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Where the Next Jobs Are

February 22, 2013

Where the Next Jobs Are
Picture a pot of boiling water. As the heat increases we see little bubbles under the water that begin to rise. With more heat larger more frequent bubbles leave the pot. By analogy the water in the pot represents unemployed people in an economy. The water vapor bubbles represent people gaining employment. With more fuel added to the pot, more and better jobs are created. Escaping the pot takes energy–worker energy/skill to be able to do a valuable job and economic energy to have the money for the paycheck.
In a global market place the boiling pots around the world affect each other. The worker skill versus value allows a bubble to rise in lower wage economies instead of a higher wage economy. Higher pay for the same value cannot be sustained. The economic energy is globally connected since the money to pay workers is traded in the world monetary system.
A strong well-developed economy has a better boiling pot due to more infra structure, education, and a resource network. The strong economy gets more value buy moving jobs and hiring the less skilled workers from other lower income countries when possible. That action moves money, economic energy to the lesser economies where jobs are created. The skill level to leave the boiling pot in the rich economy rises when the less skilled jobs go to foreign country workers. Without continuous upgrades to skill levels, unemployment rises in the strong economy.
The boiling pot analogy suggests ways of thinking about global interdependence and individual economies. The recent events offer insights.
The real or imagined financial/banking crisis of late 2007 saw the possibility of the fuel to every boiling pot instantly turned off. Suppose we froze every credit card worldwide? Most purchases would immediately stop. No cash flow would cut direct deposits of paychecks. The scenarios are mind boggling. The strongest economies would be hit the hardest since most money flows via electronic networks. The analogy may be better as turning the fire off and dumping ice into the pots.
The Euro zone debt crisis tells another story. The idea of an open market for goods, services, and workers over many countries with one currency was calculated to have benefits to all countries. This one large boiling pot has shown some leaks. The member countries in the Euro zone have independent governments, different populations, different government spending policies, unequal infrastructure, and uneven worker training and skills. The individual countries have access to non-Euro zone countries for cheaper labor and resources. The break-up of the Euro zone has been discussed; while in reality each country is more like an independent boiling pot. The recent unemployment in some Euro zone countries has reached extreme levels that will go higher if “economic energy”, loaned money is not used to fire the pot. The worker energy/skill level is also driving high unemployment.
The break-up of some middle-eastern dictatorships and hopes for democracy tells another story. The unemployment is reported as over 50% for young people. Many of the economies are fueled by export of raw materials with little “finishing” labor in the countries. A small population with huge oil exports can support all of the people and not even have a goal of job creation. Unfortunately, most countries that have seen political upheaval need more jobs and somehow need to climb into the world economy to head in that direction.
When I turned on the fire I didn’t see all of this world chaos coming. The global connections suggest possible added insights from looking at the condition of the boiling pots in some countries.
The huge pot in China has moved farm workers into factory workers who make and export products. The “Chinese housing projects” are a model for low cost–worker dorms, food and shelter, with some wages. Cheap exports have allowed the Chinese to collect and store huge amounts of foreign currency/economic energy. The Chinese are building infrastructure by buying up natural resources from countries with weak economies that need cash for economic energy. The infrastructure “catch-up” is well underway in education, transportation, and housing. Tight control over the population growth and access to resources has shown some advantages over a free market system in making the transition to operating in the global economy. In the pot analogy, the Chinese are limiting water additions to the pot, population growth and improving the efficiency of the pot. They are building up skilled worker and economic energy. Projections are that China will soon be the world’s largest economy.
The developed economies of Japan and South Korea have struggled as new competitors entered the global market. Large populations and limited natural resources plus natural disasters are factors in these recessions. Concerns about hostile neighboring countries draw resources away from production into protection.
Many countries of the middle-east are still going in the wrong direction. Population growth is high. Political unrest is discouraging foreign investment. The aging infrastructure is being ravaged by war. The only remaining asset, oil exports, probably has too little energy to affect the needed economic growth.
The complete picture includes mixed economic results in South American countries and the countries of the former Soviet Union. Political structures strongly influence the amount of trade between countries and their impact on global economic interdependence is less.
So the question, “where are the jobs?” depends on the pot you are in. New jobs for labor intensive, mass produced goods will only exist in developing economies. Stronger economies will still employ lower skilled workers for jobs that cannot be done in a foreign country. For years to come, the poorest of the poor will have to compete for the lowest wage and most labor intensive jobs. African nations will join the world economy and Asian workforces will reach higher skill levels. Clothing manufacturing has already moved to the poorest countries. Robotic manufacturing has reduced jobs for hand assembly workers and has allowed job relocations into many countries. Inefficient “boiling pots” which use economic fuel poorly will not boil much water, create jobs. These would be countries where the leaders skim the limited cash from foreign exports or hand out money with no job creation strategy.
The US and the Euro zone as well as Japan, Malaysia, and South Korea and more countries to come are all trying to create the same jobs. These are the dream jobs.
Job Description:
1. Do something that innovatively produces higher value goods and services than the next guy!
2. Sell your efforts for a big paycheck!
3. Spend your money during long vacations to bargain countries.
Job Requirements:
Education, skills, brain power to figure out how to do 1 above.
Location:
Any place where the boiling pot is working reasonably well-economic energy and worker energy is effectively used.
Micro Economics for Creating a New Private Sector Job
The global view of getting a job over simplifies as “just do it”, be smarter than everyone else. A more concrete view takes a closer look at the source of funds to hire.
If I presently own a company and am making a profit, I may ask myself, “How can I increase my profit?” the profit being the net reward to an owner that occurs when sales revenues are higher than costs. Simply, I can increase revenue or lower cost. More revenue would come from higher sales, new product sales or higher prices without loss of sales. Lower cost would come from lower labor cost, higher production from existing workers or pay cuts, or from lower materials and facilities costs. Lower costs could also come from lower taxes or reduced costs for insurance, borrowing, legal fees, and other “societal maintenance” costs.
The business decision is a gamble on “where to put the money?” Some of the profit could be used to expand and hope to increase profit. One option is to hire a new employee. In a gamble, the risk and reward must meet some threshold to make the “bet”. The uncertainty of the future profit to cover the bet may make the risk too high to bet on anything.
If we would draw a decision tree on the decision to hire a new person, we see that many uncertainties drive the choice away from hiring a new person. For a choice to add a worker the owner needs a high profit margin and better market certainty and cost certainty. Uncertainties include volatile fuel costs, lost demand if more people become unemployed, the uncertain added productivity from the new worker, and domestic and foreign prices and competition. Many large companies feel that their position is better secured by using profits to strengthen their stock price versus betting on business expansion and new hiring in the face of continued recession.

