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The Texas Labor Market and
the Impact of Globalization
TWC State Planning Conference
Austin, Texas
January 7, 2003
Richard Froeschle, Director
Career Development Resources(CDR)
[email protected]
(512) 491-4941
Think Globally…
Act Locally!
Defining Globalization
“The inexorable integration of markets,
nation-states, and technologies to a
degree never witnessed before—in a
way that is enabling individuals,
corporations and nation-states to reach
around the world farther, faster,
deeper and cheaper than ever before.”
Thomas Friedman, The Lexus and the Olive Tree
Olive Tree versus Lexus???
Global Labor Market of the 21st Century
Creative destruction—The process of
simultaneous job creation and job destruction as
new skill sets are required and old skills become
outdated. The same employers will be both
hiring and laying off continually regardless of
labor market conditions to enhance productivity
and competitive edge.
Joseph Schumpeter
See “Churning in a Hypothetical Economy” from
Technology Workers in the New Texas Economy
The New Rules of Globalization
Characteristic
Born in…
Friends and
Neighbors…
Defining
Document…
Technology
Symbol…
Cold War Period
Globalization
1945 after the end of
WWII. Lasted almost
45 years
Allies vs. enemies;
divisions and walls
1989 after the fall
of the Berlin Wall.
The Treaty—with
whom are you
aligned?
The “hotline”
connecting the two
superpower nations
The Deal—with
whom are you
doing business?
The Internet-nobody in charge
and everyone is
connected
Everyone is a
competitor
The New Rules of Globalization (continued)
Characteristic
Cold War Period
Globalization
World Economic
System…
Capitalism, socialism,
communism, and
autocracies
Free market capitalism
based on comparative
advantage
Cultural
Impacts…
Discrete ethnic or
regional cultures and
tradition. Past take
precedence
Cultural melding.
Future takes
precedence. Innovation
over tradition
Defining Power
Structure of
Nation-States…
Fixed borders allied
with either the U.S.,
USSR
Government authority
balanced by financial
markets, individuals
Reigning
Economist…
J. M. Keynes—posits
strong role for
government
J. Schumpeter–capital
move free and at will;
creative destruction
How Globalization Impacts the
Labor Market—The Basics
• Globalization and new digital technology
opens new producer and consumer markets
around the world
• Increased access to new producers leads to
global price competition driving employer
need for greater productivity, lower prices
• Increased price competition leads to cost
containment pressures
• Cost containments leads employers to new
supply chain practices, concerns over labor
costs, alternative labor options
How Globalization Impacts the
Labor Market—scenario B (part I)
• Globalization (increased open trade) is
built on comparative advantage, doing
what a country does best, including low
wage choices
• Comparative advantage leads to changing
industrial structures; using resources for
what you produce most efficiently.
Export value added, Import commodities!
• Changing industry structure leads to
creative destruction; continual
movements of capital and job loss/gain
How Globalization Impacts the
Labor Market-scenario B (part II)
• Creative destruction leads to increased
alternative labor supply choices for
employers and increased job volatility for
workers, especially in non-local service
industries (footloose sectors)
• Job volatility results in greater job
mobility (job changes), ever-changing mix
of skill sets, demand for more extensive
worker education, and more advanced
skill sets, life-long learning
Globalization of the U.S. Economy
Total World Gross National Income
(Product) 2001 = $31,500,012 million
United States Gross National Product
2001= $9,900,724 million
The FACT is that the United States
economy represents 31.4 percent of the
World Economy.
The REALITY is that the top 20 richest
countries represent 85 percent of the
World Economy and the top 10 richest
account for 74 percent.
Top 10 Richest World Economies 2001
(in millions$$)
•
•
•
•
•
•
•
•
•
•
United States
Japan
Germany
United Kingdom
France
China
Italy
Canada
Spain
Mexico
$9,900,724
$4,574,164
$1,947,951
$1,451,442
$1,377,389
$1,130,984
$1,123,478
$661,881
$586,874
$550,456
31.4%
45.9%
52.1%
56.7%
61.1%
64.7%
68.3%
70.4%
72.2%
74.0%
The IMPLICATION is that U.S. companies have an
opportunity to tap into an additional 68.6 percent of
additional world-wide purchasing power, in addition to
U.S. domestic spending.
The QUOTES:
“There are still good growth opportunities domestically.
The economy is still strong. But American companies don’t
want to be shut out of overseas growth.”
“General Motors is here because of China’s growth. You’ve
got a 15-20% growth in the rate of auto sales in China, and
you’ve got 1.2 billion people. If you even look a 1% of that,
think of how many people could buy a passenger car”.
Rudolph Schlais Jr, President GM China Operations
What Is an American Company?
Percent of 2000 Revenue Outside U.S.
•
•
•
•
•
•
•
•
YUM Brands Inc. 34.5%
General Motors 26.2%
Ford 30.4%
Boeing 34.3%
Intel 58.8%
Coca Cola 61.0%
Federal Express 29.9%
Emerson Electric 40.0%
•
•
•
•
•
•
•
•
Texaco 65.9%
IBM 57.9%
Motorola 52.5%
Johnson/Johnson 38.2%
John Deere 25.1%
Colgate 69.4%
Nike 50.3%
Hasbro 36.0%
Industry Growth Potential
in a Global Economy
• To whom does the industry sell and
are those sectors expanding?
• Is their cost structure competitive?
e.g. are labor costs globally
competitive relative to value added?
• Do they have Positive Pricing Power
in their marketplace? PPP results in
higher profits!
Impacts of Globalization on Consumers
• Broader access to a wider variety of
products and services than neighborhood
offers
• Greater vendor diversity leads to better
buying opportunities, lower prices; eg.
comparison shopping via Internet
• Lost allegiance to domestic producers; what
about the “union label” or U.S. TVs??
