Changes and Opportunities in the Post-Recession Economy

The economy is adding jobs and that is great news. Unfortunately, the types of jobs have moved more into service sector and administrative positions that do not carry the same high wages as pre-recession employment. According to a report by the National Employment Project (NELP) low-wage industries have grown significantly since the end of the recession but this is leaving many Americans without significant savings. A mixed economic blessing that teeters between recovery and replacement.

Lower-wage industries have accounted for 22% of the recession loss but 44% of the employment growth over the past 4 years. It now employs 1.85 million more workers than it did in the past. Mid-range employment jobs lost were around 37% while recent increases are around 26% for a total of 958,000 lost. High wage losses include 41% and a 30% increase leaving us with a 976,000 fewer jobs.

The recession was longer than anticipated and even though the jobs have returned they have returned at a lower wage rate.  Since January 2008 to the low of 2010 the economy lost 8.8 million jobs while the study indicates that as of March 2014 a total of 8.9 million jobs have been raised. The positive news is that people are again finding various types of work in different sectors.

The study focused primarily on the private sector work recovery. However, government positions declined 627,000 jobs of which 44% were in education. Private sector work recovered in the service industry, the professional service and scientific industries, and private education and health services. The results for construction were mixed.

The changes also indicate an adjustment in the demographics of the country based upon global trends. Moving manufacturing to cheaper locations overseas impacts a major source of middle class income. There are efforts to raise the high tech sectors of manufacturing to create additional jobs and growth within the country. The use of higher skill and scientific work is one method of ensuring that processes and products are not easily copied or displaced.

The Boston Consulting Group released a report that the U.S. will soon reach parity with low cost manufacturers like China. This creates an opportunity to reverse trends in manufacturing losses and bring back a higher percentage of middle class jobs. However, this industry will need to push a larger section of the sector into the high technology manufacturing areas to develop the industry to a greater extent.

Highly developed manufacturing encourages mass manufacturing at a later date. New technologies that are cutting edge eventually make their way into mass distribution in the future. Innovation and development lead to greater opportunities that continually push manufacturing dominance. New products require a higher level of resources, science, strategy, and skilled labor that create first mover advantages that are later followed by lower cost copy cats.

The news is not all bad. The service industry is growing which means more people can find additional employment opportunities. A 2013 study confirms that employees can find greater pay increases within the service industry when compared with other low-earning lines of work. They may not start out high but they have opportunities to grow within this developing industry. The nature of the work is different than the past but the industry is budding and may someday come to full bloom.

Having employment opportunities across various sectors of society is important for people who desire to either move up within their careers, cross breed into other industries, search out various types of education, or attend training to raise their earnings potential. Diversity within the sectors also helps the U.S. maintain a competitive advantage in multiple arenas as well as maintain the potential as new opportunities rise. Ensuring and developing economic and human capital advantages in potential high growth areas keeps jobs at home.

The Report

Will The U.S. Soon Be a Hot Manufacturing Nation?

Will American make its way back into leading manufacturing status? A report by the Boston Consulting Group indicates that the U.S. will see increases in manufacturing over the next couple of years as parity is achieved due to lower natural gas prices, stagnated wages in the U.S. and higher costs overseas. With a decline of energy costs from oil shale dropping to 50% and increases in the cost of manufacturing in countries like China there is much to cheer in the U.S. The good times can roar again.

American workers are becoming more productive, Chinese workers are more expensive, and the associated costs of manufacturing overseas have risen. A report by the Congressional Research Service found that the U.S. share of global manufacturing declined 30% in 2002 and that number dwindled  to 17.4% in 2012 (1). The new report by the Boston Consulting Group indicates that the costs of manufacturing in the U.S. versus many other places like China will be about the same giving the U.S. advantages. 

At present the advantage of producing products in low cost countries such as China and Asia is less than 5% (2). The U.S. and Mexico are starting to look like great places to manufacture items again. Mexico has had some increases in wages but their productivity has risen much more making them a local cheap labor supplier (3).  The U.S. as a producer of high technology and advanced manufacturing with a regional partner in Mexico is covering both the high and low demographic markets of production. 

