THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, October 15, 1996 TAG: 9610150002
SECTION: FRONT PAGE: A16 EDITION: FINAL
TYPE: Opinion
SOURCE: By JAMES V. KOCH
LENGTH: 98 lines
Well off-target and mostly nonsense. That is the reaction of most economists to the Philadelphia Inquirer's series titled ``The American Dream: Who killed it?'' recently reprinted by The Virginian-Pilot. Yes, the American economy is changing more rapidly than ever and, yes, the rules that govern individual advancement within this new economy are changing as well.
However, the Inquirer's analysis of today's economy is badly flawed. Upward economic mobility has not ceased. Instead, the direction of movement along the royal road to success has changed and now increasingly involves post-high-school education and training.
More egregious, however, is the Inquirer's erroneous inference that international trade is primarily responsible for the disappearance of American jobs and is a major cause of corporate downsizing. The facts are different. International trade is a significant net creator of jobs in the American economy.
Let's examine these arguments more closely.
Question 1: Do jobs exist?
The unemployment rate today is 5.1 percent - the lowest since 1989 - and the American economy has generated more than 12 million jobs since the trough of the last recession early in 1992.
Question 2: Where are today's good jobs?
Jobs have changed locations. A firm such as Circuit City had 4,000 employees in 1985 but 31,000 employees in 1995. On the other hand, the largest firms, the Fortune 500, have almost 4 million fewer employees than they had in 1980. Small, entrepreneurial firms and medium-sized companies that focus upon technology, health and information have become the linchpins of economic growth.
While many ``hamburger flipping'' jobs have been created in the past few years, a clear majority of the 12 million new jobs created since 1992 are ``knowledge'' jobs that require working with ideas. In any case, we should not disparage work at McDonald's. One in 15 American workers now gets his/her first work experience with Ronald McDonald, and 70 percent of all fast-food workers are teen-agers working part-time. That is where most Americans start, not where they finish.
Jobs that lead to the American Dream now require increasing education and training. In-demand jobs ranging from court reporter to computer programmer command good wages and steady work but require post-high-school training (not necessarily a college degree); however, education does pay. The U.S. Department of Labor says that from 1994 to 2005, occupations that require moderate on-the-job training will grow by 5 percent; those that require a master's degree will grow by 29 percent.
Good-paying, lifetime jobs on an assembly line that can be filled by individuals fresh out of high school have become less common. Today, only 10 percent of people hold the same job for 20 years or more. When people change jobs, more often than not, their new job requires more education and training. These are among the most-important economic ``rule changes'' that we face today.
The payoff to higher education has increased. In 1979, a college graduate one to five years out of school earned 40 percent more than a high-school graduate one to five years out of school; today, that ``skill differential'' is more than 70 percent.
Question 3: Has international trade victimized American workers?
Some American jobs have moved overseas because of free trade, but more jobs have been created here. While the beneficial effects of NAFTA were exaggerated, the ``great sucking sound'' from jobs disappearing to Mexico that Ross Perot predicted has never occurred. Recent evidence is that the United States has gained about 10,000 jobs from NAFTA despite a precipitous decline in the Mexican economy.
Firms ranging from Caterpillar and Harley-Davidson to IBM and Microsoft have created far more jobs by selling overseas than have been eliminated by competition from Sony and Third World sweat shops. Watch the loaded ships leave the Virginia International Terminal if you doubt this.
Question 4: Can workers still climb the ladder to prosperity?
There is far more upward mobility in the income distribution than at first seems apparent. Data from the 1990 Census indicate that 86 percent of tax filers in the bottom fifth of the income distribution in 1979 exited upward during the 1980s.
Nor is a position on the ``top rung'' guaranteed. Thirty-five percent of the tax filers in the top fifth exited downward during the 1980s.
If eliminating trade with foreign countries created jobs, then by logical extension Virginia could create jobs by forbidding any purchases from companies located in North Carolina, New York and the other 48 states. Does anyone really believe that Virginia would be better off in such a world? Our standard of living would fall dramatically, and we would soon say sayonara to items that are almost impossible to produce here such as bananas and gasoline.
Suppose we did protect some American jobs by forbidding import competition. A study of such trade-protectionist policies in 21 American industries revealed that it cost American consumers an average of $170,000 to save one job because we all pay higher prices when trade restrictions are imposed. The costs of avoiding free trade were ignored by the Inquirer.
The Inquirer article has frequently been reprinted because it touches upon the real human problems produced by a rapidly changing economic environment. Unfortunately, heart-wrenching anecdotes are not a substitute for sound general analysis, and as a result nearly all of the Inquirer's conclusions are wrong. The end product is what Newsweek's Robert Samuelson has labeled ``junk journalism.'' MEMO: James V. Koch is an economist and president of Old Dominion
University. by CNB