Monday, February 23, 2004
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Where are the new jobs?
Virginia Postrel's story in today's New York Times Sunday Magazine takes a close look at where new jobs are being created -- and whether they show up in the payroll survey:
I'd say more about this story, but Bob McGrew beat me to my own narrative.
One semi-provocative thought, however. Most of the job categories mentioned in Postrel's essay have something of a 'feminine' cast to them. The job sector with the biggest job losses -- manufacturing -- has a decidedly masculine cast. It's undoubtedly difficult for workers to transition from manufacturing to services. Could gender barriers make the current economic transformation even more difficult for displaced workers?
UPDATE: Brad DeLong thinks these undercounts are insignificant:
See also here.
ANOTHER UPDATE: Postrel responds.
There's another follow-up post here that's worth reading in full.posted by Dan on 02.23.04 at 12:32 AM
I know this is a no-no in the blogosphere, but all I can say is, see my post here:
Virginia is full of sheet.posted by: cj on 02.23.04 at 12:32 AM [permalink]
Doesn't the criticism mean that the household survey data isn't right? But it doesn't necessarily invalidate Virginia's point. Brad is correct only if you believe that the household Survey correctly picks up all these self-employed workers. I'm not sure why I should believe that.posted by: kl on 02.23.04 at 12:32 AM [permalink]
A 'feminine cast' can often mean low wages; i.e. the pink ghetto effect. My experience in the national headquarters of a bank (80% female/clerical) in the 1990's was proof of that. It may not stay that way, and it may not be right, but there it is.posted by: Bruce Cleaver on 02.23.04 at 12:32 AM [permalink]
Ah c'mon Dan, don't fancy becoming (or having a son become) a manicurist? Well, stone-cutting, at least that's something that requires a big-ass pickup truck and power tools! Lots of power-tools.
I read the article and thought, this is weak. If this is the best Postrel has, free trade is not gonna survive the coming storm.posted by: Kelli on 02.23.04 at 12:32 AM [permalink]
To the extent this is true that the future will consist more of free-lancers... I see an issue here:
First of all, you have to spend a considerable amount of time and energy selling yourself. In the old paradigm, you had sales people, and you had technical people. Isn't that a better way to divide labor according to talent than requiring everyone to be both?
Furthermore, lots of people who good at creating value aren't necessarily good at selling themselves. In the world of free-lancer, the glib, the attractive, and the people-oriented are going to do better. Is this necessarily a good thing?posted by: voice of the democracies on 02.23.04 at 12:32 AM [permalink]
Ya know, I'm puzzled about all of this hand wringing over the jobs picture.
We are in essence saying the desired condition (or benchmark)for today's numbers was an unsustainable bubble economy of the late 1990s. Maybe it's just me.posted by: ken on 02.23.04 at 12:32 AM [permalink]
Interesting angle, Ken..
Another aspect to the shift toward self-employment and free-pance work is that such jobs often are inherently unstable. One of the desirable aspects of job stability is that it strengthens the community in ways that temporary or free-lance jobs do not.
It is a big drain on the economy when people default on mortgages, car loans, and credit card bills. I suspect that such defaults are much more common among the self-employed or temporarily-employed than among those with permanent hourly or salaried jobs.posted by: Joseph on 02.23.04 at 12:32 AM [permalink]
Could someone explain why the slabs would be imported? It's kind of counterintuitive...bring in the big heavy stuff from another country and then do the labor-intensive fabrication work here...posted by: david foster on 02.23.04 at 12:32 AM [permalink]
Hmmm. Not to jam my foot into anyone's tender orifice but ...
This is an article, first one I've seen btw which is why I posted the URL, where accounting firms are *outsourcing* the preparing of tax returns.
Now everyone is probably familiar with the aggravation coming from the IT and manufacturing veterans on how outsourcing is affecting them. But I'm sure that this is something of a surprise as it certainly surprises me. However it does definitely underscore that any job that doesn't absolutely require on-site presence can and very likely will be outsourced/offshored.
So let's get an overview here. How many posters here have a job that could potentially be outsourced? Let's all post our jobs and our opinion of it's potential for outsourcing.
I'm a software developer so my profession is right at the top of the list. :)
Let me describe the joys of freelancing, as my spouse experienced them.
