So how do we benefit by shuffling them overseas?

Unions are a primary cause for outsourcing. They are stuck in the 18th century, where labor was little more than a functioning human body. As the 20th century progressed, the workplace demanded trained and educated humans, but unions were still providing bodies and expected someone else to educate, train, and motivate them.
Unions never understood the concept of paying for value. If they provided educated, decently trained, motivated workers, business would be eager to do business with them. Imagine how powerful unions would be if they provided workers on a competitive basis and promoted their workers on the basis of their skills and work habits. American unions need to grow with the times and provide business with value, not just bodies. When you see TV ads promoting things like, "AFL workers all read at a college sophomore level and average 99% workplace attendance" instead of "We deserve blah blah blah" unions will become relevant again.

What would that lesson be? Reduce wages until they match India and China?

Labor is only one part of the problem. Regulation and taxes are the other parts.

I don't see the US workers accepting wage reductions, well at least in terms of dollars. See, this is why some people think currency inflation will help, since it reduces our labor costs. Unless the UNIONs force a COLA agreement. Or the materials needed for production are outside the country, and then the commodity price goes up.

Reduce regulations:

This is something everyone accused "W" of doing. All I saw was increases in regulations. The EPA didn't relax rules. Sarbanes-Oxley was a huge increase in regulation. And "W" sought to regulate FNMC and FDMC, but failed with pressure from guys like Barney Frank.

Obama has said he wants to reduce stupid regulations, but other than a funny quip in the SOTU speech, he hasn't proposed anything. And he continues, against judicial orders, to refuse giving out permits for drilling in the Gulf of Mexico.

Besides, changing regulations takes time. Generally a long time, in either direction. Changes in EPA regulations basically prevent any new power generation projects during the 1990's.

Taxes:

Obama reduced payroll taxes on workers, but this won't change the costs in manufacturing. The employers still have to send a full payroll taxes in (8.43% here in Texas).

We need to change HOW we tax. The taxes that a company pay are figured into the price. And for those that SAY a company has to eat those due to price pressure, you're right. But they also go out of business if they cannot make a reasonable return.

Here is an example of all the above combined:

I have a widget which uses $20 worth of material. Manufacturing costs in the USA, minus labor but including regulations, energy, etc, are $20. Labor in the USA is $20. Sale price point for the item is $80.

So, another $1.69 cost for payroll taxes. Assuming no "loopholes", the corporate taxes are 35%. So of the remaining money, our Net profit after tax is $11.90

For the foreign producer, he uses the same $20 in material, manufacturing costs are $10 and Labor is $5. He needs to pay $5 for shipping, and a 5% tarrif to get the product into the USA. Again the price point is $80.

The foreign product costs $42 when it hits the US market. If this is then sold to USA consumers, the net profit before tax is $38, with an after tax profit of $24.70. So the manufacturer makes more than twice the money.

Lets look at the Federal taxes.

4.2% payroll taxes = $0.84
Income Taxes (assuming around 10%) = $2
Corp Payroll taxes = $1.69
Corp income taxes = $6.41
Tarrif = $0

Total = 10.94

On the Foreign made product
4.2% payroll taxes = $0
Income Taxes (assuming around 10%) = $0
Corp Payroll taxes = $0
Corp income taxes = $13.30
Tarrif = $2

Total = $15.30

So, as you see, the FEDERAL GOVERNMENT gets more tax money if a company outsources...The Company makes more money. It's a win-win.

Explain to me how you will fix this?

Yes, but you lumped engineering and design into service jobs. Those are value add jobs.

Well said. This is the problem IMO. When this country stated to shift away from manufacturing to service I don't think anyone thought of the negative impact. So long as we keep the shuffle going, people make money. When the shuffle stops, it becomes like a wall of falling dominos.

I don't consider an engineering job a service job.

So, Jim, Patrick and JP, what is your solution to fixing this?

The lesson is to provide business with a reason to do business here. Jobs didn't go to India because of low taxes. They went there because their workers are hungry, educated and the country paid for an infrastructure to support industry.
Simply cutting taxes won't solve the problem. Remember the "Jobs, Growth and Reconciliation Act" of 2003? Remember that it didn't create jobs or grow the economy and that it was followed by massive outsourcing and downsizing?

Red, I have read your position on other posts and I agree with you. However, when anyone is in the business of making a commodity will use the lowest cost labor available. You cannot compete head to head with LCC with labor rates of $3.00/hr including benifits and lunch.

What skills are desired are the high tech skills that these countries do not have and desire. I was in China last month and I read an article in a Chinese-American paper that China wanted to double their imports from last year. what they are looking for:

High Speed Rail Technology
Alternative fuel Technology
Energy Technology
Aerospace
High Tech Manufacturing
Automotive Manufacturing Technology

Their mission is to obtain it: it doesn't matter where they get it from.

We have high tech skills that we do export. We need to keep this technogical edge if we want to be competitive in this global world.

