Several weeks ago, I was exercising at the YMCA downtown. I was starting my workout at the bench press and noticed a young man lifting a lot of weight (not typical for this recreational area). He asked me to spot him with this heavy weight. I learned that he was a new professor at Lincoln Memorial University Duncan School of Law.
I mentioned I was serving as an adjunct professor for the same school in the School of Business. We talked about various issues—as we both tried to complete our workout at the same time. As I walked him through my strategy of giving MBA candidates practical application for studies, he asked me a question that stopped me in my tracks. He asked me what would I advise President Obama about the current financial crisis. I didn’t have an immediate answer. I have always tried to deal with this economic crisis at the local level. Yet, I knew what worked locally might not have the same results nationally. Therefore, the answer was very complicated, especially regarding job creation.
We are in troubling times. In August of 2011, our nation posted no job gains. This economic slump is historical since it’s the first time since World War II that the economy has had precisely net zero for job creation for a month. Retail, manufacturing, information services, and construction all lost jobs.
Furthermore, government employment fell by 17,000 as state government begun their budget exercises which included downsizing government employees including teachers and policemen. According to some financial experts, the economy must add 13.7 million jobs over the next three years (381,000 each month) to bring unemployment from a current rate of 9% to 6%.
With over 15 million people unemployed in our nation, worried U.S. citizens look to their government and/or business leaders for job creation. Is this faith misplaced? The concept of job creation is a hot buzz word among politicians and media pundits. Last week (September 8, 2011), President Barack Obama announced a ‘job creation jumpstart’ plan before a Joint Session of Congress. A $447 billion American Act proposal, consisting of infrastructural upgrades, was proposed. Yet, partisan politics make this job creation initiative an uphill struggle. Furthermore, many people doubt that the government can create any sustainable jobs.
Other individuals look to businesses to create millions of jobs because they are considered commensurate with job creation. They argue that giving businesses major tax breaks and other financial incentives will encourage them to create millions of jobs. However, anyone taking a basic course from the School of Hard-knocks understands that businesses primary mission is making profit for their investors.
Financial experts applaud major outsourcing initiatives and layoffs by corporations because they feel it will lead to greater profitability for shareholders. However, John Gamble and Arthur Thompson, authors of Essentials of Strategic Management, suggest that a low cost strategy can backfire on a business.
They note, “Perhaps, the biggest pitfall of a low-cost provider strategy is getting carried away with overly aggressive price cutting and ending up with lower, rather than higher, profitability.” Despite an economic crisis, many U.S. corporate profits hit all-time highs at the close of 2010.
According to the Federal Bureau of Economic Analysis, corporations reported an annualized $1.68 trillion in profit in the fourth quarter. The previous record (without being adjusted for inflation) was $1.65 trillion in the third quarter of 2006. For example, General Electric posted worldwide profits of $14.2 billion, while JPMorgan Chase’s profits went up 47%. The financial firms were some of the biggest winners.
While the federal government provided aid during the economic downturn to save many of these ‘too big to fail’ institutions, these firms did not return the favor.
They found little incentive to provide loans to struggling U.S. businesses to assist in job creation. Their investors applauded their actions since it moved toward greater profitability. Yet, the public frowned on their self-servicing actions which were interpreted as market driven.
Given this financial crisis in America, there are two concepts at odds with each other. They are economic viability and one’s quality of life. Economic viability relates to creating jobs that are necessary for a business. One’s quality of life involves an unwritten standard of living for a citizen to live reasonably comfortable given his or her work effort.
This reality for many organizations has meant outsourcing high-cost activities such as manufacturing, to countries abroad like India, China, and more underdeveloped countries.
If it costs $20 an hour for customer service in the U.S., would a business give up sending that work abroad for $1 per hour? Therefore, companies that have a focus on a low cost strategy will continue to search for the newest lowest labor market to be competitive.
Yet, this reality drives down the wages for US workers and the quality of life for U.S. citizens. Therefore, the concept of job creation as it relates to sustainability is a difficult problem for any nation to solve.
As U.S. businesses deal with globalization and hypercompetition, is it possible to achieve economic viability and a good quality of life at the same time for U.S. citizens? If so, how?
