What happens to the low-skilled workers?

I was fascinated by this project by This American Life and their friends at Planet Money:  "Unfit for Work: the Startling Rise of Disability in America."   Chana Joffe-Walt makes an incredible, thorough study of the increase in people on disability (a part of the Social Security Adminstration) in the country over the past couple of decades.  She makes a compelling point in the final segment that a large driver of this increase was the federal government's Clinton-era shift to move people off of welfare rolls.  Because states had to cover an increasing percentage of the welfare costs, but disability was funded by the feds, these incentives have motivated states to take an active role in helping people submit successful applications for disability benefits. 

But as a labor lawyer, there was another point in the piece that I found particulary fascinating.  First, look at these charts, that show how applications for disability rise and fall with the unemployment rate:





Joffe-Walt argues, "disability has also become a de facto welfare program for people without a lot of education or job skills," and quotes an MIT economist who observes that unemployment statistics do not count people on disability:  "'That's a kind of ugly secret of the American labor market,' David Autor, an economist at MIT, told me. 'Part of the reason our unemployment rates have been low, until recently, is that a lot of people who would have trouble finding jobs are on a different program.'"  On a more anecdotal level, Joffe-Walt talks about a woman with back pain who, it seems, "could not conceive of a job that would accommodate her pain."  In the radio version (short version and long version) she observes that this reflects a gap between her own world and the world of low-skilled workers:  for Joffe-Walt, and myself, and our coworkers, we are able to work successfully with back problems and knee problems and other physical ailments.  For low-skilled workers, it seems, there may be a mismatch between their job skills and physical abilities (and limitations), on the one hand, and the jobs that are available to them on the other. 

With this fresh in mind, a remark in this Daily Beast article grabbed my attention.  In the provocatively-headlined, "Why a BA is Now a Ticket to a Job in a Coffee Shop", Megan McArdle reviews some recent social science studies suggesting that more and more college graduates are winding up with low-skilled service-sector jobs.  She considers the policy implications of this trend, asking if too many young people are spending too much money on college.  And in the course of this analysis, she observes that as college grads increasingly fill low-wage service jobs, "The workers who can't get those jobs are taking less skilled ones. The lowest-skilled workers are dropping out entirely, many of them probably ending up on disability." This remark certainly seems bourne out by the data in Joffe-Walt's study. 

How can we find a better solution than the sort of jerry-rigged social response of putting people on disability?

[A couple caveats before I move on:  of course there are many folks who so disabled that they can't perform any job.  I'm not talking about them.  Also, there may be some folks who scam the system because they are lazy.  I'm not talking about them either.]

"Unfit for Work" makes clear that while "disability has become a de facto welfare program . . . it wasn't supposed to serve this purpose; it's not a retraining program designed to get people back onto their feet . . . federal disability programs became our extremely expensive default plan."  The program also fails to serve a welfare-like social purpose because "in most cases, going on disability means you will not work, you will not get a raise, you will not get whatever meaning people get from work. Going on disability means, assuming you rely only on those disability payments, you will be poor for the rest of your life."  Not only does disability fail to serve the social purpose of a welfare safety net, but it is an entirely unsustainable safety net, such as it is:  "disability programs, including health care for disabled workers, cost some $260 billion a year. . . . The reserves in the disability insurance program are on track to run out in 2016." 

It is clear that we need a new solution.  There are a lot of depressing facts to take away from this.  But I also learned a couple of things from this reporting that I find really valuable and not simply cause for despair:  first, disability is a big part of the answer to the question of what happens to low-skilled (or wrongly-skilled) workers in this dismal economy, and should be borne in mind when considering unemployment statistics; and second, the study makes clear that disability programs serve as a poor stand-in for the welfare, job-retraining, and social safety-net programs we really need.  Now that we see these glaring errors and omissions in our social system, let's get to work at designing better programs that present better solutions to our social and economic problems.  Namely, finding jobs and health care for everyone who is able to contribute to our economy and society. 

Undervalued Currency and Manufacturing Jobs: A Long and Not Boring History

Lately I've been seeing currency issues everywhere. For starters, an interesting point from Adam Davidson's astute little essay in this week's New York Times Magazine:

"[Based on the trade deficit,] [e]very month, the United States is demanding a lot of renminbi and China is demanding few U.S. dollars. The natural result should be for the dollar to get weaker as the renminbi gets stronger. But China’s government prevents that adjustment by artificially increasing the demand for dollars, spending much of that $24 billion surplus on U.S. Treasury bonds. This sounds boring, but it effectively makes all Chinese exports somewhere around 25 percent cheaper and all U.S. imports to China, effectively, about 25 percent more expensive."