First, your taxes go up. Why? Well, there's the small matter of you now become responsible for the employer's portion of social security. So, going freelance nets you an immediate 8% tax increase (some of which gets refunded when you do the 1040.)
Second, your healthcare expenses go up. To avoid the total financial fiasco of paying for her own medical insurance, I covered her on my work insurance.So in my case, only $80 or so a month. For others, probably more.
Third. One discovers, as a freelance, that the companys you bill practice their arcane arts of "payables management" on you. This means, you do not get paid when you do the work. You don't get paid when you deliver the work. You don't get paid when you invoice the work. You might get paid 30 business days after you invoice the work (that's six weeks). But it's more likely you get paid many months later.
My wife decided, after about six months of this, that being paid by a corporation was better than the freedom of freelance life.
Basically, if life as a freelance is the future, we'd better have national health insurance and a rational payroll tax system, because otherwise a lot of workers will be severely dorked. And something will need to be done to equalize the individual freelance against the corporation when it comes to getting the bills paid. If I treated the power and gas company the way my wife was treated with respect to invoices, our days would be cold and dark indeed.posted by: Appalled Moderate on 02.23.04 at 12:32 AM [permalink]
The examples were interesting and show why Delong is probably right. Stone crafting requires strength and skill and is subject to turns of fashion.
I know a guy who does massage he is very successful but is licensed and has three studios and probably shows up in the statistics.
Manicurists? All of these positions have one thing in common - they lend themselves quite nicely to under the table situations which doesn't help the tax base or the medical insurance problem.posted by: alan aronson on 02.23.04 at 12:32 AM [permalink]
"First, your taxes go up. Why? Well, there's the small matter of you now become responsible for the employer's portion of social security. So, going freelance nets you an immediate 8% tax increase (some of which gets refunded when you do the 1040.)
Second, your healthcare expenses go up. To avoid the total financial fiasco of paying for her own medical insurance, I covered her on my work insurance.So in my case, only $80 or so a month. For others, probably more."
On the other hand, since your customer isn't paying those same expenses for you, then the amount they're willing to spend goes to you in the form of cash instead of some of it getting diverted to a health plan and Social Security before you even see it.
"So let's get an overview here. How many posters here have a job that could potentially be outsourced? Let's all post our jobs and our opinion of it's potential for outsourcing."
Get enough bandwidth, and you can remote control humanoid robots. Everyone is going to be outsourceable in the not-so-distant future.
"First of all, you have to spend a considerable amount of time and energy selling yourself. In the old paradigm, you had sales people, and you had technical people. Isn't that a better way to divide labor according to talent than requiring everyone to be both?"
Maybe, but employees are stuck doing the same thing now. They interview for jobs, and must sell themselves. On the job, they must continue selling themselves.
"Furthermore, lots of people who good at creating value aren't necessarily good at selling themselves. In the world of free-lancer, the glib, the attractive, and the people-oriented are going to do better. Is this necessarily a good thing?"
Maybe not, but it's not any different when you're on the payroll.posted by: Ken on 02.23.04 at 12:32 AM [permalink]
1. "One discovers, as a freelance, that the companys you bill practice their arcane arts of "payables management" on you."
Yeah this is definitely a problem. I had situations where the amount owed to me exceeded the amount actually paid by a factor of 3 or 4. Then I wised up. The trick is to offer a small discount for payment within 14 days of invoice. A lesser discount for payment within 30 days of invoice. And an interest penalty, accrued per *month*, for any amount unpaid after 30 days from date of invoice. Additionally stipulate that any work delivered is on a temporary license basis until the full invoice amount is paid and that a lack of timely payment will result in the revocation of the license. When some of my customers objected to these terms I simply had to ask them "Are you planning on not paying me? Then what's the problem?". That pretty much ended the objections. If they continue to object, don't do the work. It's better to not work, and not get stiffed on the bill, than it is to work and not get paid. If nothing else you'll have that time to find a new client.
That's assuming that the amount you get paid will cover those additional expenses. Considering that you might be forced to buy health insurance without the benefits of a group plan, and it's attendent lower costs, then this might not pan out.
I had hoped a more reasonable point. While I'm sure that, at some time in the future, fully independent sentient robots will eventually supplant most human workers, my current assumption is that such technology is not yet cost effective. Similarly, while it is possible for a plumber in India to remote control a robotic toilet snake, I rather doubt it's all that cost effective right now.