• More volatile labor market with stronger
competition from global labor supply
Impacts of Globalization on Business
• Businesses with global reach access more
customers and get exposed in new markets
• Businesses with regional niche lose local
customers to a global market place
• Business is exposed to supply chain
opportunities to acquire lower cost inputs
• Business is exposed to new labor supply
options; foreign affiliates, H1B, global
outsourcing
Texas Industries Adding the Most Jobs 1999-2002
•
•
•
•
•
•
•
•
•
•
Absolute Growth
Educational Services
Food Services/Drinking Places
Ambulatory Health Care
Services
Professional and Technical
Services
Local Government
Specialty Trade Contractors
General Merchandise Stores
Hospitals
Heavy and Civil Construction
Motor Vehicle and Parts
Dealers
•
•
•
•
•
•
•
•
•
•
Percent Change
Warehousing and Storage
Management of Companies
Financial Investment
Heavy and Civil Construction
Support Activities for Mining
Ambulatory Health Care
Services
Utilities
General Merchandise Stores
Educational Services
Motor Vehicles/Parts Dealers
(NAICS codes)
Texas Industries Losing the Most Jobs 1999-2002
Absolute Change
• Agriculture/Forestry Support
• Computer/Electronic Manuf.
• Apparel Manufacturing
• Transportation Equip Manuf.
• Fabricated Metal Manuf.
• Chemical Manuf.
• Oil & Gas Extraction
• Food & Beverage Stores
• Administrative Support
Services
• Federal Government
(NAICS codes)
Percent Change
•
•
•
•
•
•
•
•
•
Agriculture/Forestry Support
Apparel Manufacturing
Computer/Electronic Manuf.
Transportation Equip Manuf.
Wood Product Manuf.
Misc. Manufacturing
Printing and Related Support
Oil & Gas Extraction
Electrical Equipment and
Appliances
• Paper Manufacturing
Global Trade Works Well When…
A healthy world economy needs strong US economy
1. Countries sell their goods to U.S. creating wealth—
U.S. Current Account deficit/Consumer Debt OK for
rest of world (imports)
2. World wants, can afford, and buys U.S. stuff (exports)
3. U.S. companies export more stuff, generate revenues
and Profits (assume Positive Pricing Power exists)
4. Portion of Profits used to invest in new technology &
other productivity enhancing strategies
5. Increased productivity CAN lead to job growth and
potential for wage gains
Globalization and the “Bursting Bubble”
• World faced with excess global capacity, especially in
telecom and chip manufacturing in late 90’s
• U.S. economy slows, reducing import levels
• Rest of World also in recession, slow/no growth
• Rest of World does not buy American AND seeks to
sell more products by cutting prices
• U.S. companies must compete through competitive
pricing. Labor costs are major cost component
• Even with same market share/output, profits shrink
• Low/No profits mean low/no investment in technology
resulting in lower productivity
• Low productivity means less expansion and fewer jobs
Texas Exports 2001
$94.995 billion in 2001
•
•
•
•
•
•
•
•
Mexico (41.0%)
Europe (11.8%)
Southeast Asia (11.8%)
Canada (10.8%)
Asia (8.6%)
South America (5.5%)
Africa (4.8%)
Middle East (3.6%)
• Computer/Electronic
Products (27.0%)
• Chemicals (15.3%)
• Machinery, ex. Electrical
(13.5%)
• Transportation Equipment
(11.9%)
• Electrical equipment (5.1%)
• Petroleum (3.9%)
• Fabricated metal Products
(3.4%)
• Plastics and Rubber (2.9%)
What are the Realities
or “Side Effects” of Globalization?
Globalization presents both
opportunities and challenges to
governments and corporations. Even
with current “geopolitical risks”,
globalization is here to stay. But,
what likely phenomena will accompany
“unmanaged” global capitalism? At
least some of the Handwriting is
already on the wall...
Side Effects of Globalization
(part I)
• 1. Increased wealth inequality- Rich countries and
rich people get richer. Per capita GDP gap
between richest and poorest countries widened
from 40:1 in 1973 to 72:1 in 1992
• 2. Environmental problems are getting worseUnregulated markets encourage cheap waste
dumping, encroaching on land and displacement
of farmers.
• 3. Acceleration of capital movement w/o
productive uses- 98% of currency trading in 1998
was for speculation, not investment in plant or
equipment. Fast moves can undermine a
developing country’s financial markets and
economy (Argentina 2001).
Side Effects of Globalization
(part II)
• 4. Industry and Occupational Winners and LosersGlobal economy, comparative advantage causes
upheaval in traditional industries. In see U.S.
apparel, steel, call centers
• 5. Inequality of income based on comparative
advantage- Countries that specialize in low wage,
low value-added products gain jobs but fall behind
on income equality.
• 6. An interconnected, interdependent global
economy leads to a domino effect in recession. No
exports, no earnings. When one country sneezes,
another gets sick.
Side Effects of Globalization
(part III)
• 7. The homogenization of global culture- a.k.a. the
“McDonald-ization” World culture and diversity is
downgraded with spread of American pop culture
• 8. Economic specialization leads to limited jobs
choices- If you limit the breadth of the economy,
you limit occupational choices. Is specialization
really necessary? Should everybody be a
programmer?
• 9. Continued economic growth threatens global
limitations and capacities- Growth in undeveloped
countries is important but does social inequality
and environmental costs outweigh benefits to
developed countries?
The Workplace of the
Future...
The factory of the
future has just one
man and one dog.
The man’s job is to
feed the dog. The
dog’s job is to keep
the man from
touching the
equipment.