I find this quite interesting in light of a book I've been reading, Judith Stein's Pivotal Decade: How the United States Traded Factories in the Seventies. I am trying to do a close reading of this book, so my hours of laborious reading have only brought me up to page 42 so far. Nonetheless, I've taken away enough already to see these tremendous parallels between the current U.S.-China relationship and the U.S.'s post-war relations with Germany and Japan.

As Stein herself points out, "Because both countries' currencies were undervalued, like China's today, their exports were advantaged." (p.11). She explains that Japan held reserves in dollars, which actually strengthened the dollar, weakened other currencies, and thus advantaged Japanese and German exports. (p. 10-11). Stein makes the point (as I understand it) that during the 1950's and '60's, U.S. governments allowed this currency undervaluation and related trade surplus to continue (to the U.S.'s disadvantage) because successive administrations prioritized foreign policy concerns over U.S. domestic economic policy. The foreign policy concern was essentially to strengthen these countries weakened by the war so that they would not become so weak as to be a vulnerable target for Soviet takeover, and to generally maintain their alliances with the U.S. during the Cold War. This concern was easily allowed to trump domestic economic priorities because the U.S. economy was so strong during these decades. The imbalance began to appear to policy-makers (i.e., the Nixon administration) in the early 1970's. In 1971, certain Nixon advisers argued that "anemic growth, unemployment, and declining international power" in the United States were directly linked to the "expensive dollar and trade deficit" (p. 39), but the Nixon administration did not act to directly confront this problem. (At least not before page 41 of the book. I'll keep you posted.)

I find the historical parallels striking. It seems that people today speak constantly about the "threat" from China, as if this were an anomalous, unique occurrence. To review our own history and see that this is not new, but merely the most recent incarnation of an older set of circumstances provides a new way of looking at the current situation.

Just tonight I saw the play Chinglish, which explores the cultural confusions and linguistic misunderstandings that ensue when an American businessman travels to China in an attempt to do business. One exchange I found particularly interesting, and relevant here, was when a Chinese woman remarks to the American that, one day, China will become stronger than America. The American says, in disbelief (and thinking it may be a simple linguistic confusion) that China is already stronger than the U.S. This elicits a comment from the Chinese woman that a problem with the United States is that it acts weak even when it is strong. Could this be true?

I wonder if some of our fear is misplaced? The Chinese have not overtaken us (yet) in every manner. As is suggested by this fascinating series of New York Times articles (here and here), Chinese factories may have surpassed American manufacturing in technical, logistical, and labor force needs, but that is not the end of the story. In the U.S. and Europe, the industrial revolution was followed by a labor movement and other societal changes seeking a certain quality of life (or "work-life balance" in current speak) that China appears to be far from realizing. For example, the former NYT article recounts how, when Apple decided on a last-minute design change, it called its Chinese supplier, and "[a] foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day." This sort of labor force flexibility may prove attractive to U.S. businesses, but it does not make China "superior" to the U.S. U.S. society long ago made a sort of choice that we do not want to live in company dorms (or company towns, for that matter) where employees are always at the beck and call of the employer, and Americans did not want to be "roused" from sleep by their supervisors to begin the first in a succession of 12-hour shifts. With our current unemployment crisis, would some Americans make a different choice? I don't presume to know, I'll just observe that the reality, to me, does not appear that China has already overtaken us in every respect, but that China is now in an economic state resembling where the U.S. was a century ago.

Back to Adam Davidson's article. After remarking on the currency issues, he writes, "lower wages, lost jobs and crippled manufacturing employment fall on the less wealthy. The economists that I spoke to estimated that China’s currency policy has cost the U.S. between 200,000 and 3 million jobs. . . . U.S. manufacturing employment has fallen by around 6 million over the last decade. If China had allowed its currency to adjust naturally, life might be much better for many former American factory workers."

I am very intrigued by the connection between currency (under- and over-)valuations and the loss of manufacturing jobs. We often hear that manufacturing jobs have been lost because of lower wages in other countries, with a particular emphasis (as in the case of the auto industry) on the costs of the union wages, pensions, and other benefits. The New York Times articles make the interesting point that the factories themselves are superior in China. But this connection to currency valuation is so interesting to me, perhaps because it is the story that - no matter how true - many people seem to find too "boring" to bother discussing.

I am also intrigued by the sense of history repeating itself. I'll have to read on to see what happens beyond 1971, but I am fascinated by the sense of this being a continuation of an older historical trend, or a lesson we should have learned 40 years ago but did not. More on all of these themes yet to come.