Wages And Unemployment Link

There are many factors that create employment in the United States. However, in general, there are 2 things the government can do to help influence the creation of employment. These two methods of influencing the creation of employment involve the manipulation of monetary controls and the use of fiscal measures. There are other things that can be done, like lowering restrictions to trade and doing business but there were obvious reasons for having legislative control measures in place and to reduce them might mean decreased protection or benefits.  For example, reducing safety regulations would definitely make business easier but I think everyone agrees that safety is important and should not be marginalized to make a buck.

In my opinion the bigger generator of employment is reducing the cost of doing business domestically in order to keep prices low and competitive against foreign products. The costs of doing business are things like wages, cost of materials, cost of rents, and etc. For decades the US has been struggling with the cost of doing business in order to keep products competitive with foreign made products. Thus, we saw manufacturing companies move to countries in South America and the Far East. China has a labor-intensive market and thus, wages were really low. I’ve said time and time again that eventually those wages will rise and the balance of trade will shift. In the June, 2011 issue of Time magazine, an article was written covering the wage increases in China. On average, China’s wages has increased approximately 12% annually. Then today I read online that the Boston Consulting Group sees approximately 3 million jobs coming back to the US. Why? A combination of factors leads to jobs coming back to the US. Increased oil prices have increased the cost of shipping. Wages increasing in China have made labor in China less attractive. Plus, I’m not sure, but I’d be willing to bet that wages have decreased (perhaps marginally) in the US because of the high unemployment rate. With many more people looking for jobs, not only can manufacturers take their pick of the litter but they can also pay less for it.

So what does this mean? Recently the Boston Consulting Group announced that approximately 3,000,000 jobs would be coming back to the US. Jobs have actually already started coming in. Ford estimates 12,000 more works in the next 4 years with the majority of the vehicles assembled in America. Whirlpool estimates approximately 130 jobs will be coming to Cleveland TN, 130 jobs and 190 jobs in Ottawa, Ohio. Continental Tires estimates 1,600 jobs will be coming to the US and Farouk Systems already has 1,200 jobs in Houston Texas. Does this mean that the American Dream of owning a home and a car, and raising a family is back on track?

Not necessarily. If wages start to increase to the point that companies start moving operations back to cheap labor countries, we will be back where we started. If a truck driver got paid $100 a paycheck in 1952 that same truck driver would get paid $1,476 to do the same job in 2008. This is according to the yearly average wage index.  Even if you reduced the buying power of the dollar to account for inflation, the buying power of his paycheck would only reduce his paycheck to $1,420. Think about this the next time you decide to strike for higher wages. Every dollar increase will cost of your company’s goods and services to increase in costs. These rising costs will be passed down to the consumer. If the consumer has to make a decision between buying a comparable import, they will. The success of Walmart and Kmart proves this. However, given our country’s unquenchable appetite to buy things, I think the demand on unions to fight for higher wages is inevitable. In our country, buying a house and a car isn’t a privilege. It’s a right and should be written into the Constitution. The increase in wages will start the export of jobs overseas once it becomes more favorable to do so and we will criticize the President and Congress for not doing anything because it’s easier for us to blame someone else.
UpOnDaRoof UpOnDaRoof
36-40, M
Oct 8, 2011