The Domino Effect of Outsourcing

From coast to coast, middle-class communities are shrinking

Fully 1 in 3 Americans who work in the manufacturing sector are receiving some form of public assistance, according to a study released this week by the UC Berkeley Center for Labor Research and Education. Of those who came to their positions through temp agencies half are on some type of safety net program. This was reported by CNBC.

I took a drive up to the Griffith Park Observatory here in Los Angeles last month. It wasn’t for going inside the building. It was a windy day and I anticipated a beautiful view from the parking lot. I was not disappointed. I obtained a photo that included a view of Catalina Island on the horizon. The distance is about 35 miles from the observatory.

I chose an alternate route back home and drove by Los Angeles City College. To my shock the sidewalk across the boulevard was lined with the tents and shelters of the homeless packed closely together. According to the Los Angeles Times there are now an estimated 44,000 homeless people in Los Angeles County. How did the numbers get so big?

Sports Chalet (more than 50 locations primarily in California) and Sports Authority (463 stores) are closing all of their stores. They started those closings last month. Kohl’s is closing 18 stores and laying off more than 1,500 employees. Where will the laid off workers go?

Back in November 2015 Macy’s Department stores reported a sharp drop in quarterly sales and lowered their forecast for 2016. Macy’s reported unsold goods piling up in their stores. Today they reported another quarter of sinking sales and once again slashed its financial targets for the rest of the year.

Meanwhile where are the jobs of the past here in Los Angeles and elsewhere in the United States? Those were the thousands of aerospace engineering jobs that were a major contributor to the strong California middle class that are mostly gone. The falloff in manufacturing jobs during the past 14-year period has caused factories to shed about 5 million workers from their payrolls nationally. Factories from all over the nation have moved to other countries. In their place are low paying service jobs that offer pay rates as low as $7.25, $15, and $25 an hour. Those jobs do not support a middle class family. They certainly do not support a Macy’s or Sports Authority price line.

Discount chains like T.J. Maxx and fast-fashion retailers such as H&M offering jeans as cheap as $17 and polo shirts for $10 are succeeding because that’s all today’s workers can afford.

So businesses keep outsourcing your work to low cost countries because you see it as a way to higher profits. Just remember that those of us left with those low paid jobs will be shopping at Walmart, Target, and the other afore-mentioned discount stores. The vicious cycle continues to drive people from the middle class to poor and homeless.

Don’t tell me you do not know what happened to the middle class.

Foolishly Passed Laws and the Unintended Consequences

A Tale of Two Nafta Towns

This is a story about NAFTA. The theory must have been that lower tariffs between Mexico, Canada, and the United States would benefit businesses in all three countries. Who would have thought that American companies would move to Mexico? But that is precisely what happened.

The latest that received attention from Donald Trump are Oreo Cookies and Carrier Air Conditioning. There have been many others that come to mind for me personally.

Bloomberg Businessweek reported on the case of A. O. Smith, an electric motor manufacturer in the small southern Kentucky town of Scottsville (population 4,226). The factory employed 1,100 people. Randall Williams and his wife Brenda each earned $16.10 per hour. The factory closed and moved to Acuña, Mexico. The workers in Mexico earn $1.75 per hour. The Williams have new jobs that pay minimum wage. She works in the high school cafeteria and he fills orders in a local farm store.

Brenda and Randall Williams plan to vote for Donald Trump in November.

A Tale of the Consequence of Minimum Wage Laws

Florida’s governor is fishing for California jobs now that the minimum wage will be $10.50 per hour in January 2017 and $15.00 per hour in 2022.

Laws are passed by government without adequate consideration of possible unintended consequences.

Manufacturing and Minimum Wage Jobs in the 21st Century

Lower taxes might help domestic manufacturers but when the cost of labor in other countries is one-tenth the cost in the United States lost jobs will not be returned to this country.

Individuals assembling Apple’s iPhones in China allegedly work long hours for low pay. They work 11-hour shifts at a rate of $1.50 per hour. During each shift they are docked 20 minutes of pay (I assume for a lunch break). There earnings are $268 per month before overtime. This information is from a report in Business Insider.

GM, Ford Boost Mexico Output With $26-a-Day Workers. Mexico’s share of North American auto production may rise at a quicker pace as General Motors Co., Ford Motor Co. and Chrysler Group LLC seek out workers making less than 10 percent of what their U.S. counterparts earn. This information is from a report in Bloomberg Businessweek.

For example crib maker Stanley Furniture Co. misjudged the willingness of Americans to pay more for domestically produced goods when cheaper imports are available. Meanwhile, the husband-and-wife entrepreneurs who founded 20-year-old Chesapeake Bay Candle have struggled to find workers who can do basic math. This information is from a report in The Wall Street Journal.

Los Angeles, once the epicenter of apparel manufacturing has seen the outsourcing of jobs to China and Southeast Asia due to lower labor costs.

