Markets & Stocks
Creative destruction
Many U.S. jobs may be gone forever. But others are beginning to take their place.
November 6, 2003: 12:04 PM EST
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Although economists are hopeful that the U.S. employment picture is beginning to improve, there is an abiding worry that many of the jobs lost over the past few years simply are not coming back.

But painful as the current situation is, the end product may be an economy, and a labor market, that is stronger in the future.

It does appear that there is something different about the job climate in this economic recovery. Where in the past the economy started adding workers to the rolls shortly after recovery began, here we are, nearly two years after the recession ended, and job creation has only just begun. When the October employment report gets released Friday, economists expect it will show an increase of 65,000 jobs. At the same point in the "jobless recovery" of the early 1990s, the economy had seen three months in a row where payrolls increased by over 200,000.

What's going on? Many manufacturers have taken to blaming overseas competitors (particularly China) for stealing U.S. jobs. Technology professionals grouse about how outsourcing abroad (India) is taking away jobs in this country. Others point to increased productivity at home -- companies' better use of technology means they can do more with less.

Meanwhile, an oft-cited New York Federal Reserve paper has pointed out that many industries appear to be seeing permanent job losses. These are structural changes, and cry though we may about what may have wrought them, they're unlikely to get undone.

The structural displacement of workers is hardly a new phenomenon in the United States, and many give credit to the speed with which the country reallocates labor for its economic success over the past 20 years. The 1.9 million jobs lost by manufacturers in the 1980s, for instance, were more than made up for by the 20.4 million jobs created elsewhere.

"Change is a constant of the U.S. employment picture," said Morgan Stanley chief U.S. economist Richard Berner. "New technology keeps changing the nature of work and the nature jobs. I can't tell you what new technology will have spawned new jobs five years from now, but my guess is there will be one."

Turn and face the strain

Maybe the shift has already begun. Even as the overall job picture has deteriorated, the ranks of the self-employed have swollen -- since February of last year 1.1 million more people are working for themselves rather than kowtowing to the Man.

Written by: Justin Lahart

Not that all of these self-employed folks hung out their shingles because they wanted to. Many are white-collar types who were cut loose and now work on a contract basis for their old companies and clients.

"Those are all economists," said Northern Trust chief U.S. economist Paul Kasriel. "They used to be employed by Wall Street, and now they're consultants."

Spiraling benefits costs may mean the trend toward hiring workers on a contract basis may continue, thinks Kasriel, as companies try to move pension and health insurance costs off their books. Meanwhile, many workers -- particularly those caring for children at home -- want the increased flexibility they can get working on a contractual basis. Kasriel can even see companies coming to rely on something like a just-in-time labor force, quickly taking on and letting go contract workers as they need them.

Another possibility is that small companies take up more of the economy's pie. Just as the proliferation of technology has made it easier for people to work from home and for companies to take on contract workers (many of whom don't even work from the United States), it has taken away many of the economies of scale inherent in larger companies.

Lehman Brothers chief U.S. economist Ethan Harris points out that on Wall Street, for example, he's seeing a lot of small hedge funds that farm out all their back-office operations. Do that and you remove a lot of layers of management -- a great way to increase efficiency in the workplace. And then there are all the little things that can make smaller companies more efficient, like the owner who knows everybody's name.

Let ourselves get a little wide-eyed about what the future might bring, and we might think about how recent advances in information technology have been major decentralizing forces -- how the PC and then the Internet mothballed the old mainframe-dominated systems of the past. Maybe these forces are now at place in the American workplace. In many industries, maybe big companies are on their way to becoming anachronisms.  Top of page

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