America’s low-wage future

Jeff Faux
Founder and now Distinguished Fellow at the Economic Policy Institute

Posted: 10/16/2012 3:28 pm

With the introduction of iPhone 5, Apple Inc. is now the world's richest company, valued at over $625 billion. Given its momentum, the firm in another year or so could be worth a trillion dollars.

It is more than just another mega-company. Apple is the poster-child for the claim that, despite its present troubles, America is destined to prosper in this de-regulated global economy. With our inventive genius and entrepreneurial culture, goes the argument, we Americans will climb up the global job ladder, designing and making tomorrow's products while those less endowed will occupy the lower rungs, doing the routine manufacturing of yesterday's innovations. Apple's founder, the late Steve Jobs, is a hero to both Barack Obama and Mitt Romney. When he died last fall, there were tearful nighttime vigils in the iPhone connected camps of Occupy Wall Street. If there is anything that left and right can agreed it is that Apple is the wave of the future.

And so it is. Walk into any Apple store today and you can see what's coming tomorrow. I don't mean the array of electronic gadgets laid out on the countertops; I mean the army of bright, ambitious, heavily indebted college graduates working for roughly $12 an hour as retail clerks selling Chinese goods on credit.

Over ninety percent of Apple's iPhones are assembled in China. Its hi-tech components come from Taiwan, Japan, Korea and Germany. Along with some 700,000 Chinese workers, Apple hires another 30,000 Chinese engineers -- who also come cheap. Engineers cost $41 an hour in the US, $6 in China and $4 in India.

Moreover, it turns out that the best place to design and innovate the next "new thing" is where the last new thing is being produced. As Venkatesh Narayanamurti, founding dean of Harvard's School of Engineering and Applied Sciences, recently pointed out in the Los Angeles Times:

With manufacturing gone to China...R&D followed Apple to Foxconn. Applied Materials set up a major R&D shop in China, where solar cells are being manufactured. GE, Texas Instruments, Cisco and others established major R&D and design centers in Bangalore, India...Proximity to manufacturing is the key to other higher-value activities -- design, engineering and R&D. And with that, jobs.

So, it's no surprise that for more than a decade the United States has been running a trade deficit in the advanced technology sector that is supposed to be our international comparative advantage. Heavily subsidized aerospace and weaponry are the only major US high-tech sectors not in red ink, and even those surpluses are shrinking.

Not to worry, now counsel our governing class's leading economists. Americans can leave all that manufacturing behind and prosper by producing high-value services, such as finance, law, entertainment, artistic design and marketing. But in a globalizing labor market, almost anything that can be done with a computer can be off-shored. So over the past decade these jobs also have been steadily migrating overseas.

The result is a widening wage depression in the United States. Two-tier salary structures -- in which entry-level jobs now pay 30-50 percent less than they did for the older generation -- have spread to the service and retail industries. Among entry-level jobs for college graduates, real wages are down almost 10 percent from a decade ago.

Rather than a ladder up, jobs being created in high tech America represent a bridge to nowhere. Young Americans are increasingly trapped in an economic Catch-22. On the one hand, the returns on investment in college are declining. The Bureau of Labor Statistics projects that between 2010 and 2020, nine of the ten occupational categories expected to generate the most jobs do not require a college education. Five do not even require a high school degree. Apple stores are not hiring people for their academic skills; they are looking for personalities who are smart, ingratiating and trustworthy. The technical stuff can be quickly taught.

On the other hand, being a college graduate gives you leg up in the increasingly brutal competition for a career that will sustain a middle-class life. Paying for college, which leaves most graduates in debt, has become like borrowing to enter a very expensive lottery. The chances of winning are shrinking, but they are nonexistent if you don't buy a ticket.

The basics of a national strategy to regain a high-wage path to the future are reasonably clear. First, a shift in trade and tax policies aimed at redirecting investment back to the United States both in manufacturing and the high-value services that follow. Second, expanded public investment in infrastructure, training and research to make us more competitive and to generate sustained demand for labor in order to raise its price. Third, strengthening the bargaining position of workers, primarily by ending the legal obstacles to organizing unions.

But none of these are in the cards. The leaders of both parties are committed to continuing the trade policies that have led to the offshoring of technical and professional jobs, and President Obama's proposals for modest support for new energy and transportation technologies have already been shredded by Washington's obsession with budget cuts. That same commitment to austerity tells us to expect, at best, slow job growth over the next four years, even if we escape another recession. As for collective bargaining, the choice is between Obama, who has been indifferent to unions, and Romney, who is hostile to them.

The cynical folly of driving young people into debt in order to get a college degree whose value is declining may at some point drive the young to revolt. But so far it hasn't. The spark of Occupy Wall Street did not fire up the campuses this spring, and the maneuvering between Obama and the Republicans on how to subsidize college loan interest rates seems to have sucked up most of the political oxygen on the issue of spiraling college costs. However smoldering, young people's anger at the betrayal of their dreams has not flared up here the way it has in some parts of Europe and Latin America.

Until they do, Apple will continue to represent the future -- although not quite in the way Steve Jobs led us to expect.