods around the world, “Made in America” goods can cost less than offshore.
Foxconn is a Chinese firm that is the world’s largest employer. Foxconn assembles parts made by other firms… into LED TV’s, smart phones, and other consumer electronics. Foxconn is inking a deal with the state of Wisconsin for a mega-factory that will employ 13,000. However, the state will pay $3 billion for Foxconn to start the project. You can bet that this will be the most automated factory in the world, and could produce as many goods as a factory with ten times as many employees.
But if the work is all performed by machines, what does America truly gain? It would bring money into the economy. We are entering a new economy where the majority of “workers” may be machines rather than humans. If governments are going to encourage new businesses to move in, and they plan to subsidize their work, there needs to be a very clear understanding of what that firm needs to deliver. Just revenue for state, jobs, good jobs, or something else?
Sum it up? – Trump believes that cutting worker rights and employment benefits can make America a more attractive place for some businesses. He could be right. Trump’s strategy could improve the economy and raise revenues. A few jobs might even be created. But those actions probably can’t create high paying jobs with good benefits.
If new factories open in the US, they can easily produce high value goods and increase profits. But the new generation of automated factories will employ few workers. Political leaders need to understand that manufacturing technology has changed. “Made in America” is still a good battle cry for manufacturing. But if Trump and other leaders do not understand the new technology, “Made in America” may ironically mean no more than made by American robots.