Do you really believe that Donald Trump will bring those assembly jobs back to the United States? Donald Trump does not agree with the idea of a $15 per hour minimum wage. I heard him say that. Los Angeles was once the epicenter of apparel manufacturing Los Angeles was once the epicenter of apparel manufacturing, attracting buyers from across the world to its clothing factories, sample rooms and design studios. But over the years, cheap overseas labor lured many apparel makers to outsource to foreign competitors in far-flung places such as China Los Angeles was once the epicenter of apparel manufacturing, attracting buyers from across the world to its clothing factories, sample rooms and design studios. But over the years, cheap overseas labor lured many apparel makers to outsource to foreign competitors in far-flung places such as China

Just to add to the difficulty in keeping jobs in America paid family leave regulations have been passed in New York and California.

Most web sites contend that government regulations are a significant cost to business in the USA. The problem is that every regulation has its supporters.

Unless Donald Trump intends to drive up the cost of clothing, cars, and electronic devices there is no way he can bring those jobs back to the United States. His ideas will spark a trade war.

The solution is retraining in areas short of workers. CNN posted an article listing 30 jobs needing most workers in next decade. How many people will take the opportunity by at least investigating the opportunities?

Man is Polluting This Entire Planet

Humans are destroying planet earth! It’s happening slowly enough that most of the people alive today will not realize the consequences of their behavior.

It’s not just the atmosphere that is being polluted. We are fouling the water, the seas, and the soil. Almost everything we do on this planet has a negative effect.

Business and government, in general, are only mildly concerned. Their primary concern is providing products and services to the population.

What are the long term consequences of the BP Oil spill in the Gulf of Mexico? What are the long term consequences of the Aliso Canyon methane gas and oil leaks in Los Angeles?

Oklahoma has experienced a major increase in earthquakes in recent years, including a 5.7-magnitude temblor that injured residents and damaged 200 buildings in November 2011. Swarms of quakes have continued in 2015. There is general consensus among scientists that the spike in Oklahoma’s earthquake activity has been triggered by disposal wells, used to dispose of waste from oil and gas drilling operations — including hydraulic fracturing, or “fracking” — a phenomenon known as “induced” seismicity.

“Inside the Billion-Dollar Dig to America’s Biggest Copper Deposit” is the report in Bloomberg Businessweek that tells of the One Billion Dollar investment by the world’s two largest mining companies to drill down more than a mile to a copper deposit that is believed to justify the investment. The problem is that a forest is being destroyed and that land, about 2 miles in diameter (2,400 acres), and the removed soil could result in a 1,000 foot deep crater.

The issue of pollution isn’t just an American problem. Think Beijing’s air pollution is bad? There 10 cities that are worse. 13 out of 20 cities on world’s worst air pollution list are in India according to CBC News.

The Fukushima Daiichi reactors impacted by an earthquake will result in areas around the crippled nuclear plant could remaining uninhabitable for 20 years. But no one really knows. After all the crippled Chernobyl 4 reactor now is enclosed in a concrete structure that is growing weaker over time. Ukraine and the Group of Eight industrialized nations have agreed on a plan to stabilize the existing structure by constructing an enormous new sarcophagus around it, which is expected to last more than 100 years.

In the Los Angeles area alone, 10 metric tons of plastic fragments—like grocery bags, straws and soda bottles—are carried into the Pacific Ocean every day.

The polar ice caps have melted faster in last 20 years than in the last 10,000. What will they call GLACIER NATIONAL PARK place once the glaciers are gone?

Of course all of this information can be found on the web. The problem is that no one wants to confront the reality that over time all of mankind is destroying the planet. Global warming deniers, pollution deniers, habitat deniers are leading the band wagon.

Fear for your grandchildren!

Technological Unemployment

From Wikipedia: “Perhaps the earliest example of a scholar discussing the phenomena of technological unemployment occurs with Aristotle, who speculated in Book One of Politics that if machines could become sufficiently advanced, there would be no more need for human labour.”

It has been reported repeatedly that Queen Elizabeth I of England refused to grant a patent for a weaving machine because it would put the hand weavers out of work. She was correct. It did.

I was talking with an acquaintance about the effects of AI (artificial intelligence) and IT (information technology) on the work environment and the elimination of many jobs. A touch plate at a fast food ordering counter could replace an order taker. So could many other jobs.

One job I held for 7½ years was a scheduling supervisor in a factory. I had decided to quit after about four years. The work was tedious and very stressful. It took me the next 3½ years to find work that would pay more and appeared to offer a chance of advancement. I was responsible for all the production schedules and work orders in the factory. If something went wrong in the middle of the night, the night foreman called me. Today that job would be done more accurately by a computer generated program that could accomplish my 40 plus hour weekly job in minutes.

