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Hunt begins for millions of missing jobs as US recovers By Dan Roberts Financial Times; Feb 17, 2004 Hunt for the missing millions in the US's jobless recovery and you quickly end up in places such as Farmingdale, Long Island - home to comfortable New York commuters and an empty factory that once made plastic knobs. The decline of manufacturing jobs in otherwise prosperous suburbs is well documented, but the response of this particular components supplier might help to explain how corporate profits and boardroom optimism across the US can be recovering so strongly without generating more jobs. Instead of simply folding up in the face of relentless competition from overseas, this $20m (£10.6m) company took a route usually open only to companies several times its size: it outsourced production to Shanghai. Now - having overcome the multitude of hurdles facing smaller companies setting up abroad - the remaining managers call themselves International Smart Sourcing and act as consultants for 25 other small companies which are also trying to open their own facilities in China. Typically, political attention focuses on offshore outsourcing among big companies but economists are struggling to see how its impact can be widespread enough to account for the relatively slow pace of job growth. Multinationals form only a small part of the overall US economy, and in any case the benefits of cheap outsourcing should act as a stimulus that balances out any short-term job losses. Yet during any economic recovery, most new jobs are generated by smaller companies trying to become bigger companies, and it is here - somewhere between the plastic knobs, consultancies and high-tech start-ups - that outsourcing might be having a bigger impact in the short term than it is given credit for. Venture capitalists operating in Silicon Valley report that these days almost every new business model which manages to secure funding includes an element of development work or programming carried out in countries such as India. True, technology companies are also hiring some US workers, but only among cutting-edge software designers who have the sort of skills that are not easily replicated outside the creative crucible of Silicon Valley. Paul Vais of Apax Partners in Menlo Park says: "Larger companies have the greatest proportion of processes that are appropriate [for outsourcing] but we see it almost every company the we look at. "Frankly, during the boom there were a lot of people in jobs here that should not have been, Mr Vais adds. "This recovery is not as exuberant but it is attracting entrepreneurial people back in with business models that should be longer-lasting." However, elsewhere there is more fatalism. "Every American company I know is looking at China," says David Kassel, chairman of International Smart Sourcing. "Some of the guys who have been in the business a long time will try to fight it out but the options are really limited. We work 40 hours a week; in China they have no concept of week ends." Nevertheless, the ability to outsource lower skilled jobs abroad rather than shutting up shop and surrendering entirely to foreign competition is giving many small US companies a future that they might otherwise not have had. Of course, this hollowing-out of US business is by no means the only factor in slow job growth. Elsewhere, two more recognised productivity gains - from the technology investment that took place in the late 1990s and tougher retail competition from the likes of Wal-Mart - are also producing a delayed effect. Kodak, for example, is cutting 45,000 jobs from its traditional photographic film factories as the digital camera brings the cost of taking pictures crashing down. Tower Records has been forced into bankruptcy by the rise of more efficient online music distribution. And FAO Schwarz, a bankrupt chain of toy shops, is one of many retailers unable to cope with the low costs of Wal-Mart, which employs fewer staff per dollar of sales than traditional shops. Meanwhile, new productivity gains are being sought in sectors such as financial services, where the recent JP Morgan and BankOne merger was aimed at stripping out overlapping costs. Despite this, hopes for future job growth are based on the assumption that these productivity gains are slowly running their course. Optimists can also point to signs of hope among large technology companies, which have long been wary of hiring again after several false dawns in 2001 and 2002. IBM led the way last month by announcing that it was expecting to take on 15,000 new staff in 2004, including the first net increase in domestic hiring for several years. "About one third of those jobs will be coming to the US, which will be somewhat offset by about 3,000 more jobs going overseas," said IBM spokesman Clint Roswell. "But what is important is that we will be hiring higher value jobs here with higher skills." For more sound economic analyses visit www.ft.com |