Business Ethos Blog

The End of Employees?

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

US companies are shifting work once considered core to contractors.  The US has lost 7 million factory jobs since manufacturing employment peaked in 1979, yet factory output more than doubled over the same period. What have been the causes of these changes and what are the implications?  Are Mexico and China stealing millions of jobs from the US as the administration claims?  Is the new contractor model in the US a stopgap until more jobs are automated?  Should the US be considering an import tax as part of corporate tax reform to bring production back to the US?  Will corporate tax reform spur job growth or more outsourcing?  Are companies now thinking, can we automate this job, or should we outsource it?  What is the “Right Thing to do?”  Let’s look at some issues:

  1. The outsourcing wave that moved apparel making jobs to China and call center jobs to India is now just as likely to happen inside companies across the US and in almost every industry.  Rough estimates by economists range from 3% to 14% of the nation’s workforce, as many as 20 million people, work as contractors.
  2. In oil, gas and pharmaceuticals, outside workers outnumber employees by at least 2 to 1, according to SAP.  Pfizer, as an example used contractors to perform the majority of its clinical drug trials last year.
  3. Google’s parent Alphabet, ranked by Fortune magazine as the best place to work for 7 of the past 10 years, has roughly equal numbers of outsourced workers and full-time employees.  About 70,000 TVCs, abbreviation for temps, vendors and contractors, test drive Google’s self-driving cars, review legal documents, and manage marketing and data projects.
  4. Men and women who unload shipping containers at Wal-Mart warehouses are provided by Schneider National logistics operation, which in turn, subcontracts with temporary staffing agencies.
  5. Jet engine maker Pratt & Whitney, no longer coordinates deliveries to its factories.  Instead, it hired UPS, which has thousands of logistics experts and specialized automation technology.  200 UPS employees can do the work for 5 factories that 150 Pratt employees used to do for two.
  6. A study at Ball State’s Center for Business and Economic Research last year found trade accounted for 13% of America’s lost jobs, 87% were taken by robots and other homegrown factors.
  7. GM, for example, now employs barely a third of the 600,000 workers it had in the 1970s, yet produces more cars and trucks than ever.
  8. Since 1997, the US has lost 265,000 jobs in the production of primary metals, like steel, a 42% reduction when production has grown 38%.
  9. The Boston consulting group predicts that the investment in industrial robots will grow 10% a year in the 25 biggest export nations through 2025, up from 2% or 3% growth in recent years.  It is expected to shrink labor costs 22% in the US.
  10. Experts say that the use of robots, combined with higher labor costs in China and other developing countries has reduced the incentive for companies to chase low wage labor around the world.
  11. In a Deloitte survey, global manufacturing experts predicted the US, now number 2, will overtake China as the most competitive country in manufacturing by 2020.
  12. The Reshoring Initiative said the US was losing 220,000 net jobs a year to other countries a decade ago.  Now, the number being moved is roughly offset by the number coming back or being created by foreign investment in the US.

 

Is the loss of manufacturing jobs and overall number categorized as employees in the US a result of companies moving to Mexico or China or other low labor cost countries?  Is it possible that jobs will return to the US, but jobs that may be taken by independent contractors or robots?  Are companies going to return to the US to capitalize of savings provided by robots, contract labor, cheap energy, the potential for reduced regulations and a lower corporate tax rate?  Or will they return because an import tax is imposed?  What is the “Right Thing to do?”  An import tax as part of corporate tax reform is a bad idea.  It will raise consumer costs, impact retailers, oil refiners and other US companies.  Corporate tax reform should simply reduce rates to 15% to 20% from the 35% now and impose a one-time tax of about 10% to repatriate the earnings of US companies that are held abroad.  Regulations should be reduced.  The market is working, although it may be difficult for people who must now become contract workers and may lose their jobs to robots, but US companies will be returning to the US. The charge that China and Mexico are stealing millions of jobs does not hold.  Companies are making investment decisions based on asking can we automate it, and if not, can we hire contractors, not whether Congress will impose an import tax.