Each region of the world has some high and low cost manufacturers. Large multi-national firms can move into areas that seek them the best advantages. These advantages can come from a whole range of factors that may include production costs, labor costs, labor skill, infrastructure, tax rate, telecommunications, science development, shipping costs, etc…  They have also not considered economically suppressed areas within the U.S. that could benefit from increased investment while being supported by stronger tertiary areas.

Many companies are likely to move back to economically stable nations. The U.S. with its increasing competitive costs and relatively stable political structure can be attractive to large multi-national firms. If a windfall of re-investment in the nation comes forth it will likely adjust the shipping and distribution channels across the world to ensure that more products move in and out of the country before heading to their final destinations. Asia will also likely become a larger consumer base where products are sold and a slightly slower manufacturing base where products are built.

Boston Consulting Group (2014). Made in America, Again. Why Manufacturing Will Return to the U.S. Retrieved April 25^th, 2014 from https://www.bcgperspectives.com/content/articles/manufacturing_supply_chain_management_made_in_america_again/

Regional Development Leads to National Growth

Economic development can be either regionalized or dispersed throughout a nation. Advantages associated with regional development are discussed by Simon Flynn and how this impacts growth, welfare, inflation, income distribution, and regional economic inequality (2014). Most nations are focused on regional development and have gained some success in finding growth and stability. 

Nations that seek to diversify their development throughout the country may have some difficulty finding enough capital to raise the nation as a whole. However, by focusing on regional areas it is easier to funnel resources for greater economic enhancement. Modern regional development seeks to develop the core as well as the peripheral area around that core for maximum appeal. 

Each nation has their individual strategies for regional growth and development. Some include equitable income distribution, GNP increase, GDP increases, productivity development, and international competition (Kim & Kim, 2002). These concepts are not mutually exclusive. For example, GNP and GDP are associated with income opportunities and competitive position.  

Regional development can create greater international economic integration. These follow four patterns or steps such as Free Trade Agreements, Customs Unions, Common Markets, and Economic Unions (Holden, 2003). Integration of regional interest is not permanent and can change forward or backward depending on market needs.  When successful, regional trade agreements can improve upon the flow of goods, services, and information throughout an area.  

Economists are more accepting of regional integration because it is these sub-national levels that appear to create the greatest economic momentum. The actors within the market can use their abilities to adjust their local institutions and resources to market needs easier than what can be done an on a national scale.   When regional economic integration works well it leads to growth and stability for the whole nation.  

Regional economies divert resources to creating stronger infrastructure, job growth, and industry development.  Old institutions may need to change when they are outdated or no longer foster growth. In the regional development process both private and public stakeholders should have similar goals in development. They can create greater ability to utilize resources for the best overall position within the global marketplace.   

Flynn, S. (2014). Economics of regional development. Research Starters Business.

Kim, E., & Kim, K. (2002). Impacts of regional development strategies on growth and equity of Korea: A multiregional CGE model. Annals of Regional Science, 36(1), 165.

Holden, M. (2003). Stages of economic integration: From autarky to economic union. Government of Canada Depository Services Program. Retrieved March 24^th, 2014 from http://publications.gc.ca/collections/Collection-R/LoPBdP/inbrief/prb0249-e.htm

Linkages Lead to Organizational and National Innovation

Organizational innovation is important for national development. Research by Arundel, et. al. (2007) analyzed how European countries learn and develop. They studied large surveys to come to conclusions about how companies foster inner innovation and how this leads to a unique path of national development. They create links between employee-centered skill development, organizational innovation, and national development. 

The ways in which businesses and people interact, openly innovate and provide feedback create the national innovation approach (Lundvall, 1998). It is the national innovation approach that helps to determine the competitive structure of the country and its ability to succeed in the global market place. Each country and culture comes with their own way of viewing the world and interacting. 

When organizations use science-based learning and experience-based learning they are able to provide higher levels of innovation and production (Jensen, et. al, 2007). It is the theory and its application that moves to higher levels of innovation that creates tangible value on the market. Employees who engage in the innovation process are part of the “learning economy”. 

Organizational and national innovations are interlinked. This innovation results from feedback loops and how agents within the same organization interact at different times to create a chain-link model of development (Kline and Rosenberg, 1986). All innovation is based in interactions that lead to knowledge diffusion whether that is through employees, suppliers, competitors, or regions.

