Where Will the Good Jobs Come From

Yglesias rebuts Ed Luce in the FT.

First, Ed Luce:

…a paradigm that has outlived its usefulness – the view that globalisation is an unmixed blessing for the US economy, and that America’s disappearing manufacturing jobs will be replaced by high-value jobs in the service sector. Things do not appear to be working out that way.

Take Applied Materials, a big US manufacturing company, which earlier this year shifted its chief technology officer and research and development operations to China. The company said it needed its R&D to be close to the source of its manufacturing operations and to its biggest future market. This is the opposite of what is supposed to happen. America was meant to keep the high-end jobs at home, while China would get all the low-value added production.

Yglesias rebuts:

In addition to my oft-made point that US manufacturing output is not in fact declining, it’s worth noting that the alleged need for R&D to be proximate to manufacturing options (plausible) cuts in both directions. Conventional wisdom is that manufacturing operations will all drift to low-wage countries. But if the USA is a better location for R&D than China, and if it’s strongly desirable to co-locate R&D and manufacturing operations, then many firms will want to retain manufacturing operations in the United States of America. So if this story is right, then more and better education for America is the key to retaining high-wage manufacturing jobs.

A few general remarks.

One, in my opinion, R&D’s proximity to manufacturing is less important than its proximity to the customer. In the case of Applied Materials, they mention both proximity to “manufacturing operations and to its biggest future market” as the reason for moving R&D to China. Luce and Yglesias pick up on one (manufacturing), but not the the other one (markets) which is probably the stronger driver. From the software industry we know that offshoring development (akin to manufacturing) while keeping design and product management in the US, is now more the norm than the exception.

Two, the US is unlikely to lose its edge on R&D. It has the biggest market by far in the world for anything and therefore the biggest playground for innovators in the world. It also has a lot of other things – the best talent from around the world, great universities, protection of intellectual property, venture capital etc. etc. Much has been said about the advantage that the US has in R&D. Now, in any market, new entrants will always be able to chip away at the leader’s share, just by positioning themselves to do something that the leader can’t do or won’t do. But even if some R&D goes to China and India, it won’t be of a magnitude that can impact the US hegemony over R&D.

R&D is not an end in itself. It is a means to an end. R&D itself creates millions of jobs but you have to have an advanced degree in Science or Engineering to get one of those. Not everyone will get (or want) a job like this. If the US continues to preserve and grow “innovation” related jobs, that is good, but not quite enough. Where are the millions of middle class American jobs going to come from?

This is a serious problem. The future of globalization might depend upon it. When manufacturing started moving to China, services jobs took their place. They were well paying (and a lot more comfortable). As now more and more of the white collar services jobs are being offshored as well, where will those middle class jobs come from?

Richard Florida might have the answer.

Among the fastest-growing jobs categories, according to the BLS, are what are called personal services – everything from day care and elder care to home health aides, food preparation, hair-cutting, home maintenance, and the like. These jobs are nearly impossible to offshore as they involve direct face-to-face human contact. A key platform in a national jobs strategy must include increasing the quality of these currently low-paying service jobs, turning them into higher-paying, family-supporting jobs.

Florida also says that these jobs have seen very, very little investment in technology and skills. Jobs pay better if they require higher grade skills. Jobs require grade skills if they are complex and need the use of tools and technology. Higher productivity can enable higher wages. Higher productivity requires the use of technology.