My father was a structural engineer. He retired just as computers were beginning to be used to calculate stress analysis. His calculation tool was a slide rule. He was a mathematical genius. Today those calculations can be more accurately accomplished using a computer that would provide the results in minutes not hours. The drafting of the structure can now be provided by a computer driven drafting machine rather than a draftsman.

Perhaps the order taker at the fast food counter will still have a job preparing the order. Perhaps the mathematical genius will be working on a program in Silicon Valley. One thing is certain. All jobs that can be mechanized and/or computer driven will result in fewer jobs.

I rarely take my car to a repair garage because they too have been fitted with longer lasting components. Thanks to a well-made furnace and plumbing in my house the need for service maintenance is reduced. That means there is no growing need for service industry workers.

I have yet to hear anyone, neither politician, corporate leader, nor social engineer, explain how even the brightest people will care for their families when the number of jobs is in decline.

We have a serious societal challenge and no answers. Joel Kotkin and other commentators have observed the issue. Now what?

Robots Are Coming For Our Jobs

This is not an April Fool’s Joke!

Donald Trump and Bernie Sanders may say that they want to help the blue collar, working class, and middle class income Americans but neither has a solution for the oncoming displacement of most laboring and office jobs as wells as many technical jobs.

Japan is number one in the world in operational robots with 310,508 units. There’s even a hotel staffed almost entirely by robots that opened last year in Nagasaki, Japan, according to BAML (Bank of America Merrill Lynch). The United States is in second place (168,623) with Germany in a close third place. This was reported just today on Business Insider.

Coincidentally the Los Angeles Times had an opinion piece in today’s paper that starts with the words “A viral video released in February showed Boston Dynamics’ new bipedal robot, Atlas, performing human-like tasks: opening doors, tromping about in the snow, lifting and stacking boxes.” That article refers to a White House report that says “Most occupations that pay less than $20 an hour are likely to be automated into obsolescence.” Powerhouse consultancies like McKinsey & Co. forecast that 45% of today’s workplace activities could be done by robots, AI or some other already demonstrated technology. Truck drivers and baristas will be replaced too. Some professors argue that we could see 50% unemployment in 30 years.

A rare peak inside Amazon’s massive wish-fulfilling machine

We think we have problems now but a coming so-called Fourth Industrial Revolution will bring changes to society that most of us have yet to imagine.

A Historic Event in Cuba

This is a historic day in U.S. Cuban relations. It has been reported that the last president to visit Cuba came there 88 years ago. Clearly the president’s visit will be part of his legacy. The question should be how will the restoration of diplomatic and economic relations between the two countries really make a difference?

Permitting airlines to schedule flights to Cuba and opening hotels in Cuba will result in an economic impact. Can McDonald’s, Starbuck’s and Kroger Foods be far behind? This action initiated by the president contradicts those that say President Obama opposes America’s free enterprise society. You remember, there are those that say Obama wants to change the United States into a socialist/communist country.

It is impossible to predict the future but there is a possibility that free enterprise will come to Cuba soon. American businesses are the likely beneficiary of the opening of Cuba. Can this be a bad thing?

The Downside of Minimum Wage Laws

OPI is a nail polish manufacturer in North Hollywood California. They employ about 400 people at that facility. The company is owned by Coty Inc. That company has ten brands of cosmetics. They have announced their decision to move the manufacturing facility to North Carolina.

The North Hollywood facility includes marketing and sales offices. You can be fairly certain that no more than 10% of that 400 employees are involved in the marketing and sales. Those jobs are relatively high paying office functions. In other words about 360 jobs will be leaving the North Hollywood facility.

Cosmetics manufacturing consists of many low paid jobs. The minimum pay in California is now $10 an hour. That minimum in North Carolina is $7.25 an hour. It doesn’t take a genius to understand why the manufacturing is moving out of California.

The idea of raising the minimum pay is commendable but how much consideration was taken on the impact. There will now be 360 low paid factory workers without jobs.

Toyota moved most of its operations from a Los Angeles area suburb just two or three years ago. They moved to a Dallas Texas suburb. No doubt the cost of labor played into that decision.

There is the question. Have we really helped the poorest paid in California when jobs are driven from the state by higher minimum wage laws?

Why is the NFL Moving a Team to Los Angeles?

It’s all about the money. Building a $2 Billion stadium is in the financial best interest of the NFL.

The NFL (National Football League) and its 32 teams took in an estimated $12 billion in 2014, a 14.3% jump from the previous year’s estimated total of $10.5 billion.

As of September 2015 the New England Patriots annual revenue was $494 Million. Their income $195 Million. Seats in the stadium cost $130 each. That is in a metropolitan area of 4.2 million people.

Consider the Los Angeles/Orange County population of over 13 million people. The fan base will bring even higher seat prices and merchandise sales that the Patriots can only dream about.

$$$ The NFL is a smart business. The owners of those clubs see big dollar signs. $$$