The Texas Labor Market and the Impact of Globalization

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The Texas Labor Market and the Impact of
Globalization

• TWC State Planning Conference
• Austin, Texas
• January 7, 2003
• Richard Froeschle, Director
• Career Development Resources(CDR)
• rich_at_cdr.state.tx.us
• [phone]

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Think Globally

• Act Locally!

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(No Transcript)
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Defining Globalization

• The inexorable integration of markets,
  nation-states, and technologies to a degree never
  witnessed beforein a way that is enabling
  individuals, corporations and nation-states to
  reach around the world farther, faster, deeper
  and cheaper than ever before.
• Thomas Friedman, The Lexus and the Olive Tree
• Olive Tree versus Lexus???

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Global Labor Market of the 21st Century

• Creative destructionThe process of simultaneous
  job creation and job destruction as new skill
  sets are required and old skills become outdated.
  The same employers will be both hiring and laying
  off continually regardless of labor market
  conditions to enhance productivity and
  competitive edge. Joseph Schumpeter
• See Churning in a Hypothetical Economy from
  Technology Workers in the New Texas Economy

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The New Rules of Globalization
Characteristic Cold War Period Globalization
Born in 1945 after the end of WWII. Lasted almost 45 years 1989 after the fall of the Berlin Wall.
Friends and Neighbors Allies vs. enemies divisions and walls Everyone is a competitor
Defining Document The Treatywith whom are you aligned? The Dealwith whom are you doing business?
Technology Symbol The hotline connecting the two superpower nations The Internet-- nobody in charge and everyone is connected
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The New Rules of Globalization (continued)
Characteristic Cold War Period Globalization
World Economic System Capitalism, socialism, communism, and autocracies Free market capitalism based on comparative advantage
Cultural Impacts Discrete ethnic or regional cultures and tradition. Past take precedence Cultural melding. Future takes precedence. Innovation over tradition
Defining Power Structure of Nation-States Fixed borders allied with either the U.S., USSR Government authority balanced by financial markets, individuals
Reigning Economist J. M. Keynesposits strong role for government J. Schumpetercapital move free and at will creative destruction
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How Globalization Impacts the Labor MarketThe
Basics

• Globalization and new digital technology opens
  new producer and consumer markets around the
  world
• Increased access to new producers leads to global
  price competition driving employer need for
  greater productivity, lower prices
• Increased price competition leads to cost
  containment pressures
• Cost containments leads employers to new supply
  chain practices, concerns over labor costs,
  alternative labor options

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How Globalization Impacts the Labor
Marketscenario B (part I)

• Globalization (increased open trade) is built on
  comparative advantage, doing what a country does
  best, including low wage choices
• Comparative advantage leads to changing
  industrial structures using resources for what
  you produce most efficiently. Export value added,
  Import commodities!
• Changing industry structure leads to creative
  destruction continual movements of capital and
  job loss/gain

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How Globalization Impacts the Labor
Market-scenario B (part II)

• Creative destruction leads to increased
  alternative labor supply choices for employers
  and increased job volatility for workers,
  especially in non-local service industries
  (footloose sectors)
• Job volatility results in greater job mobility
  (job changes), ever-changing mix of skill sets,
  demand for more extensive worker education, and
  more advanced skill sets, life-long learning

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Globalization of the U.S. Economy

• Total World Gross National Income (Product) 2001
  31,500,012 million
•  
• United States Gross National Product 2001
  9,900,724 million
•  
• The FACT is that the United States economy
  represents 31.4 percent of the World Economy.
•  
• The REALITY is that the top 20 richest countries
  represent 85 percent of the World Economy and the
  top 10 richest account for 74 percent.
•  

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Top 10 Richest World Economies 2001(in
millions)

• United States 9,900,724 31.4
• Japan 4,574,164 45.9
• Germany 1,947,951 52.1
• United Kingdom 1,451,442 56.7
• France 1,377,389 61.1
• China 1,130,984 64.7
• Italy 1,123,478 68.3
• Canada 661,881 70.4
• Spain 586,874 72.2
• Mexico 550,456 74.0

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The IMPLICATION is that U.S. companies have an
opportunity to tap into an additional 68.6
percent of additional world-wide purchasing
power, in addition to U.S. domestic spending.
The QUOTES There are still good growth
opportunities domestically. The economy is still
strong. But American companies dont want to be
shut out of overseas growth.  General Motors
is here because of Chinas growth. Youve got a
15-20 growth in the rate of auto sales in China,
and youve got 1.2 billion people. If you even
look a 1 of that, think of how many people could
buy a passenger car. Rudolph Schlais Jr,
President GM China Operations
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What Is an American Company?Percent of 2000
Revenue Outside U.S.

• YUM Brands Inc. 34.5
• General Motors 26.2
• Ford 30.4
• Boeing 34.3
• Intel 58.8
• Coca Cola 61.0
• Federal Express 29.9
• Emerson Electric 40.0

• Texaco 65.9
• IBM 57.9
• Motorola 52.5
• Johnson/Johnson 38.2
• John Deere 25.1
• Colgate 69.4
• Nike 50.3
• Hasbro 36.0

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Industry Growth Potential in a Global Economy

• To whom does the industry sell and are those
  sectors expanding?
• Is their cost structure competitive? e.g. are
  labor costs globally competitive relative to
  value added?
• Do they have Positive Pricing Power in their
  marketplace? PPP results in higher profits!

