From time to time, we will post articles of interest from our reading of Business Periodicals, Newsletters, and Local Papers:

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.

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)

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