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The Texas Labor Market and the Impact of Globalization. TWC State Planning Conference Austin, Texas January 7, 2003 Richard Froeschle, Director Career Development Resources(CDR) [email protected] (512) 491-4941. Think Globally…. Act Locally!. Defining Globalization.

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The texas labor market and the impact of globalization

The Texas Labor Market and the Impact of Globalization

TWC State Planning Conference

Austin, Texas

January 7, 2003

Richard Froeschle, Director

Career Development Resources(CDR)

[email protected]

(512) 491-4941


Think globally

Think Globally…

Act Locally!


Defining globalization

Defining Globalization

“The inexorable integration of markets, nation-states, and technologies to a degree never witnessed before—in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before.”

Thomas Friedman, The Lexus and the Olive Tree

Olive Tree versus Lexus???


Global labor market of the 21 st century

Global Labor Market of the 21st Century

Creative destruction—The process of simultaneous job creation and job destruction as new skill sets are required and old skills become outdated. The same employers will be both hiring and laying off continually regardless of labor market conditions to enhance productivity and competitive edge. Joseph Schumpeter

See “Churning in a Hypothetical Economy” from Technology Workers in the New Texas Economy




How globalization impacts the labor market the basics
How Globalization Impacts the Labor Market—The Basics

  • Globalization and new digital technology opens new producer and consumer markets around the world

  • Increased access to new producers leads to global price competition driving employer need for greater productivity, lower prices

  • Increased price competition leads to cost containment pressures

  • Cost containments leads employers to new supply chain practices, concerns over labor costs, alternative labor options


How globalization impacts the labor market scenario b part i
How Globalization Impacts the Labor Market—scenario B (part I)

  • Globalization (increased open trade) is built on comparative advantage, doing what a country does best, including low wage choices

  • Comparative advantage leads to changing industrial structures; using resources for what you produce most efficiently. Export value added, Import commodities!

  • Changing industry structure leads to creative destruction; continual movements of capital and job loss/gain


How globalization impacts the labor market scenario b part ii
How Globalization Impacts the Labor Market-scenario B (part II)

  • Creative destruction leads to increased alternative labor supply choices for employers and increased job volatility for workers, especially in non-local service industries (footloose sectors)

  • Job volatility results in greater job mobility (job changes), ever-changing mix of skill sets, demand for more extensive worker education, and more advanced skill sets, life-long learning


Globalization of the u s economy
Globalization of the U.S. Economy

Total World Gross National Income (Product) 2001 = $31,500,012 million

United States Gross National Product 2001= $9,900,724 million

The FACT is that the United States economy represents 31.4 percent of the World Economy.

The REALITY is that the top 20 richest countries represent 85 percent of the World Economy and the top 10 richest account for 74 percent.


Top 10 richest world economies 2001 in millions
Top 10 Richest World Economies 2001(in millions$$)

  • United States $9,900,724 31.4%

  • Japan $4,574,164 45.9%

  • Germany $1,947,951 52.1%

  • United Kingdom $1,451,442 56.7%

  • France $1,377,389 61.1%

  • China $1,130,984 64.7%

  • Italy $1,123,478 68.3%

  • Canada $661,881 70.4%

  • Spain $586,874 72.2%

  • Mexico $550,456 74.0%


The IMPLICATION is that U.S. companies have an opportunity to tap into an additional 68.6 percent of additional world-wide purchasing power, in addition to U.S. domestic spending.

The QUOTES:

“There are still good growth opportunities domestically. The economy is still strong. But American companies don’t want to be shut out of overseas growth.” 

“General Motors is here because of China’s growth. You’ve got a 15-20% growth in the rate of auto sales in China, and you’ve got 1.2 billion people. If you even look a 1% of that, think of how many people could buy a passenger car”.

Rudolph Schlais Jr, President GM China Operations


What is an american company percent of 2000 revenue outside u s

YUM Brands Inc. 34.5%

General Motors 26.2%

Ford 30.4%

Boeing 34.3%

Intel 58.8%

Coca Cola 61.0%

Federal Express 29.9%

Emerson Electric 40.0%

Texaco 65.9%

IBM 57.9%

Motorola 52.5%

Johnson/Johnson 38.2%

John Deere 25.1%

Colgate 69.4%

Nike 50.3%

Hasbro 36.0%

What Is an American Company?Percent of 2000 Revenue Outside U.S.


Industry growth potential in a global economy
Industry Growth Potential in a Global Economy

  • To whom does the industry sell and are those sectors expanding?

  • Is their cost structure competitive? e.g. are labor costs globally competitive relative to value added?

  • Do they have Positive Pricing Power in their marketplace? PPP results in higher profits!


Impacts of globalization on consumers
Impacts of Globalization on Consumers

  • Broader access to a wider variety of products and services than neighborhood offers

  • Greater vendor diversity leads to better buying opportunities, lower prices; eg. comparison shopping via Internet

  • Lost allegiance to domestic producers; what about the “union label” or U.S. TVs??