Where they are selling their abilities and performance to a known set of people on a daily and project basis rather than having to find new clients, and a whole new set of performance standards. I'd suggest the former is far less stressful than the latter. As someone who used to do contract programming on 3-4 month production cycles, you cannot imagine the stress involved unless you've done the same stuff yourself.
Me? I'm moving my kids "offshore" in the near future, to be raised by a low-paid, but loving, subcontracted "mother." They can come back when they're 18, and with the money I've saved raising them, we can afford to send them to college.
Kidding.posted by: Kelli on 02.23.04 at 12:32 AM [permalink]
1. The realities of life are that insurance for a self-employed persion is more expensive than the per-person rate under group insurance. This is particularly true for someone who has had a bout with cancer, or who is over 30. Libertarian bromides don't help this situation. Group insurance averages the experience of the group. Self-insurance relies on the health experience of the individual. Even on a theoretical level, you cannot make up the cost of insurance on what you charge on your jobs.
2. We sophiticates all know that the employer portion of social security and medicare are really a tax on our salaries. But that doiesn't prevent the average company from telling the average independent contractor that his $50,000 is just as good as the corporate worker's $50,000 and refusing to pay more.
A freelance job making the same money as a corporate job amounts to a pay cut and a reduced expense to the employer. This phenomenon, repeated across the economy, will cause a recession or depression, all things being equal. I believe the current frothing about outsourcing is overwrought. But a move to a temporary, freelance workforce, so beloved by our futurists, does not strike me as the recipe for future economic growth, without some structural changes on how the government protects employees and freelancers.posted by: Appalled Moderate on 02.23.04 at 12:32 AM [permalink]
I'm beginning to think that we are in the throes of a ecentralization of work, but I think the current level of one entrepeneur - one company is a little high. As someone said up-thread, having a one-man operation be all things to all clients is HARD. But what about a 20-person operation? That lets you keep your unpresentable miracle-workers in the back-room while the sales-types sell their work to the client. And its still small enough that the workers (engineers, programmers, what-have-you) can still go round to knock some sense into the sales force. And at this level, it makes less sense to outsource, as the communications costs can't be spread across the larger company.posted by: Ian Argent on 02.23.04 at 12:32 AM [permalink]
It's probably true that it makes less sense to outsource offshore for a 20-person company than for a larger one, but not because of communication costs (which would probably be very affordable) but rather because the overhead costs involved in locating & contracting with a suitable partner would be too high (a couple plane tickets to India; hiring an attorney familiar with applicable law, etc) in proportion to the value of the work done.
Interesting BusinessWeek article on European companies "nearshoring" development work to companies in Eastern Europe (Romania, etc). They might actually have an advantage compared to U.S. companies offshoring to India...geographical proximity is still worth something, and I think it's especially worth something in a fast-moving startup environment.posted by: david foster on 02.23.04 at 12:32 AM [permalink]
I'm a liberal, but I have to admit Postrel may be on to something. All you have to do to tap into this new economy is:
• Write a book explaining how aesthetics are becoming the new coin of the realm.
• Dovetail your theory into the butt-covering GOP meme that unemployment is a figment of the liberal imagination.
• Write an article that taps into the growing counterfactual conservative zeitgeist, thereby increasing book sales.
Voila! A new economic model!posted by: Sven on 02.23.04 at 12:32 AM [permalink]
I don't think this has anything to do with GOP vs DNC. For one thing it would be ridiculous to assert that Democrats haven't paid for their campaign contributions by kow-towing to business interests, or Republicans for that matter. Instead I'd suggest that these issues cut across the whole political spectrum. Ascribing to one single political group the responsibility for something that's been going on for more than a decade, and that had been approved by both major parties, is patently absurd.
If you disagree then please provide the rationale behind the Democrats approving the massive increase in the number of H1-B visas approved by Congress during the Clinton administration.
Her selection of examples suggested that the future would consist of peons working to serve the whims of the well-off.posted by: Jon H on 02.23.04 at 12:32 AM [permalink]
Well, Jon, that is the implication of the anecdotes she uses. And it makes sense, really, in the context of small businesses (say, under 20 employees) to think of them having a limited number of customers, each of these, or most of them able to pay larger amounts of money for larger projects. Any start-up homebuilder or heating contractor can tell you that. Freelance writers can as well, a point I'll return to in a minute.
