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Archive for Sunday, August 10, 2003

Economy recovers, but no new jobs

Companies not hiring in ‘growth recession’

August 10, 2003

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— Many economists predicted a jobless recovery, but few expected it to last so long.

Twenty-one months after the official end of the recession in November 2001, the number of jobs in the United States continues to decline. Economists call it a "growth recession," in which the economy grows so slowly that it doesn't add jobs.

The underlying problem is that growth has remained subpar for an unusually long time. But economists also are focusing on two fundamental economic changes: the increasing use of technology to produce more goods and services with fewer workers and the movement of a greater variety of jobs overseas. These shifts suggest that economic expansions won't generate as many jobs as they have in the past and jobless recoveries may become the norm.

"The present recovery has upset the implicit assumption that jobs accompany growth," John Silvia, the chief economist at Wachovia Corp. in Charlotte, N.C., wrote in a recent analysis. "This break in the link of growth and jobs is quite distinct from the past."

Growth continues to be sluggish for a number of reasons.

Companies borrowed heavily and overexpanded during the late 1990s boom, and they have to work off those excesses before they start hiring again. In addition, a series of negative shocks have buffeted the economy, starting with the Sept. 11, 2001, terrorist attacks, then the Enron and subsequent accounting scandals and finally the uncertainty created by the Iraq war.

Even though orders and sales have been picking up, many business executives still aren't confident enough about the economic outlook to hire new workers.

"Like most people out there, we don't know if it's going to hold," said Karla Aaron, the owner of Hialeah Metal Spinning Inc., a South Florida manufacturer of bowl-shaped metal parts for everything from missile tips to movie-theater popcorn makers. "So when we need extra time, we go into overtime. We don't hire. The last thing I want to do is bring someone in for three months and lay them off."

Shipping jobs overseas

So the jobless recovery continues. To cope, many U.S. companies are cutting costs by sending jobs overseas and investing in technologies that enable them to produce more with fewer workers.

Higher productivity is generally a positive development, economists say. Productivity soared 5.7 percent in the April to June quarter, the Labor Department reported Thursday.

The productivity growth should push down prices for consumers and push up wages for workers. And it can push up corporate profits, which enables companies to hire more workers if needed. But higher productivity also allows firms to meet growing demand without adding to their work forces, at least for a while, prolonging the jobless recovery.

Companies have been moving manufacturing jobs overseas for many years. But more recently they have found they also can cut costs by shifting white-collar jobs offshore, from software development to accounting.

Firms that don't follow these trends can't compete.

"If you're not doing it, you might be around in five years, but in 20 years you won't," Aaron said.

"In the old days, we would say, 'Double my sales, double my head count,'" she said in a telephone interview. "That doesn't happen anymore. We have to remain lean and get better and better if we want to stop the flow of jobs overseas."

Victim of the flow

Cynthia Chin-Lee is a victim of that flow. Chin-Lee, who writes manuals for computers and software, said she was laid off a year ago when the Dallas-based software developer i2 Technologies shifted her work from its Mountain View, Calif., office to Bangalore, the Indian Silicon Valley.

"It's sobering," said Chin-Lee, 44, who's the sole breadwinner for her husband and two children. She has since found work with another software firm in Silicon Valley.

"The profession of technical writing will generally disappear in Silicon Valley and the USA," predicted Andreas Ramos, the co-chair of the technical writers division of the National Writers Union, an AFL-CIO affiliate that represents freelance writers.

"This is inevitable, and these jobs will not return to the USA," he wrote in a summary of a recent roundtable discussion on the topic in Santa Clara, Calif.

The upshot is that some of the jobs that would have been created in the United States may now be created in India or the Philippines. Together with the productivity gains, that means the economy will have to grow more rapidly than it has in the past to create the same number of American jobs.

A case in point is a highly automated brick factory that's opening in the northwest Georgia town of Fairmont.

"This plant with 35 people will produce more brick than our oldest plant, which has 100," said Fletcher Steele, the president of Winston-Salem, N.C.-based Pine Hall Brick.

Some 500 people have applied for the 35 jobs.

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