  • More volatile labor market with stronger competition from global labor supply


Impacts of globalization on business
Impacts of Globalization on Business

  • Businesses with global reach access more customers and get exposed in new markets

  • Businesses with regional niche lose local customers to a global market place

  • Business is exposed to supply chain opportunities to acquire lower cost inputs

  • Business is exposed to new labor supply options; foreign affiliates, H1B, global outsourcing


Texas industries adding the most jobs 1999 2002

Absolute Growth

Educational Services

Food Services/Drinking Places

Ambulatory Health Care Services

Professional and Technical Services

Local Government

Specialty Trade Contractors

General Merchandise Stores

Hospitals

Heavy and Civil Construction

Motor Vehicle and Parts Dealers

Percent Change

Warehousing and Storage

Management of Companies

Financial Investment

Heavy and Civil Construction

Support Activities for Mining

Ambulatory Health Care Services

Utilities

General Merchandise Stores

Educational Services

Motor Vehicles/Parts Dealers

(NAICS codes)

Texas Industries Adding the Most Jobs1999-2002


Texas industries losing the most jobs 1999 2002

Absolute Change

Agriculture/Forestry Support

Computer/Electronic Manuf.

Apparel Manufacturing

Transportation Equip Manuf.

Fabricated Metal Manuf.

Chemical Manuf.

Oil & Gas Extraction

Food & Beverage Stores

Administrative Support Services

Federal Government

(NAICS codes)

Percent Change

Agriculture/Forestry Support

Apparel Manufacturing

Computer/Electronic Manuf.

Transportation Equip Manuf.

Wood Product Manuf.

Misc. Manufacturing

Printing and Related Support

Oil & Gas Extraction

Electrical Equipment and Appliances

Paper Manufacturing

Texas Industries Losing the Most Jobs 1999-2002


Global trade works well when
Global Trade Works Well When…

A healthy world economy needs strong US economy

1. Countries sell their goods to U.S. creating wealth—U.S. Current Account deficit/Consumer Debt OK for rest of world (imports)

2. World wants, can afford, and buys U.S. stuff (exports)

3. U.S. companies export more stuff, generate revenues and Profits (assume Positive Pricing Power exists)

4. Portion of Profits used to invest in new technology & other productivity enhancing strategies

5. Increased productivity CAN lead to job growth and potential for wage gains


Globalization and the bursting bubble
Globalization and the “Bursting Bubble”

  • World faced with excess global capacity, especially in telecom and chip manufacturing in late 90’s

  • U.S. economy slows, reducing import levels

  • Rest of World also in recession, slow/no growth

  • Rest of World does not buy American AND seeks to sell more products by cutting prices

  • U.S. companies must compete through competitive pricing. Labor costs are major cost component

  • Even with same market share/output, profits shrink

  • Low/No profits mean low/no investment in technology resulting in lower productivity

  • Low productivity means less expansion and fewer jobs


Texas exports 2001 94 995 billion in 2001

Mexico (41.0%)

Europe (11.8%)

Southeast Asia (11.8%)

Canada (10.8%)

Asia (8.6%)

South America (5.5%)

Africa (4.8%)

Middle East (3.6%)

Computer/Electronic Products (27.0%)

Chemicals (15.3%)

Machinery, ex. Electrical (13.5%)

Transportation Equipment (11.9%)

Electrical equipment (5.1%)

Petroleum (3.9%)

Fabricated metal Products (3.4%)

Plastics and Rubber (2.9%)

Texas Exports 2001$94.995 billion in 2001


What are the realities or side effects of globalization

What are the Realities or “Side Effects” of Globalization?

Globalization presents both opportunities and challenges to governments and corporations. Even with current “geopolitical risks”,globalization is here to stay. But, what likely phenomena will accompany “unmanaged” global capitalism? At least some of the Handwriting is already on the wall...


Side effects of globalization part i
Side Effects of Globalization (part I)

  • 1. Increased wealth inequality- Rich countries and rich people get richer. Per capita GDP gap between richest and poorest countries widened from 40:1 in 1973 to 72:1 in 1992

  • 2. Environmental problems are getting worse- Unregulated markets encourage cheap waste dumping, encroaching on land and displacement of farmers.

  • 3. Acceleration of capital movement w/o productive uses- 98% of currency trading in 1998 was for speculation, not investment in plant or equipment. Fast moves can undermine a developing country’s financial markets and economy (Argentina 2001).


Side effects of globalization part ii
Side Effects of Globalization (part II)

  • 4. Industry and Occupational Winners and Losers- Global economy, comparative advantage causes upheaval in traditional industries. In see U.S. apparel, steel, call centers

  • 5. Inequality of income based on comparative advantage- Countries that specialize in low wage, low value-added products gain jobs but fall behind on income equality.

  • 6. An interconnected, interdependent global economy leads to a domino effect in recession. No exports, no earnings. When one country sneezes, another gets sick.


Side effects of globalization part iii
Side Effects of Globalization (part III)

  • 7. The homogenization of global culture- a.k.a. the “McDonald-ization” World culture and diversity is downgraded with spread of American pop culture

  • 8. Economic specialization leads to limited jobs choices- If you limit the breadth of the economy, you limit occupational choices. Is specialization really necessary? Should everybody be a programmer?

  • 9. Continued economic growth threatens global limitations and capacities- Growth in undeveloped countries is important but does social inequality and environmental costs outweigh benefits to developed countries?


The workplace of the future
The Workplace of the Future...

The factory of the future has just one man and one dog. The man’s job is to feed the dog. The dog’s job is to keep the man from touching the equipment.


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