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Impacts of Globalization on Consumers

• Broader access to a wider variety of products and
  services than neighborhood offers
• Greater vendor diversity leads to better buying
  opportunities, lower prices eg. comparison
  shopping via Internet
• Lost allegiance to domestic producers what about
  the union label or U.S. TVs??
• More volatile labor market with stronger
  competition from global labor supply

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Impacts of Globalization on Business

• Businesses with global reach access more
  customers and get exposed in new markets
• Businesses with regional niche lose local
  customers to a global market place
• Business is exposed to supply chain opportunities
  to acquire lower cost inputs
• Business is exposed to new labor supply options
  foreign affiliates, H1B, global outsourcing

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Texas Industries Adding the Most Jobs 1999-2002

• Absolute Growth
• Educational Services
• Food Services/Drinking Places
• Ambulatory Health Care Services
• Professional and Technical Services
• Local Government
• Specialty Trade Contractors
• General Merchandise Stores
• Hospitals
• Heavy and Civil Construction
• Motor Vehicle and Parts Dealers

• Percent Change
• Warehousing and Storage
• Management of Companies
• Financial Investment
• Heavy and Civil Construction
• Support Activities for Mining
• Ambulatory Health Care Services
• Utilities
• General Merchandise Stores
• Educational Services
• Motor Vehicles/Parts Dealers
• (NAICS codes)

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Texas Industries Losing the Most Jobs 1999-2002

• Absolute Change
• Agriculture/Forestry Support
• Computer/Electronic Manuf.
• Apparel Manufacturing
• Transportation Equip Manuf.
• Fabricated Metal Manuf.
• Chemical Manuf.
• Oil Gas Extraction
• Food Beverage Stores
• Administrative Support Services
• Federal Government
• (NAICS codes)

• Percent Change
• Agriculture/Forestry Support
• Apparel Manufacturing
• Computer/Electronic Manuf.
• Transportation Equip Manuf.
• Wood Product Manuf.
• Misc. Manufacturing
• Printing and Related Support
• Oil Gas Extraction
• Electrical Equipment and Appliances
• Paper Manufacturing

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Global Trade Works Well When

• A healthy world economy needs strong US economy
• 1. Countries sell their goods to U.S. creating
  wealthU.S. Current Account deficit/Consumer Debt
  OK for rest of world (imports)
• 2. World wants, can afford, and buys U.S. stuff
  (exports)
• 3. U.S. companies export more stuff, generate
  revenues and Profits (assume Positive Pricing
  Power exists)
• 4. Portion of Profits used to invest in new
  technology other productivity enhancing
  strategies
• 5. Increased productivity CAN lead to job growth
  and potential for wage gains

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Globalization and the Bursting Bubble

• World faced with excess global capacity,
  especially in telecom and chip manufacturing in
  late 90s
• U.S. economy slows, reducing import levels
• Rest of World also in recession, slow/no growth
• Rest of World does not buy American AND seeks to
  sell more products by cutting prices
• U.S. companies must compete through competitive
  pricing. Labor costs are major cost component
• Even with same market share/output, profits
  shrink
• Low/No profits mean low/no investment in
  technology resulting in lower productivity
• Low productivity means less expansion and fewer
  jobs

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Texas Exports 200194.995 billion in 2001

• Mexico (41.0)
• Europe (11.8)
• Southeast Asia (11.8)
• Canada (10.8)
• Asia (8.6)
• South America (5.5)
• Africa (4.8)
• Middle East (3.6)

• Computer/Electronic Products (27.0)
• Chemicals (15.3)
• Machinery, ex. Electrical (13.5)
• Transportation Equipment (11.9)
• Electrical equipment (5.1)
• Petroleum (3.9)
• Fabricated metal Products (3.4)
• Plastics and Rubber (2.9)

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What are the Realities or Side Effects of
Globalization?

• Globalization presents both opportunities and
  challenges to governments and corporations. Even
  with current geopolitical risks, globalization
  is here to stay. But, what likely phenomena will
  accompany unmanaged global capitalism? At least
  some of the Handwriting is already on the wall...

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Side Effects of Globalization (part I)

• 1. Increased wealth inequality- Rich countries
  and rich people get richer. Per capita GDP gap
  between richest and poorest countries widened
  from 401 in 1973 to 721 in 1992
• 2. Environmental problems are getting worse-
  Unregulated markets encourage cheap waste
  dumping, encroaching on land and displacement of
  farmers.
• 3. Acceleration of capital movement w/o
  productive uses- 98 of currency trading in 1998
  was for speculation, not investment in plant or
  equipment. Fast moves can undermine a developing
  countrys financial markets and economy
  (Argentina 2001).

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Side Effects of Globalization (part II)

• 4. Industry and Occupational Winners and Losers-
  Global economy, comparative advantage causes
  upheaval in traditional industries. In see U.S.
  apparel, steel, call centers
• 5. Inequality of income based on comparative
  advantage- Countries that specialize in low wage,
  low value-added products gain jobs but fall
  behind on income equality.
• 6. An interconnected, interdependent global
  economy leads to a domino effect in recession. No
  exports, no earnings. When one country sneezes,
  another gets sick.

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Side Effects of Globalization (part III)

• 7. The homogenization of global culture- a.k.a.
  the McDonald-ization World culture and
  diversity is downgraded with spread of American
  pop culture
• 8. Economic specialization leads to limited jobs
  choices- If you limit the breadth of the economy,
  you limit occupational choices. Is specialization
  really necessary? Should everybody be a
  programmer?
• 9. Continued economic growth threatens global
  limitations and capacities- Growth in undeveloped
  countries is important but does social inequality
  and environmental costs outweigh benefits to
  developed countries?

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The Workplace of the Future...

• The factory of the future has just one man and
  one dog. The mans job is to feed the dog. The
  dogs job is to keep the man from touching the
  equipment.