I have some experience with heating contractors, many of which are quite small. They work in a field with a steady stream of new entrants, usually employees of some larger contractor who have left to form their own shop. The field also has a steady stream of failures, because so many of the people who are (or think they are) wizards around a furnace don't know how to price jobs and can't sell worth a damn.
The point is that running a small business is a lot harder than it looks. It isn't just looking after one's pension or health insurance that is different when you are on your own; you have to build everything from the ground up. Some people can do this, and some people can't.
I wonder whether there is not a tendency among freelance writers on economics (to say nothing of people who write in their spare time while securely employed) to assume that their own experience is a reliable guide to what the many people experiencing self-employment for the first time are going through. Virginia Postrel, for example (who is a writer I admire) does essentially the same kind of work now that she did for Reason, except she doesn't have to edit other people's writing and has been able to write a book. She's been quite successful, a tribute to her talent and industry, but most people working as independent contractors are climbing a much steeper hill in terms of the things they need to learn how to do that they have never done before.posted by: Zathras on 02.23.04 at 12:32 AM [permalink]
“Dovetail your theory into the butt-covering GOP meme that unemployment is a figment of the liberal imagination.”
It is not a figment of anyone’s imagination. The creation and destruction of jobs is the price tag that must be paid to have a vital economy. Anyone who tells you anything different---is fooling themselves. You almost certainly live better than your ancestors. Unavoidably, you must be prepared to be a job hopper.posted by: David Thomson on 02.23.04 at 12:32 AM [permalink]
One principle I learned as an entrepeneur with 7-8 people working for me: you don't have to be perfect, you just have to be better than the average of those around you doing the same thing. In my business I had to both buy and sell commodities (among other things) and I found a way to pay $.01 more per unit than my competitors and still make more profit per unit than they did. How? Productivity, both mine (fiscal, etc) and my workers (it helps that they got a decent share of any increase from their labor). Also, I figured out ways to offer and price services wanted by my customer base instead of just saying "we don't do that" or " we can't do that" or "it would cost too much" as did most of my immediate competitors.
Individual effort carries both opportunities and challenges. In a competitive arena, the productive survive.posted by: JorgXMcKie on 02.23.04 at 12:32 AM [permalink]
Economists like to talk about how we're sending all those boring jobs overseas, getting rid of the basic, uncreative jobs and making room for fabulous, creative, high-tech jobs here at home.
And now VP tells us that the fabulous, creative, high-tech jobs are going to consist of giving manicures, massages, and cutting stone into bland polygons and ovals. Maybe an occasional bevel.
I mean, come on, we're talking countertops, not the freaking Laocoön.
I dunno, these jobs VP talks about seem pretty dull, repetitive, and basic to me. The way economists talk, you'd think the wave of the future would consist of more than slapping mud packs on the droopy faces of well-heeled bored housewives.posted by: Jon H on 02.23.04 at 12:32 AM [permalink]
Dan, as I understand it, you work in the same building as some pretty good econometricians of various political persuasions, people who depend on these datasets day-in and day-out.
What do they think?posted by: TedL on 02.23.04 at 12:32 AM [permalink]
Looks like I generated this comment over at Va Postrel's site:
"As for the comment on Dan Drezner's site that freelancers have trouble getting paid, that's true for people like me--it's the bane of my financial existence--but it isn't true for people in the jobs I wrote about. They mostly get paid at the time they deliver their product or service."
And that's mostly a fair comment. (I imagine her stonemasons might run into collection issues from time to time.) But my comment is less about what's actually happening out there and more about how the current system worked badly for my spouse who tried freelancing.
Freelancers (and small businesses too) do not have the market power to coerce prompt payment of bills, and usually have limited power to squeeze much more than bare bones compensation for their work. (What are you going to do, report ReallyBigCorp to a credit agency?) Health insurance for freelancers (and small business) also tends to be very expensive, particularly if the insurance company does not like something in the freelancers health profile. These problems aren't particularly new, but assume a larger importance if the economy relies on the creation of these kind of jobs.
Is this a problem government needs to solve? If the future is made up, in large part, by the self-employed who are paid by invoice, rather than the corporate-employed, there will be too many people complaining for government not to fix it.