It can be argued that a business owner would be incented to add a worker if the government lowered his taxes. While a tax reduction may seem like new free money, if the market and future profit picture do not support the “bet”, the tax reduction will probably go to more profits and no worker will be hired. The tax reduction is the surest way to higher profits without promoting economic growth and improved production. Even a tax credit to add new equipment will not incent the business owner to add the equipment if the forecast for higher revenues does not fit the economic conditions.
A cut in government spending directly and indirectly creates unemployment. The loss of the spendable income can only worsen the future profit expectations that the business owner considers in hiring a new employee. The newly unemployed government workers buy less goods and services and the business may actually need to reduce staff. If the particular government program was adding value and driving higher worker skills and productivity, a compound job loss will result.
This picture seems to have few positive answers to “where are the jobs?”

Micro Economics for Creating a New Job in the Government Subsidized Sector
The previous business owner was considered to make all of his revenue in a free market economy. His products were made and sold to buyers who used their income to choose his product or service. A different situation occurs when the funds used to buy the goods or services are directly or indirectly provided by the government or the funds can be described as “MUST FLOW” due to legal requirements.
The best example is medical care. The increase in jobs in the medical field has been funded by government spending on Medicare and Medicaid along with private spending for insurance based on the fear of a total financial loss due to an illness with health costs beyond most people’s means. Three cases: 1) you are old or poor, you cannot afford the world class medical care of the US, so the government pays the bill, 2) you are young and working just to pay basic bills, you have nothing to spend on medical care and you hope to be lucky (if unlucky, you move to 1), or 3) you are upper middle class or very wealthy and can afford to pay high insurance costs.
Since most of the medical care funds are flowing via some kind of “entitlement” there is little or no business risk in making a decision to add a worker. Growth is assured, the payment cycle is auto driving the coverage of the price increases; from many people’s point of view, cost is not a factor when your life/health is at stake. So that is “where the jobs are”.
The next best example of job creation without risk is in businesses that have sure government contracts. If my company wins the contract to build a large flood wall, I may hire workers with no risk of having less revenue than cost. Similarly, direct hiring by the government creates employment. The employees may add to the economy in building infrastructure or may add security in fighting a war. If these people were all let go, the unemployment would rise and every business would be impacted even to the point of laying-off workers in the “downward spiral”.
Every job can be located on a chart that is based on where the funds come from, government versus private enterprise. A policeman is directly paid to keep us safe, a combat soldier in Iraq is keeping terrorists away, an armored vehicle maker in Louisiana is helping the soldier, a bullet proof vest maker is helping the policeman, and everyone making a part of the vest is being paid by the government.
Somewhere in the middle of the chart, a law firm is being paid from the pool of funds from car insurance payments. The settlements in personal injury cases allow new lawyers to be added. Since car insurance sells at regulated costs based on claims, and since everyone needs coverage by law, the funds to pay lawyers on both sides of these cases are something of an entitlement. The money for the job is “MUST FLOW” money. Each firm must compete for clients, run TV ads, and by whatever means get clients, still the money flow is not in a purely market based system.
If I own an oil-change business the funds for me and all of my employees come from customers who choose my shop. The customer may have earned the money or may have gotten money as welfare or unemployment benefits, but I have no say in where the funds came from. My source of income is as much a market mix as any business, but some part will disappear if government spending is cut.
Every person has some sources of money. If the money is very limited, few choices can be made. Food, shelter, clothing, utilities, gasoline, insurance are paid based on what the person sets as priorities. Every dollar gets spent. Personal debt is at the limit with no “raising the debt ceiling”. With government support for many necessities, the landlord is now getting paid from government money as is the grocery. Some part of these businesses has added workers because their customers are providing the revenue from the government spending.
In conclusion, the answer to “where the jobs are?” is pointing toward government spending but too much of the money is borrowed. Cuts in government spending will result in cuts in private sector jobs. The answer gets back to private business winning in selling goods and services in domestic and foreign markets. The top of the technology pyramid needs to be broadened to generate cash to fuel the boiling pot with much less fuel from government borrowed money. Better skilled workers, more efficient infrastructure, and less market drag from MUST FLOW obligations will allow private job expansion. Where just a few people “Do something that innovatively produces higher value goods and services than the next guy!” many supporting jobs will follow their initiative.
Ref. benclaassenspeaks “Keeping Track of Entitlement Dollars”

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