A good percentage of Euorpean manufacturing jobs.....aircraft & auto manufacturing, for instance, are unionized (and them folks don't work for peanuts) but they are quite successful at exporting goods to the USofA and the rest of the world......go figure.

Just blaming unions for our problems is infantile. Blaming lawers would be closer to the truth.
But, in fact, there is a problem that goes deeper in our culture......NO ONE WANTS TO GET THEIR HANDS DIRTY....building things, getting minerals out of the ground,
turning that into useble product....yada. They'd sooner get a degree and sit in an office & be impotent.

You have totally missed the point. It isn't just low labor costs. We can't fix the price of labor in the country without riots. But we can change regulations and taxation so that it is more likely that we keep jobs here.

Unfortunately, the present administration is reducing what we can produce in the USA (Oil for sure) and is increasing the costs to manufactureres (Obamacare for sure) who throw up their hands and say, "let's outsource".

If we fix the taxes and the regulations, we won't be able to retrieve labor intensive jobs. But high tech, high value add, automated manufaturing, etc can and will be done in the USA.

On the Europe Union comparison, I wonder what a German Union autoworker earns vs. a US counter part.

German auto worker facts - Boston.com

That is about 2/3rds of what a US Union Autoworker makes.

Bingo, this is a big problem. As I stated earlier, when I wanted to become an Engineer in HS, many of my classmates looked down on me like that was some kind of second class job.

Living in the NYC area it amazes me how many men I see on the side of the road who can't change a spare tire. Can you say, Man Card Revoked!


James, I believe we need to fix the problem by making Engineering, Science etc have better images in the public eye. Recently I was speaking to a HS teacher and she wants me to come in and talk to some of her class since some of them are interested in Engineering. The thing that scared me was she said so many of the kids have no idea what an engineer does. The other thing I would like to see is breaking down the gender barrier in engineering. My girlfriend is a biomedical engineer and she has now moved on to business. When I was working in Biotech we had a lot of women engineers and it really made the work environment well rounded.

Of course, there are other areas that need to be improved such as the tax structure but to be honest I know very little about that and hope that someone on this board can chime in and offer a good critique and possible solution on that subject.

Cheers, James

One quick thing, let's really try to keep this thread out of PARF.

There are some really interesting viewpoints being aired here which, IMO, are way above politics.

There is no easy solution. All I know is what hasn't worked in the past.
I know it is very un-PC to say this, but our salvation is not going to be the free market. It is going to be our government. We have worshiped the god of capitalism while watching the free market send our jobs and capital overseas. We need to stop the knee-jerk vilification of government and start making it work for us.
We need to realize we are in a global economy and we are in a race with other countries to provide what industries need. Our government needs to look at what industry needs and start providing it. Make doing business in the US attractive again.

JP: You are singing to the choir here. You need to have products that others want and it is not just cars. To me it is technology and products that require these skills. That is why Germany is successful with exports. Their wages are as high as ours, they have a works council (union) but they can command a price for their products.



Red: I don't have a simple solution. Today, all commodities are constantly evaluated for cost control. Parts, materials etc are constantly put out for bid looking for the low cost. The job of the company is to insure that the parts and material are up to standards and functional. There isn't allot of loyality out there or much value on customer service (ie. can you deliver on time, quality, consistancy, etc.).

The bigger issue I have is staying ahead in the technology race. The country that holds the lead in technology, stays in the lead. Everyone else will either buy it, steal it, knock it off, copy it. But they will always be in second place until such time they develop those skills. I'm a big proponent of R&D, enginnering and sciences. But JP also has a valid point: you need people with those skills or the desire to get their hands dirty. This idea of sitting in front of a computer screen won't cut it IMO. The Americans I see traveling to China are those with high tech skills in energy, aerospace, automotive or manufacturing that are starting up factories, offering training or solving problems. That are in the field - not sitting at a computer.

You also need to provide an environment for this to happen. You can drive away business. States like TN, IN, SC and AL recognize the need for industry and they offer incentives from sales tax breaks for building materials, training subsides, free land, utility breaks, etc to provide an atmosphere friendly to business.

No easy fix -

There is a difference between an hourly wage and the cost of labor.

I believe the hourly rate for a US union autoworker is around $30/hr. Adding benifits, health insurance, pensions puts the cost of labor over $70/hr.

I agree there is no simple solution but there is an easy one. Of course concept and execution will not require the same effort.

To turn to government for a solution is insane, much of the problem has been created by government.

We have not had a free market in this country for a long time, it has been corrupted by the actions of government.

The components of the problem have been unions(more work rules than wage), gov't regulation, tax policy and tax structure, trade regulations, liability law and lawyers in general, and short sighted Qtr results oriented management(driven by compensation plans).

We're outsourcing our manufacturing jobs to third world countries, where products are made poorly and cheaply, then shipped to the world's most voracious market (yup, you guessed it.....America) where we buy the heck out of those cheap products. Anybody see a problem?

It's nice to see that some of us have a realistic understanding of the problem. The rest are busy blaming gubmit and unions. As if the problem in America is......Americans.