Commentary

Where the Jobs Went

My great grandfather James Mason Reynolds was a lawyer, journalist and poet who wrote under the byline “Farmer Reynolds.” He and his brother George had worked the family farm in Plainfield Township, Mich., but switched to service jobs in the 1880s. George managed a railroad station. James practiced law and wrote for the Grand Rapids Eagle and others as a Greenbacker, Democrat and rum-guzzling Prohibitionist. Most of their neighbors, however, left farming in favor of jobs in factories making furniture, plaster and beer.

In 1890, farming still accounted for nearly 43 percent of all U.S. jobs. But farm jobs had dropped to 17 percent of employment by 1940 and to 1.7 percent by 1960. Today, farm employment seems so insignificant that we only bother to report nonfarm employment. Yet the fact that millions of farm jobs have been lost to modern farm machinery and chemicals certainly does not prove U.S. farming is disappearing or uncompetitive.

Production workers in manufacturing likewise accounted for 26 percent of U.S. nonfarm employment in 1952, 18 percent in 1972, 11 percent in 1992, and 8 percent in 2002. Yet the fact millions of manufacturing jobs have been lost to robots and computers certainly does not prove U.S. manufacturing is disappearing or uncompetitive.

Thus begins a tale of two cities. One city, of course, is Grand Rapids. The other is San Jose, Calif. Grand Rapids and San Jose are both midsized, employing more than half a million people but fewer than a million. And both have an unusually high percentage of jobs in manufacturing. Grand Rapids relies on manufacturing for more than 26 percent of all jobs — the largest of all metropolitan areas. San Jose relies on manufacturing for nearly 22 percent of all jobs.

The figures come from Phil Hopkins of Global Insight, who examined the percentage of jobs in manufacturing in large, midsized and smaller metropolitan areas. He also noted the percentage working in “high technology” and “information technology” (called IT or infotech for short). This is where the two cities make a fascinating contrast.

Grand Rapids is still home to relatively traditional industries, including furniture. San Jose, the hub of Silicon Valley, is the unchallenged leader in jobs dependent on high tech in general and IT in particular. In 2002, infotech accounted for nearly 49 percent of all jobs in Silicon Valley, and “high technology” (which partly overlaps IT and manufacturing) accounted for about 25 percent.

The first lesson from these two cities is that jobs among manufacturers of high-tech products and related services are at least as vulnerable to cyclical downturns as traditional industries. The loss of jobs in San Jose in 2001 and 2002 was huge, second only to New York City — a much larger area that was uniquely wounded by terrorism. In 2001 and 2002, San Jose lost 120,700 jobs. Unemployment peaked at 8.8 percent in November 2002, falling to 7.1 percent last November.

Grand Rapids lost 17,500 jobs in those two years, which was nonetheless the 29th worst job loss among 319 metropolitan areas. Unemployment in Grand Rapids peaked at 8½ percent in July, falling to 6.8 percent in November. Manufacturing has always been cyclical, partly because we can most easily postpone buying durables, but we now know that applies to tech manufacturing, too.

The second lesson is that the view of the national economy from San Jose is anything but typical. With the nation’s highest dependence on high tech and IT jobs, San Jose was at the epicenter of the 1996-2000 tech boom, but also of the subsequent shake-out. Few places experienced greater increases in jobs and incomes in the boom era, yet none suffered as great a hangover.

I recently wrote that although national employment of computer professionals was lower in 2002 than in 2000, it was nonetheless 5.7 percent higher than in 1999. For comparison, total employment rose only 0.2 percent from 1999 to 2002, and managerial employment fell 12 percent.

This comparison caused a great deal of irritation, as facts often do. Yet every angry e-mail I received came from Silicon Valley. The writers seemed to imagine their roller-coaster ride was typical of the nation, but it was not even typical of California. In the same two years when San Jose lost more than 120,000 jobs, San Diego added 34,700, Sacramento added 33,900 and Riverside-San Bernadino added 69,300. Employment rose in Modesto, Bakersfield, San Luis Obispo, Visalia, Lodi and Fresno.

A strange idea has taken hold that if jobs are lost in one place, then some other place must have gained them. Somebody somewhere must have gained the millions of farm jobs we have lost, for example.

Lou Dobbs of CNN appears as obsessed with this bizarre notion as he once was with space.com. Even stranger, those afflicted with Dobbsian trade phobia assume the places that gained jobs must be other countries, not other counties. Yet manufacturing jobs could not possibly have moved to another country, since every industrial country lost manufacturing jobs since 1995 — particularly China, Japan and South Korea. And the United States has a huge surplus in business services with every region in the world — that is, the United States sells much more “outsourcing” to other countries than it buys from them.

There has, however, been considerable relocation of employment opportunities within these United States. If unemployed San Jose techies want to know where the jobs went, they don’t have look very far. They might look at Utah, where the December unemployment rate was 4.7 percent; or Nevada, where unemployment was 4.4 percent; or Virginia, where the unemployment rate was 3.6 percent. But they don’t even have to look that far.

Consider Orange County — an area of California much larger than San Jose with 40.4 percent of jobs in IT. “In just the last three years,” notes Republican Rep. Chris Cox, “high-tech exports from Orange County companies have grown by 53 percent.” Last November, the unemployment rate in Orange County was 3½ percent. Someone should rewrite that old song as, “Do you know the way out of San Jose?”

I am not unsympathetic to the unsettling boom-bust cycle San Jose went through in recent years. But I am unsympathetic to nativist explanations of that problem and protectionist solutions. With the unemployment rate twice as high in San Jose as it is Orange County, nasty political agitation against Asians is apt to prove a far less effective way to narrow that gap than investing in a tank full of gas and a new set of luggage.

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.