© 2011 by Daryl D. Green
29 thoughts on “Sustainable Job Creation”
It is becoming more and more difficult to find a job in the United States. Everything from retail products to healthcare services are being outsourced to foreign countries. The companies have to pay less to produce their product, but that leaves millions of Americans without jobs. At the same time, Americans are looking for “more value for the money” (Gamble and Thompson Jr.) If you don’t have a job, how are you going to pay for the product that the company who ‘downsized’ is producing?
I think it is going to take some time for Americans to re-establish work. Maybe, instead of trying to get millions of people hired all at once, companies should look to hire a few employees at a time. This will give people jobs, which means the people get paid, and they put that money back into our economic system. People are cut from their jobs, have to go on unemployment, and they ask for government assistance. The end of this cycle is that despite their willingness to work, they cannot find a job.
Gamble, J., & Thompson, A. (2011). Essentials of Strategic Management. The Quest for Competitive Advantage. New York, NY: McGraw-Hill Irwin.
Recently, the Knoxville News Sentinel ran an article in Sunday’s paper discussing that new jobs are in niched areas like daycare and other service industries.
Today, many people are working fewer than 40 hours a week. I’ve tracked this trend for several years.
It begins the “Age of the Part-time Workforce.”
Where are the jobs? How do we create them?
That is the big question. If we knew where the jobs were or how to create them, maybe we wouldn’t be in the situation we are in today. We are moving more towards a technology based society. There is always talk about producing job positions in solar and wind energy. But, that is taking some time. Small businesses are getting overrun by big corporations. A lot of people can not afford anything but the lowest prices that the corporations offer. If a small business goes out of business, then those employees have lost their job. I don’t have a great answer for ‘where are the jobs’. I don’t know if anyone really does. The first picture is your post shows a very long line of people looking for a job. With the downsizing, job cuts, and oversees manufacturing, I am not sure where the jobs are, and I am not sure how to create them in the US.
Agreed! It’s a difficult question.
Yes, was anyone else touched by that long line of unemployed people? I was!
Yet, I feel you guys are some of the brightest MBA students in our nation. Harvard and Brown University students are expected to answers these tough questions and create some solutions. Why not you?
I am not convinced that you can’t come up with your own set of solutions (at least one or two).
Again, I am interested in possibilities, probabilities, and hope! We can solve this!
Let’s go deeper.
I agree with you it is becoming more and more difficult to find a job in the United States and companies should look to hire a few employees at a time. In order to gradually increase the jobs, the government could decrease the tax or give some incentives for companies that already have left or are leaving the country in search of cheaper labor in other countries. The government can start with one sector and then extend to others. Likewise, if this measure does not help, the U.S. government can raise rates for these products to enter the country, of course respecting the international rules of trade.
Interesting thoughts, Jessica. The job situation is such that we must “zoom out” and look at the big picture. Huge markets have opened up and we can compete just like everyone else, we just need to be able to compete on a larger scale. For years America held the most jobs but now jobs are opening all over the world. Are we willing to do what we expected others to do for all of these years, and travel abroad to work? Are we willing to look beyond our backyards for work? If we are not, then we may want to analyze how many jobs have vanished to technology and put resources in those areas, maybe creating jobs that only people can do.
I promise you that people in other countries that will work for a dollar day, won’t do it forever. It stands to reason that if they can’t even purchase the products that they are making, then the company will have to sell them for less…not only to them, but worldwide. Then things will turn upside down. The corp will lose its competitive advantage and shareholders are going to lose out in the ong run…right?
Today’ economy is in utter shambles. I read your post and watched the President’s plea to congress (which I had not watched previously) with great interest. Globalization has become an integral part of the world wide economy. One of the main problems with current plan is the fact that businesses in the US pay one of the highest corporate tax rates in the world at 35%. Japan, is the only country with a higher tax rate at 39.5% (U.S. Business Has Higher Tax Rates but Pays Less, 2011) however, they recently announced a possible 15% decrease on their corporate taxes. That will leave the US with the highest corporate tax base in the world. Having economic prosperity and high quality of life for Americans is possible, but I think there are better ways to go about it than throwing money at the problem with, from the President’s speech, sound to be temporary. For example he mentions construction jobs and new infrastructure initiatives. What happens when those projects are completed? Do we create new projects that will cost tax payers even more money just to keep those folks employed? One fear I have with regards to this is the fact that Washington seeks to be simply printing money to pay our bad debts and implement new social programs. I fear this will devalue the dollar. When the dollar stops being the def currency in word wide trade what is going to happen to our economy and our ability to have a good quality of life?
