In an interesting opinion piece in Wednesday’s Wall Street Journal by William Galston, he asks “Why did wages flatline?”, and cites Bureau of Labor Statistics that since 2010 hourly wages, corrected for inflation, have risen at only 0.5% per year. Unfortunately, he does not contrast this with what he claims were greater gains in most earlier periods. However, I do believe his thesis that the gains have been smaller in recent years. He also cites falling unemployment, falling unemployment duration, but notes lower employment participation. He then hypothesizes that unions are weaker, the population is aging, and with corporate profits up, managements aren’t sharing gains with workers. Standard progressive fare.
Then there is our President, who asserts that the good jobs have been lost to China. Unfair currency manipulation, government subsidies, theft of intellectual property, all under the auspices of a government taking advantage of US workers has been the villain. Pretty standard reactionary fare.
So where does the truth lie? While everything on both sides has some element of truth, some minor contribution to the problem, the elephant in the room, that no one discusses, is automation and instantaneous global communications. More jobs, especially higher paying manufacturing jobs, have been lost to automation than anyone is talking about. So is protectionism the answer—trade barriers, including tariffs, restrictive quotas, our own currency hijinks? Or is it training and retraining individuals out of work with new and different skills, those now needed by the ever-changing economic landscape?
Simple economic theory teaches comparative advantage, that everyone is better off if each nation does what it is best at, and sells to other similar nations the goods and service in which they excel, and buys what their trading partner excels in. The visible problem is this, however. As a hypothetical (my numbers are not grounded in research, but are not totally fanciful), because Apple manufactures in China, everyone can buy an IPhone for $200 less than if it were manufactured here, and let’s say 4 million of them would be sold per year. That’s good, right? But if they were to manufacture here, there would be an additional 20,000 people employed at an average salary of $25,000 per year plus benefits. This might be offset by less sales of our exported products to China, but let’s not even worry about that. So the employed are better off by $500 million and the buyers collectively are worse off by $800 million. The 20,000 people without jobs hurt more and are more visible, even though the nation as a whole has a net benefit.
So what do we do? The answer has to be to make a meaningful investment in training and retraining. There are many overlapping and inefficient government programs for training, so why not drop them, and use the money elsewhere. Employers know best what skills they need, so let the government reimburse them for training. For example, if a company were to hire a worker to fill a job where he did not have the requisite skills, the government could reimburse the trainee’s pay, one month wages if he was still on the payroll at the end of a year, a second month if he were still employed at the end of a second year, and a third and final month if he was still on the payroll after 36 months. Of course there would have to be safeguards to eliminate the possibility of companies cheating, but that shouldn’t be onerous.
Unions could be required to put a small fraction of union dues paid each month into building up a reserve for re-training laid-off members. Teachers, generally off work in the summer months, could be paid for adult education in those months, to bring up reading and math skills among the educationally-deficient unemployed, who could be incentivized to attend classes by the prospect of losing benefits if they did not attend.
So a good centrist position here is not to cut off our nose to spite our face by dampening trade. Nor is it to rail against “greedy” capitalists, but to invest in our people, upgrading and modernizing their skills. There are always numerous job openings, often going unfilled, because the necessary skills can’t be found.