Each organization has their own unique make-up of employees that determine how they interact. When employees are encouraged to solve-problems, work together, take ownership over issues, share their knowledge, and contribute to development the organization becomes more innovative. This innovation is incremental whereby individual knowledge is turned into collective knowledge and then applied for practical use.

The authors found that the way innovation develops is nation specific and co-evolves to create different modes of innovation. Those nations likely to be more successful focus on encouraging complex problem-solving and also place greater emphasis on inner firm development than only on external sources of innovation. Learning and interaction between internal agents is as important as learning through outside agents. Organizations should balance the soft focuses of R&D and human skill input with hard focuses such as materials input analysis. Each country develops their own unique mix in development. 

Arundel, et. al. (2007). How Europe's Economies Learn: A Comparison of Work Organization and Innovation Mode for the EU-15. Industrial and Corporate Change, 16 (6).

Jensen, et. al. (2007), Forms of knowledge, modes of innovation and innovation systems. Research Policy, 36, 680–693.

Kline, S. and Rosenberg, N. (1986). An overview of innovation,’ in R. Landau and N. Rosenberg (eds), The Positive Sum Game. National Academy Press: Washington D.C.

Lundvall, B. (1988), Innovation as an interactive process: from user-producer interaction to the National Innovation Systems, in G. Dosi, C. Freeman, R. R. Nelson, G. Silverberg and L. Soete (eds), Technology and Economic Theory. Pinter Publishers: London.

Probability of Inter-Firm Information Linkages that Lead to Innovation

Product and service innovation is not something that occurs in a vacuum. It requires various connections throughout the market to obtain the information and ideas to create marketable products and services. Formal business connections, informal social connections, and formal research institutes all have a hand in the success of the firms around them. Fretas, et. al. (2011) discusses the complexity of these relationships and study which types of connections firms pick to achieve objectives in different types of companies.

Industrial innovation can be seen as a process that involves the search for information and interaction with market actors such as customers, competitors, and suppliers or research institutions like universities or government to achieve their objectives (Salter and Martin, 2001). They develop several different types of formal and informal relationships to obtain the information they need to create dynamic interactions.  

Prior research has found a relationship between reliance on external informational sources and the desire to create greater cooperative R& D agreements. Companies that desire to grow and seem to be most open to collaboration efforts are the ones who actively seek out these connections. They create formal agreements that help them collaborate with others in their goals. 

Simple innovation requires simple connections while complex market breakthroughs require larger networks of connections. Simply innovations occur when an enhancement to a product or services is developed and implemented. When market busting products and services are created they require a higher level of interaction and development. 

Those companies that can develop better formalization of networks do better at managing the data and advantages. It is not enough to collect information from others without formatting that information to create meaningful concepts. The systems in which this formalization is developed and used will determine its fruitfulness. 

The researchers use the following formula to determine the likelihood of firms linking in their analysis:

The researchers use the formula to analyze the different types of firms and how they are interrelated to each other to see if different industries attracted different types of linkages. A high technology firm will have different information needs than low technology firms. Each firm and their competitors will create and enhance the informational sources that are most beneficial to them. 

That information must be collected, analyzed and put within a framework that makes productive development possible. Improper displays of information can mislead users who do not see the connections between the information. How the information managed and interpreted between these connections will determine the success of such relationships. 

Results

Firms have several types of innovation strategies. These strategies are based more on the position and needs of the company than its country of origin. Innovation strategies impact the types of interactions and connections firms make. For example, novel products have formal and informal interaction with customers and research organizations. Firms that create improved products use informal linkages with competitors and formal and informal links with customers as information sources. Those that innovate both products and processes rely on customers and public research organizations. To improve upon their development firms will need to create both wider collaboration efforts and methods of understanding the complex array of information available to them. 

Freitas, et. al. (2012). Formal and informal external linkages and firms’ innovative strategies. A cross-country comparison. Journal of Evolutionary Economics, 21 (1).

Salter A. & Martin, B. (2001) The economic benefits of publicly funded research: a critical review. Res Policy 30:509–539