“Pass this bill… right away…” I was going to stop the video if the President said that one more time. I’m just kidding of corse, however, this speech seamed, to me, that the President was saying look at me America, I’m trying to do something good for you but I just can’t get Congress to pass it…
I’d like to end this reply with a simple question… with a trillion plus dollar deficit (and growing) does the country really need a 400 plus billion dollar jobs program that is unproven? How will this initiative be paid for? Even with the cuts requested by the President, the country has so much debt there is really no realistic way to pay it back.
U.S. Business Has Higher Tax Rates but Pays Less. (2011). U.S. Business Has Higher Tax Rates but Pays Less. Retrieved from http://www.nytimes.com/ 2011/05/03/business/economy/03rates.html
I agree with your opinion of the video, and that getting out from under debt will be almost impossible. The state of our current job market isn’t helping things either. Companies are relying too much on outsourcing to other countries for the job market to get better. Of course, those companies are using this strategy, because this is a way to cut cost for the company (Gamble and Thompson, p.81).
I also think that the amount of money that the President is proposing to spend is a little ridiculous for a country who is already in so much debt, and it doesn’t seem like this will be a long term plan. It also isn’t guaranteed for success , and this makes it seem like a risky gamble for the country.
Gamble, J., & Thompson, A. (2011). Essentials of Strategic Management. The Quest for Competitive Advantage. New York, NY: McGraw-Hill Irwin.
Zach & Mike
Excellent commentary of modern politics! You are both correct about our debt being problematic to economic growth. President Obama’s $ 400 B+ proposal is a way to stop the bleeding near term. I am sure both parties have their own ideas for job stimulus. However, the government can’t sustain these efforts over the long-term.
I would like for you and other readers to go deeper. This isn’t a political blog!!! This blog was created to stimulate ideas and provocative discussion for the next generation of leaders. I don’t mind a little problem identification. Yet, we need to focus on getting ourselves ‘out of this economic ditch.’ You are very bright!
The government does play a vital role in sustainable job creation. For example, China has created an attractive environment for exporting goods while creating road blocks for foreign businesses to operate in China. You mentioned lowering the tax burden on companies to stimulate job creation. That is a good start! Let’s go farther into the intellectual tool chest.
How do we create sustainable job creation?
What markets should we enter (as a nation)? High tech? Entertainment? Niche markets?
What about the people side? Businesses are always going to fight for cheaper labor (unless value truncates cost). Given this reality, how do tomorrow’s U.S. workers compete with others who are willing to work for less, globally?
Give us some ideas along with possible implementation strategies.
The natural progression of business in the presence of high cost (i.e. higher corporate taxes) is to lower the price of wages. In the United States, we have raised our corporate taxes significantly and then mandated a minimum wage. Essentially, this puts companies in a difficult position to combat higher costs without raising the consumer end price. Since they are unable to lower wages, they are forced to fire workers if they wish to cut overhead in that regard. Another popular option is outsourcing jobs and labor to other countries, allowing for wages far less than minimum wage. In the article “Who Bears the Corporate Tax?…,” Auerbach makes the argument that Corporate Tax is more realistically a burden of the people more similar to income tax as a whole, as opposed to a specific tax of the “elite” or “rich.” He believes that cutting these taxes are better for consumers in the long run, bringing more business from the global market, while maintaining the quality of life of American workers.
Auerbach, A. J. (2006). Who Bears the Corporate Tax? A Review of What We Know. NBER/Tax Policy & the Economy (MIT Press), 20(1), 1-40. Retrieved from EBSCOhost.
Interesting! Let’s follow this tax policy lead for further job creation.