I wonder though how much insurance would cost if it too were exposed to free markets, or at least not as heavily regulated as it is now. I think NJ is a case in where heavy regulation restricts its citizens from purchasing insurance out of state, or maybe it's that the insurance employers purchase must cover it's employees morso than, say, younger employees would want or find neccessary. I'm not sure.
But a little tort reform could go a long way in driving down insurance prices as well.
And what about "the British rule", or loser pays. AmBIGuous Corp. might not delay it's payments to Littleguy Inc.posted by: ERA on 02.23.04 at 12:32 AM [permalink]
So the seeming concensus is that the future of employment is one where semi-independent contractors are employed on a contingency basis?
Oh great. We're all going to be Kelly Girls. :/
Well if this is the case then I guess the smart thing to do is start up an temp employment agency. I still don't see why the process of outsourcing/offshoring wouldn't continue or perhaps even accelerate. *shrug* once you've started the process and have actually shipped jobs overseas, what's to stop you from continuing to do so?
once you've started the process and have actually shipped jobs overseas, what's to stop you from continuing to do so?
I should think the answer to that question both obvious, and the crux of the whole issue. THe business in question will move or stay depending on where it gets the better deal financially.posted by: Bithead on 02.23.04 at 12:32 AM [permalink]
Right now some states are trying to keep companies from outsourcing their operations overseas by gifting them with truly sweetheart tax deals. I can't see how that could work though because every other business will seek the same deal using the same pressure. Which could only leave working taxpayers and small companies, for whome outsourcing wouldn't be an option, to take up the slack.
Seems like a Devil's Bargain to me.
Frankly I just don't see how, or why, there would be any sort of reasonable end to this process.
The job issue is going to be a campaign issue, this fall. In some regions, the IT and telecom employment meltdown is extremely severe. The Dallas area is particularly hard hit. My son told me last night, that some people he knows from his company have been reduced to panhandling. Another friend of mine (who is more hardware-oriented) has been laid off from Alcatel almost a year, and is getting desperate.
I suspect that all the anti-business rhetoric, civil and criminal actions against business is making them so risk-adverse, that hiring is not taking place. Everyone is so cost-conscious that they are not hiring or are employing people from Indian consulting companies at low rates, undercutting the local IT job market.
That is the theory of an Indian friend of mine who is a US Citizen. He has an IT placement business that he runs on the side and he is competing against offshore companies.
About the only good thing about sending work offshore is that people in India have greatly benefitted. It has really revolutionized the local economy, so that there has been a telecom and automotive boom.
Jim Benderposted by: Jim Bender on 02.23.04 at 12:32 AM [permalink]
Yes the jobs issue is going to be a big one. It hasn't hit it's stride yet because the necessary statistics either don't exist or aren't available.
Specifically how many new jobs were created by *American* companies in India, China and elsewhere but *not* in America.
I've read a number of articles over the past few weeks where executives and representatives of large tech companies, EDS as an example, are planning on increasing the number of workers employed, but not in America. This might go a very long way in explaining why the number of initial jobless claims is rising during a recovered economy chugging along at 4.1% GDP growth rate.
Interesting article: Tech companies focus on Asia to expand jobs
That this trend, even among companies not associated with high-tech, is accelerating is a very real cause for concern. The popular explanation that all this is "natural" or "cyclical" or "short-term" all ignores that this is a fundamental shift that encompasses ALL industries.
Frankly if Americans have to wait until everyone in China and India are employed, we've got a long ass wait ahead of us.
The real issue comes down to, as we said, who provides the better deal for the particular company. providing 'sweetheart deals' is a quick-fix, and in the end is really counter-productive.
The answer is in reality, getting the real costs of operation down... IE; the wages, benefits and insurance costs as well as the legal costs involving employee relations.
Oops... alarm... gotta go. back to finish this thought later.posted by: Bithead on 02.23.04 at 12:32 AM [permalink]
So, the only real way to limit the job losses is to become an environment that is competitive with the remainder of the world on a long-term, designed that way basis....
I hold the unions, and their freinds on the left at fault for a lot of this non-competitive environment, and it's disasterous results. Their very nature precludes competition, and thereby dooms us to these problems.
I'm not suggesting returning to child labor, but at some point between here and there, they went too far, and this job loss is the result.
posted by: Bithead on 02.23.04 at 12:32 AM [permalink]
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