A cornerstone of the Donald Trump candidacy was the loss of jobs in Middle America to foreign competitors. There is no denying that, over the last 50 years, U.S. manufacturing jobs have been lost, factories have been shuttered, and jobs in major industries such as the coal industry have rapidly disappeared. Rust belt towns have been affected from job losses and underemployment, and incomes for many Americans with jobs have not kept pace with living costs.
But what was not understood in the clamor of the campaign was that many of these jobs would not come back because they were, in large part, never lost to foreign competitors. The emphasis by the Trump Administration on dismantling foreign trade agreements may not fully achieve the stated goal of creating millions of new jobs for Americans. The truth is, solving the foreign trade issue would likely only produce an insignificant increase in new jobs. Other initiatives need to be undertaken to create new jobs here at home.
Where Did the Jobs Go?
Workers today produce twice as much manufacturing output as their counterparts did in the early 1990s, and three times as much as in the early 1980s, thanks to innovation and advances in technology that have made today’s workers the most productive in history.
Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975. The auto industry produces as many cars as it did decades before but with nearly two-thirds fewer workers. Automation and production efficiencies are key reasons for the reduction in U.S. manufacturing jobs.
Our employed labor supply has increased—older Americans are holding on to jobs instead of letting younger workers take them, partially because Social Security is not providing an adequate retirement living standard. Another factor is concern about the solvency of Medicare and the high out-of-pocket cost of drugs for cancer and other illnesses. Americans’ average self-reported age of retirement has slowly trended upward. According to a Gallup poll, from 2002 through 2012 the average retirement age hovered around 60. Over the past two years, the average age at which Americans report retiring has increased to 62. With nearly 60 million Americans over age 60, a retirement age shift of a year or two prevents millions of jobs from becoming available to younger workers.
There is no doubt that global trade agreements such as North American Free Trade Agreement (NAFTA) and the Korean Free Trade Agreement (KORUS FTA) have cost jobs. As to the net effect of NAFTA, the net loss of jobs is actually lower than most people believe. In total, 116,400 U.S. jobs were displaced between 2007 and 2010. Thus in a world without NAFTA there would have been 116,400 more available positions in 2010 in the United States, which equates to less than 0.1% of the U.S. labor force.
China is the most visible recipient of U.S. jobs. Manufactured goods imported from China would have surged substantially even had China not joined the World Trade Organization (WTO)—the development that Donald Trump claims “enabled the greatest jobs theft in history.” According to Brad DeLong, professor of economics and chief economist of the Blum Center for Developing Economies at the University of California, Berkeley, “The best estimate is that because China joined the WTO, the U.S. has 200,000 more jobs in manufacturing industries that export to China, and 500,000 fewer manufacturing jobs in industries where China exports to the U.S. The net loss is 300,000. That represents 0.22 percentage points of the U.S. labor force.”
Partially offsetting job losses are the Walmart-level prices from Chinese production that have increased the spending power of the U.S. population on goods that would have been much more expensive if manufactured in the United States.
So if the most significant issues are labor efficiency, automation, and workers’ inability to retire comfortably, what should the Trump Administration do to create millions of meaningful jobs for Americans?
Making America Competitive in the World Economy
Significant new jobs can be created in the United States if we focus on what creates new jobs. Below are 10 ways to supercharge our economy and create great jobs for our citizens.
1. Invest in Infrastructure
Senator Bernie Sanders and the Trump Administration actually agree on this issue. Sanders proposed the Rebuild America Act to invest $1 trillion over five years to modernize the country’s infrastructure. Congress has been opposed to such a significant expenditure and opposed President Obama’s efforts to increase infrastructure expenditures. One only needs to drive a few miles on a U.S. highway or compare a U.S. airport or subway system to those found in emerging market economies to realize that infrastructure improvement is not a luxury, but a necessity.
Implement the Rebuild America Act in 2017.
2. Promote the Creation of New Industries
Consider the many new industries that have emerged in the last 10 years: social media, communications, electric automobiles, Internet retail, and the significant expansion of traditional industries such as aviation and even space exploration. Then consider new industries such as virtual reality, technology-based education, biopharmaceuticals, high-speed transportation, and artificial intelligence. Companies that don’t even exist today, building products and services for the future, will create millions of jobs. Investment by our government in platforms that will facilitate emerging technologies is needed to drive job creation and make sure that the United States is on the cutting edge of technology advancement.
Establish an Evolving Industry Tax Credit focused on job creation in new industries to promote those new industries and help create the jobs of the future.
3. Focus on Middle-Market Companies
Large companies do not create the majority of new jobs in the United States, according to the National Center for the Middle Market: “In every quarter except one (the first quarter of 2012) middle market revenue growth has outpaced that of the S&P 500, often by huge margins (6.9% to 4.4% in this quarter (4Q 2016), for example). Revenue for the middle market increased nearly twice as fast as GDP. While one cannot compare those two numbers one-to-one, the proportion is revealing. So, too, are the employment numbers. By our estimation, the middle market produces three out of five net new private-sector jobs. It is often asserted that small business is the engine of job creation in America.”
Federal and state governments have long provided some assistance to small businesses in the form of loans under the Small Business Administration (SBA), but that is not enough. One federal program potentially under the chopping block is the Small Business Innovation Research (or SBIR) program, which is a U.S. government program coordinated by the SBA, and intended to help certain small businesses conduct research and development (R&D). Funding takes the form of contracts or grants. The recipient projects must have the potential for commercialization and must meet specific U.S. government R&D specifications.
The SBIR program was created to support scientific excellence and technological innovation through the investment of federal research funds in critical American priorities to build a strong national economy. Funds are obtained by allocating a certain percentage of the total extramural (R&D) budgets of the 11 federal agencies with extramural research budgets in excess of $100 million. Approximately $2.5 billion is awarded through this program each year.