Newt Gingrich, former House Speaker and a 2012 Republican presidential candidate, suggests a tax policy that maximizes private capital investment to create jobs: “It starts with eliminating the capital gains tax and the death tax, reducing the corporate tax to 12.5%, and 100% expensing of all new capital equipment purchases.” He states that all taxes discourage job creation in America, thereby sending businesses to foreign markets. As a consequence, the current U.S. corporate tax structure results in lost jobs, lower wages, a weaker economy. In summary, Gingrich argues that getting rid of the capital gains tax would accelerate job creation.
Here’s the bottom line. If companies are given these U.S. tax incentives, will they be convinced to create new jobs or to pocket the money for shareholders?
Sorry, politics always gets in the way. However, the deficit spending can only offset the losses being taken in the private sector. They are all intertwined in what’s becoming a spiral downward. The jobs plan, like the stimulus, will help further stabilize the economy, but it will not be able to grow it. As you mention, Dr Green, jobs that were saved or will be created by the jobs plan are not sustainable. How, then, do we prevail with sustainable job creation? Many positions that are being vacated, either by choice or by downsizing, are not being replaced. Instead, companies are looking for technology for efficiencies that make the position no longer necessary. This leads me to one possible way out as written in 2009 by Bill George in Business week. Revive the entrepreneurial spirit of the United States, stimulate innovation and creativity. Instead of providing money to preferred industries, incentivize research and development, and stimulate basic research in health and technology. Expand visas for foreign nationals who received their degrees from US institutions and expand grands for the study of math and science. The growth the United States has seen since it’s creation were in part to this unyielding spirit. It’s time to get back to that.
George, B. (2009). Bloomburg Businessweek. Creating Sustainable Jobs.
Retrieved from http://www.businessweek.com/
More countries are wealthier today and less are in poverty. More countries will be able to sustain themselves instead of U.S. dollars sustaining them or defending them.
Creating jobs and developing new industries is an exciting task. The markets that have opened up are wide open for all of us to pry into. I don’t think it is the corporations that have gone overseas (for many corps. that is an advantage, many will never leave the U.S) that we should be worried about taking our jobs with them. I think it is technology that has taken most of our jobs. The advances in technology have literally wiped out entire industries evaporating millions of jobs in the U.S. and set to wipe out even more.
Examine where the jobs are that can’t be replaced by technology. Isolating these areas and pouring our resources into them will help America gain competitive advantage in new inventions and product development. Stop making global corporations a scapegoat; examine competitive strength to key rivals globally. “Effective strategic management requires understanding of organizational resources and competencies as well as how each contributes to formation of organizational strengths and ultimately to the development of a competitive advantage.” (www.jstor.org)
J. Duncan, P. Ginter, L. Swayne, Competitive Advantage and Internal Strength Assessment
What markets or industries should the U.S. invest into?
Mr. Michael E. Porter of the Harvard Business School developed the Five Forces model, which determines the competitive intensity or attractiveness (profitability) of a market. (tutor2u.net/business/strategy/porter_five_forces.htm) I would apply this model and also I would complete a Competitive Strength Assessment in the markets that I am researching before I could answer this question sensibly. Another thing that I think is important is for us to focus on is the diminishing job sectors, for example I think that it is critically important how much regulation is going to be set in place for virtual education. I think that on-line learning is a very attractive option for students. However, I believe that the virtual learning providers/developers are ready to pounce on this sector of the the market and so I ask, “How many teaching job will be eliminated once this is fully unleashed?” American’s conveniences are killing us.
Porters Five Forces Model: Analyzing Industry Structure
I believe the most important factor in restoring our economy is the creation of jobs. Different political parties have different ideas and theories on how to create these jobs. Some believe taxes should be raised while others believe they should be cut; some believe the government should create more jobs and others believe the private sector should create more jobs. We have also lost thousands and thousands of jobs to cheap labor overseas, but can you blame them? There’s no doubt that bringing these jobs back home would drastically help our economy but at what cost. Would the higher labor caused by producing these domestically cause the price of these products to sky rocket? Would the companies be able survive if they have to raise the prices of their goods? There’s no doubt that bringing these jobs home would help the unemployment rate, but can we do it in a way that is competitive with these other countries. Additionally, I am for whatever helps the economy, but I would tend to lean toward the creation of private jobs opposed to government jobs. I know that some government jobs cannot and should not be taken away such as military, national security, etc. but it seems to me the private sector is more logical than the government sector. The private sector essentially creates its own wealth which is then taxed by the government. Government jobs are essentially paid for by the tax dollars of individuals and the private sector. It seems to me that the government is essentially dependant on the private sector for money; in a time when we have a huge national debt why not try and increase the private sector. This would bring in more true tax dollars to the government .
