The Hindu Business Line : Greenspan faces flak on jobs

The US has an oversupply of low skills and undersupply of knowledge professionals. This equation must change for it to be a high value-adding economy in the global division of labour and retain its pre-eminent position.

JOBS, jobs, jobs. Almost the entire barrage of questions directed at Mr Alan Greenspan, the Chairman of the US Federal Reserve, when he testified to Congress last week, was on the status of and trends in employment in the US.

That the US is losing manufacturing jobs is history. For brief periods, the rate declines, but the picture is unmistakeable - one of the factory sector heading towards near extinction.

For legislators this was the issue. Can the economy suffer closures, plant after plant, and still grow? Are other sectors generating enough new jobs to hire workers becoming redundant in traditional industries?

Now the disease has spread to services as well. Basic support services for businesses are migrating to countries like India, which also happens to have an abundance of English language-speaking skills. It is not stopping with this.

Other functions involving, say, preparing tax returns, medical transcription and accounting are also done cheaply, given the proliferation of engineering, medical and accounting professionals willing to work at a fraction of the cost of hiring the same skills in the US.

What ought to cause the most concern to the US is the latest shift of even specialised functions to offshore locations. Contract research in the physical and medical sciences and finance which require high academic qualifications can also move to Third World countries with the pool of scientists, engineers, mathematicians and analysts they offer. This means even the traditional preserves of the US in high-tech and R&D are at risk.

Clearly, the pressure is on the legislators to explain and assuage their constituents who are seeing their jobs melting away and worry about their own and their children's future. In turn, Senators and Congressmen turned the heat on Mr Greenspan.

How did the Fed Chairman respond? Going by the past, he said, the permanent job loss fears were overblown. In the seventies and eighties, Japan emerged as a major economic power much like China today and competed head-on (and successfully) with US in automobiles and consumer electronics. Yet the US maintained and increased its tech lead and became a job-creating machine in the nineties, when, at one point, the unemployment rate dropped below 4 per cent.

Uncharacteristically, the Fed chief focussed more on the micro and not the macro-economy. He lamented the falling educational standards in US schools compared to Asia, which is producing more and more "elite" citizens - those catalysing innovation and at the cutting edge of their professions globally. The US is becoming an economy in which knowledge rather than hardware creates wealth. Unless this is recognised and public policy is directed towards imparting knowledge - creating skills, the phenomenon of increasing unemployment, low wage jobs and concentration of incomes with the few with special skills will continue.

Mr Greenspan remains an avid free trader. He would resist protection and protectionism. The migration of jobs from the US is the cold logic of markets.

The richest country in the world has an oversupply of low skills and undersupply of knowledge professionals. This equation must change for the US to be a high value-adding economy in the global division of labour and retain its pre-eminent position.

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