Expand, do not kill, the SBIR program for domestic companies employing U.S. workers.
4. Introduce Tax Reform
Tax reform for the wealthy does little for job creation in the United States. Wealthy individuals have traditionally saved, not spent, tax savings. The middle class and lower income class tend to spend tax savings on goods and services immediately, thus improving the economy. Business owners with tax savings tend to reinvest in their businesses, especially when they increase net employment.
Introduce tax reform that provides tax reductions to the middle and low-income classes, and provide small business owners a credit for tax saving amounts they reinvest in their businesses.
5. Increase, Don’t Decrease, Global Trade
According to the Bank of America Merrill Lynch 2013 CFO Outlook, 62% of companies surveyed reported buying materials or services from foreign companies, up from 47% the year before. With respect to all activities, 73% reported buying from, selling into, or having actual operations in foreign countries—a significant increase over the 54% of the year before.
For a middle-market company, global consumer spending growth will fuel a company’s growth, and with the widespread adoption of online social networks in most countries of the world, accessing global customers is fairly easy. Dismantling global trade agreements will no doubt reduce global market access for middle-market companies.
While it is prudent to “negotiate the best deal” for our global agreements, it is better to avoid creating new trade barriers for our domestic companies.
6. Return Industry to Middle America
In the 1930s, the United States set out to modernize rural America by passing the Rural Electrification Act of 1936, which provided federal loans for the installation of electrical distribution systems to serve isolated rural areas of the country.
The funding was channeled through cooperative electric power companies, most of which still exists today. The program was enormously effective, and this same type of program could be established today to offer loans, grants, and tax credits to any size business returning jobs to Middle America and the Rust Belt. Many states have programs that offer tax abatements to companies relocating to their states, but few offer loans and grants to startup and middle-market companies to help them start operations in small towns that have lost their traditional industries. Subsidizing broadband Internet access in rural America can entice companies to situate their calls centers there, instead of in India or the Philippines.
Create and fund a Rural Industrialization Act to bring jobs back to rural America.
7. Reduce Administrative and Reporting Regulations
Over-regulation has long been the complaint of small and mid-sized businesses. Many businesses, particularly small businesses, complain about the mounting government regulations, red tape, and barriers to doing business. Few can dispute that mounting regulations have made it more difficult to grow a business in the United States. The Small Business Act of 2013 was created, in part, to help small businesses compete in the U.S. economic market. Consider the expansion of this act to eliminate more regulations.
Some regulations, however, actually generate jobs. For example, the Corporate Average Fuel Economy (CAFE) standards, enacted in 1975 by Congress after the Arab Oil Embargo of 1973-74, were regulations meant to improve the average fuel economy of cars produced for sale in the United States. Long fought by the auto industry, CAFE regulations added to the auto sales of other companies, reduced oil consumption, and helped preserve the environment. They also directly led to the creation of electric auto production and new companies such as Tesla. The reality is that not all regulations are “job killers”—done the right way they help incentivize investment in promising new technologies.
Expand and build on The Small Business Act of 2013 to promote new job creation.
8. Increase the Minimum Wage
Both political parties vigorously debate this subject and the merits of these arguments are beyond the scope of this article. Raising the minimum wage could make U.S. companies less competitive against foreign competitors. On the other side, raising the minimum wage allows consumers to buy more consumer goods and thus create more jobs. Whichever side you are on, it is a fact that the states that have the highest minimum wage laws are the highest growth rate states in the country. Low minimum wages lead to more welfare and social structure programs.
Implement a reasonable nationwide minimum wage increase.
9. Increase Immigration in Specialty Fields
Although it runs counter to the prevailing sentiment, we must increase immigration to the United States of highly educated and skilled workers. In order to lead the world in science, medicine, and technology, we need to increase immigration of skilled professionals, including people who want to work in a “specialty occupation.” A current proposal in Congress is to reduce immigration by one-half, but this will make our country less competitive and will affect key growth industries.
The H-1B visa is most strongly associated with the technology sector, but about 15,000 healthcare workers received an H-1B visa in 2014, including over 7,000 doctors and surgeons. These professionals help expand our technology industry, start new firms, and provide vital healthcare services to our citizens.
Expand immigration in specialty professions and make it easier for skilled professionals to enter the United States.
10. Expand Environmental Initiatives
A comprehensive program to reduce carbon emissions can create a wave of new American jobs.
In 2016, employment in the U.S. solar industry grew at the fastest pace in at least seven years as demand for clean power soared, with growth in all sectors including manufacturing, sales, and installation.
One out of every 50 new American jobs last year was in the solar industry, which now employs more than 260,000 workers, according to an annual report from The Solar Foundation, a Washington-based nonprofit. By contrast, U.S. employment in coal mining peaked in 1923, when there were 863,000 coal miners. Since then, mechanization has greatly improved productivity in coal mining, so that employment has declined at the same time coal production has increased. The average number of coal mining employees declined to 65,400 in 2015, with a significant part of that decline due to replacing coal with low-cost natural gas.
Expanding environmental initiatives, particularly in conjunction with programs to promote rural job creation, could significantly expand the number of jobs in rural America and provide stable careers for people displaced by declining industries.
The United States must continue creating jobs for its workers and take the lead in industrial, scientific, and technological production. Creating a comprehensive program that is rationally designed to leverage and accelerate market forces will ensure that the United States remains the world leader in economic expansion, while at the same time making sure that no workers are left behind.
The post 10 Steps the Trump Administration Must Take to Truly Make America Great Again appeared first on AllBusiness.com
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