I sympathize with your view Paul. I also believe that private sector job creation is the answer to decrease the high unemployment rate while generating substantive tax dollars. As you mention, the nature of businesses is profit generation which often pushes corporations to make tough decisions such as depriving Americans from jobs after moving manufacturing plants overseas. We can also appreciate this dilemma domestically. The current immigration laws and penilazion of employers who hire personnel who are not legalized citizens could result in a similar phenomenon. “The Immigration and Customs Enforcement agency expects to deport about 400,000 people this fiscal year, nearly 10 percent above the Bush administration’s 2008 total and 25 percent more than were deported in 2007” (Slevin, 2010). Depending on personal view we may be satisfied or unhappy with such an occurrence. However, from an economic perspective, countless companies are currently facing a devastating backlash since they have lost thousands of hardworking and inexpensive laborers who kept their laboring costs affordable and allowed them to compete. As consumers, we are left with price increases on construction, restaurant and farming products, to name a few.
Slevin, P. (2010). Deportation of illegal immigrants increases under Obama administration.
Great points again! Perhaps, the government has overreached again in these stimulus strategies.
Let’s look at the private sector then. Give me a strategy to create jobs where it is a private sector initiative. What are the markets?
Yes, I believe that U.S. businesses dealing with globalization and hypercompetition can achieve economic viability and a good quality of life at the same time for U.S. citizens. Therefore, leaders must understand how to best evaluate its internal situation, resources and capabilities and take actions as soon as possible. A good start might be solving the illegal immigrants’ workers whose do not get fair payment, consequently decreases the quality of life of people living in the U.S. Also, they compete with U.S. citizens job seekers. Finally, several of them save as much money as possible in order to send to their home countries, as a result they do not pay taxes and the money do not get back in the U.S. economy.
Can you walk us through the points of meeting both objectives outlined in the discussion?
It is possible to achieve economic viability and a good quality of life at the same time for U.S. citizens. However, I do not feel the situation is probable anytime in the near future or think that throwing more American tax dollars at the situation will help. Corporations have way too much to lose in profitability in the short term to move any of their outsourced operations back to the U.S. Corporations like to lower production costs and increase revenue in any way possible. Gamble and Thompson (2011) state, “Companies that build production facilities in low-cost countries…have a competitive advantage over rivals with plants in countries where costs are higher” (p. 139).
We can improve the infrastructure by taking the tax burden from strictly the lower and middle classes and expand it evenly amongst all classes. We could then cut out a lot of the corporate tax loopholes that exist. Next, businesses could create apprenticeship and internship programs to train people in a profession at minimum wage as a part or full-time worker. The workers would then be better prepared to enter his or her profession with previous experience. Companies could slowly bring back their operations to the U.S. to help build the part and full-time worker infrastructure of the U.S. labor force. This in turn would boost our economy, cut into some of the gigantic profits of the huge corporations, create more tax revenue from companies being unable to evade the taxes, and provide working opportunities for the unemployed.
Gamble, J. E., & Thompson, A. A. (2011). Essentials of strategic management: The quest for competitive advantage. New York, NY: McGraw-Hill/Irwin.
Interesting points about reaching both objectives!
For the record, we have established that the government is a major factor for economic growth for the private sector. Like you, I feel that the government has a finite role in the economy.
However, some appear to believe in a ‘laissez faire’ government where the government does little in the private sector. Who wants Big Brother over us anyway? We must be careful.
If you view the Industrial Revolution, this government mentality brought huge corporate profits…but at a great costs to humanity. Many businesses took advantage of workers and the environment. Personally, I believe there must be a check and balance system.
What can the private sector do for job creation and meeting these objectives?
