Unemployment - Good News and Bad

By: Bill  Birnbaum, CMC

The business news is filled with reports about the  stubbornness of the current unemployment rate currently hovering around 6.2%

 Economists, politicians and business managers keep  watching for a reduction in that number as a sign that the economy is indeed  turning up. Unfortunately, all will have to wait a while. Yes, the economy is  turning up. But employment is a lagging indicator. Not until businesses have  enjoyed good solid growth for a time will they regain the necessary confidence  to hire or re-hire.

 Yes, employment will go up—and thus unemployment will go  down—but we’ll see that occur not this year, but next. Just another six months  or so and we’ll see strong evidence of a cyclical turn-around in unemployment.  That’s the good news.

 And now for the bad news. . . Some of the recently-lost  jobs won’t come back. For we’ve permanently lost those jobs both to information  technology-based productivity improvement and to less costly labor markets  overseas. And we’re losing more than manufacturing jobs which have been on the  decline for decades. More recently, we’ve been losing service jobs as well.

 The investment in information technology of the l990s is  now paying off. Companies have ”grown into” their technology to the point where  that investment is, years later, producing meaningful payback. More  productivity, fewer employees. And, as you well know, investment in information  technology was not limited to manufacturing, but also included service  industries.

 As you also know, many companies have sent labor overseas.  In fact, the research group, Gartner Group Inc, recently predicted that by the  end of 2004, one in ten jobs at computer-related companies would move to lower  labor cost emerging markets, most notably India and China. According to  Forrester Research Inc, the U.S. software and computer industry will lose 3.3  million service jobs to lower-cost countries over the next 15 years.

 While this exodus of service jobs is accelerating, it’s  far from a new phenomenon. In fact, in this very newsletter, way back in the  spring of 1988, we included an article called, ”Services Sector Slipping.” In  that article, we wrote ”in our view, the worst brand of shortsightedness is  believing that any particular industry is immune to competition from abroad. In  today’s increasingly international economy, a major transaction can just as well  be financed by an Asian bank as a U.S. bank. And a factory designed by European  architects as U.S. architects. And a toll-free phone line serviced in the  Caribbean rather than in the U.S.” We continue to stand by what we wrote those  15 years ago.

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Bill Birnbaum, CMC, is President of Birnbaum Associates,  business strategy consultants. He helps clients develop and implement business  strategies appropriate to the challenges of the 21st Century.

Since 1984, Mr. Birnbaum has published and edited  the Business  Strategies Newsletter. He is the author of the management book ”If  Your Strategy Is So Terrific, How Come it Doesn't Work?” (AMACOM, 1990)

[This article reprinted  with permission of Birnbaum associates. All rights reserved. Copyright © 2003  Birnbaum Associates]
 

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