Econintersect: Nobel Laureate Michael Spense and Distinguished Visiting Fellow Sandile Hlatshwaya, Stern School of Business, New York University, have a working paper entitled “The Evolving Structure of the American Economy and the Employment Challenge.” The study classifies American jobs into two categories: Tradeable and non-tradable jobs. Non-tradable jobs include such activities as government, construction, education, health care, retail, accomodation and food service. Tradable jobs include such activities as manufacturing, agriculture, most of financial services, technology, engineering and product development.Tradable jobs contributed only 2.3% of job growth over the 19 years shown in the graph below.
It is clearly implied in Figure 5 that the result of globalization is there has been nearly zero growth in tradable jobs within the U.S. since 1990. Growth has only occurred in “nontradable” jobs.
The paper addresses the question of how much economic value added has occurred over the same 19 years. A definition of value added is given by example:
The value added for the final product would be the retail price (complete with markups) less all the costs that went into getting it into the consumer’s hands (excluding labor and capital).
The following graph shows the employment in tradable jobs (major industries) for the U.S. from 1990 to 2008:
The authors also show the value added for these same sectors:
The value added performance is, for the most part, much stronger than the employment performance. To the first approximation, the employment performance can be considered a proxy for the economic return to main street, while the value added performance can be taken as a proxy for Wall Street.
From the paper:
So here we have the classic case: industry growth is high and value-added growth is high because the high value-added portions of the supply chains have remained in the domestic economy. Meanwhile, the lower value-added portions migrate off shore, explaining declining employment.
And the paper summary:
In summary, over the past twenty years in the U.S. economy, some parts of the tradable sector grew in value added and employment (e.g., the finance, insurance, and computer systems design industries) whereas others grew in value added but declined in employment (e.g., the electronics and auto industries).
The former are where most of the value-added chain is in the upper range in terms of value added per employee. The latter are sectors, like manufacturing, with a range of value-added components. In these, the lower value added per employee portions moved offshore, causing a decline in employment and leaving the higher value-added parts that remain competitive and thrive by operating in a global economic environment with access to high-growth emerging market economies and expanding commercial and business opportunity. Overall, the tradable sector generated negligible incremental employment.
Yet the economy did not have an unemployment problem, at least until the crisis of 2008. The expanding labor force was absorbed in the nontradable sector (roughly 26.7 out of a total of 27.3 million net new jobs), government and health care leading the growth (10.4 million incremental jobs between them). In our view, it is unlikely that this pattern will continue. Chances are good that the pace of employment generation on the nontradable side will slow. Fiscal conditions, the costs of the health-care sector, a resetting of real estate values, and the elimination of excess consumption all point to the potential for a longer-term structural employment problem. Expanding employment in the tradable sector almost certainly has to be part of the solution. Otherwise, the United States will have a longer-term employment problem.