I believe that globalization is in no way detrimental to the economic viability of neither the United States nor any other nation. Globalization and hypercompetion, I believe, only encourage countries and organizations to “step-up” their game and generate higher quality products, profits and satisfied consumers without border lines that limit their markets. If our economy is currently suffering a recess, we only have ourselves to blame. We ought to look back at the past to discover what we have done right or wrong while at the same time focusing on the future to decide how to apply that knowledge and pick up the slack. “Through these increases in trade and financial flows, countries have experienced increased level of economic growth over time that has contributed to the world standards of living”(Prithiviraj, 2009).
Moreover, the creation of jobs, mainly in the private sector, with government cooperation in the development of small businesses seems to me like a reasonable approach to increase revenues and taxable income.
Prithiviraj, S. (2009). Impact of Globalization on economic growthm quality of life, external stability on market economies.
Thanks for the hope and encouragement. We need it!
Got any strategies?
The current status quo of our national economic crisis is in part to legal driving forces pushing labor in manufacturing outside the country. Business will always follow the path of least resistance or reducing operational costs. The current atmosphere in business is driven by managing Porter’s driving forces. In contrast to Porter, a paradigm shift is the implementation of Blue Ocean Strategies in which a corporation negates the competition by moving into new markets with unopposed competition to reap profits by increasing value while minimizing cost of ownership. The most impressive Blue Ocean Strategy was the innovation of the Model T by Henry Ford. Automobiles were once reserved for the aristocratic elite and carried an aura of pretentiousness. Ford, made a car that could be manufactured at a low cost that every American could afford, while using technology from the meat packing industry to lower the cost of manufacturing. Fords Blue Ocean Strategy formed an industrial revolution that spawned more jobs that can be accounted for and numerous correlated industries, In addition, Ford’s market share surged from 9% in 1908 to 61% in 1921, and by 1923, a majority of American households had a car.
It is this paradigm shift in business theory that will provide jobs for the masses in America.
W. Chan, K., & Mauborgne, R. (2005). Blue Ocean Strategy: FROM THEORY TO PRACTICE. California Management Review, 47(3), 105-121. Retrieved from EBSCOhost.
Interesting! I’ve read parts of Blue Ocean Strategy.
“It is this paradigm shift in business theory that will provide jobs for the masses in America.”
Where do we start?
A more lighthearted vision of things to come in the future in terms of sustainability can be found here:
Unfortunately I fill that this post is indirectly addressing one of major problems with this country by stating, “Worried U.S. citizens look to their government and/or business leaders for job creation”. What happen to the America in which its citizens looked upon themselves to create jobs and raise their own quality of life? Is it not in this idea in which our basic principles were founded? American’s are too often looking for someone else to fix their problems, instead of addressing their own. Although I am embarking on my own path with this post and not directly answering the question at hand, I feel compelled to do so. With this I often reflect on the words so eloquently spoken by John F. Kennedy, “Think not what your country can do for you but what you can do for your country”, within this simple statement Americans should see the clear path to economic viably and the way to increase their quality of like through the works of its citizen and not through government reform. As Ronald Reagan simply stated, “government is not the solution to this problem government is the problem”.
KEEP 199 WORDS INITIAL 12/6/11 (original post 9/17/11)More countries are wealthier today and less are in poverty. More countries will be able to sustain themselves instead of U.S. dollars sustaining them or defending them.
Creating jobs and developing new industries is an exciting task. The markets that have opened are wide enough for all of us to pry into. I don’t think it is the corporations that have gone overseas (for many corps. that is an advantage, many will never leave the U.S) that we should be worried about taking our jobs with them. Technology that has taken most of our jobs. Advances in technology have wiped out industries evaporating jobs in the U.S. and set to wipe out more.
Examine where the jobs are that can’t be replaced by technology. Isolating these and pour our resources into them will help America gain competitive advantage in new inventions and product development. Stop making global corporations a scapegoat; examine competitive strength to key rivals globally. “Effective strategic management requires understanding of organizational resources and competencies as well as how each contributes to formation of organizational strengths and ultimately to the development of a competitive advantage.” (www.jstor.org)
J. Duncan, P. Ginter, L. Swayne, Competitive Advantage/Internal Strength Assessment