Sunday, January 22, 2012

Where did the jobs go?

Today's New York Times has a long article (How U.S. Lost Out on iPhone Work) that offers a discouraging picture for job growth in the U.S. The problem isn't labor costs per se; rather, it's that the entire manufacturing supply chain has shifted from the U.S. to Asia. - a change initially caused by labor costs, but now self-perpetuating.

One former high-ranking Apple executive said that the focus on Asia “came down to two things.” Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point.”

The glass used in the iPhone's display provides a great example, As Corning's CFO observed:

“Our customers are in Taiwan, Korea, Japan and China. We could make the glass here, and then ship it by boat, but that takes 35 days. Or, we could ship it by air, but that’s 10 times as expensive. So we build our glass factories next door to assembly factories, and those are overseas.”
This isn't a change that can be undone overnight.

 But besides the supply chain issue, there's labor flexibility. That innocent-looking comment that factories in Asia “can scale up and down faster” really means that workers can be hired - and fired - on short notice. The jobs may pay well, by local standards, but there is no job security. Large portions of business risk are outsourced to employees.

Job security is an issue labor unions fought hard for in the first half of the 20th century, with considerable success.  It's hard to argue that job insecurity is a good thing for workers and the communities they live in, but this is exactly what U.S. manufacturers - and Republican politicians - are asking for when they want an easing of labor regulations and oppose unionization.

So what's the solution? Over time, I have to believe that Asia's workers will insist on better conditions, there will be greater balance between regions in terms of labor rules, and manufacturing will gradually redistribute closer to the point of consumption. But that will take decades.

I don't know how to solve this problem. But I do know that any politician - Left or Right - who promises a short-term solution is pedaling snake oil.


  1. Good post, I don't believe the US can compete head-to-head with the labor laws and low wages of Asia.

    The truth of the matter is that it comes down to profits, profit for share holders and CEO's. The trickle down effect is slowing down in the US and has been diverted to Asia.

    American tend to complain about the lack of jobs that are outsourced, but they seem to forget quickly how they love to wait in line to buy a new iphone that they "think" can afford. The same iphone made in the US I would imagine the cost to be out of reach for the common American.

    The reality of Globalization is a cheap workforce to create more products, the worlds workshop happens to be in a communist country. It would take a dramatic uprising for things to change anytime soon.

    Sorry, I did not mean to ramble on, but I find this topic and post very interesting.

    - Trin

  2. I have to wonder just what the effect on cost would be if the iPhone were assembled in the U.S. Apple's profits are "insanely great" for shareholders; would it really be so painful to accept a lower margin per unit?