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Editor's note: As I was thinking about Sunday's New York Times article about iPhone manufacturing, I e-mailed a few economists to see what lessons they drew from it. One was Andrew Samwick, of Dartmouth, who pointed me to a post at his new blog. There, he stresses, among other things, the importance of "agglomeration": Manufacturers like to build new plans in close proximity to suppliers. So when a bunch of suppliers locate in one place, as hi-tech suppliers have in China, companies like Apple are likely to build their plans there.
Another economist I contacted was Gary Burtless, who has appeared in this space before. He wrote me a lengthy e-mail and graciously allowed me to reprint it, in full. It appears below.
Finally, James Fallows wrote about these issues several years ago, in a lengthy piece for the Atlantic. It is also worth your time.
- Jonathan Cohn
Charles Duhigg and Keith Bradsher wrote a terrific and informative article explaining “How the U.S. Lost Out on iPhone Work.” I was especially struck by the argument that the United States simply does not have enough trained people with engineering backgrounds to succeed in modern manufacturing. To be an “engineer” in the U.S. typically implies you have accumulated at least four years of formal, college-level instruction in engineering. To do really well in the field you may in fact want to acquire a master’s degree early in your career. There can be little doubt that engineering education in the United States is highly regarded, not only by U.S. employers but by employers and students in the rest of the world. Otherwise, it would be hard to account for the high international demand for admission to American engineering schools and the high demand for the graduates of those schools.
What the Times reporters may have had in mind when they suggested there is a shortage of U.S. “engineers” is a shortfall in manufacturing technicians and production specialists. Workers in many technical occupations within manufacturing may need the equivalent of 1 or 2 years of specialized training in a college, private training institute, or community college and a couple of years of practical experience on the factory floor. Workers in these occupations seldom require four years of formal education in a typical U.S. engineering school.
The Times story was correct that a number of manufacturing companies report difficulty finding these kinds of technical workers. Steve Jobs, the deceased chief of Apple, and Eric Spiegel, CEO of Siemens U.S. operations, have made this argument. But consider the fate of Eric Saragoza, an engineer at an Apple manufacturing plant in northern California. According to the Times story, his career was sadly interrupted when Apple ceased manufacturing its products in California. Why should an American who has studied hard for a four-year engineering degree, spent a major part of his early career at a successful U.S. company, and been tossed out of work when its operations are moved overseas feel optimism about the prospects of an engineering career in U.S. manufacturing?
Many economists and (employed) conservative thinkers may point out that all human capital investments -- and most kinds of careers -- are fraught with risk. An engineer or technical worker in China faces the same possibility of job loss as his counterpart in the U.S. Technology may move on or the product market might shift in a way that reduces demand for what the worker or his company produces. A crucial difference between China and the United States may be that for many Chinese workers, including reasonably well trained workers, manufacturing offers the best job opportunities now available. This is emphatically not the case for young Americans thinking about how they should invest in skills between ages 17 and 30 -- assuming, that is, that they want to enter a reasonably secure career. Mr. Saragoza, formerly an engineer at one the most successful hi-tech companies in history, is now looking for a job that might pay him $15/hour. And the CEOs of America’s great hi-tech companies think that more smart young Americans should be throwing themselves into this kind of occupation? This is a tough case to make to the engineers formerly employed at once-mighty manufacturing companies, such as Kodak, GM, Bethlehem Steel, or Xerox.
In comparison to a career as a manufacturing engineer, a job in the education or health sectors, or even in law, might look like a better bet. Those alternatives appear to offer more security and a reasonable chance of decent earnings 25 years down the road. Your place of employment seems less likely to disappear if you work in a hospital, university, law firm, or medical practice. Why is it that one of the most common pleas from hi-tech executives is that immigration quotas should be liberalized, especially for workers with science, engineering, math, and computer backgrounds? If you are a potential immigrant from China, India, Iran, or many places in Europe, the United States continues to offer well paid job prospects for engineers, scientists, and computer programmers … well paid, that is, compared with the job opportunities available in China, India, Iran, and much of Europe. The outlook for an engineering career in manufacturing looks a bit less rosy if you are a smart, ambitious 20-year-old American thinking about the sacrifice required to get a scientific or engineering degree and your career prospects in U.S. manufacturing. A rational 20-year-old might choose a less arduous and risky career path than one that ends with a manufacturing job.
The Times reporters persuaded me that east Asia in general, and China in particular, offer an abundance hard-working people with decent skills willing to accept demanding, poorly paid, and boring jobs. The jobs are acceptable to millions of Chinese, including workers with good technical skills, because the other career alternatives open to them are no better, and possibly much worse, than those in manufacturing. The plain fact is that, for the great majority of 17-to-30 year-old Americans, there are better, or at least less risky, alternatives to a manufacturing career.
Gary Burtless is a labor economist at the Brookings Institution.
THANK YOU!! Someone finally gets it and stated it eloquently and lucidly.
THANK YOU!! Someone finally gets it and stated it eloquently and lucidly.
Burtless made the observation that "[w]orkers in many technical occupations within manufacturing may need the equivalent of 1 or 2 years of specialized training in a college, private training institute, or community college and a couple of years of practical experience on the factory floor" and noted "that a number of manufacturing companies report difficulty finding these kinds of technical workers". But then he jumped to the disadvantages of the highly trained, college-educated engineer both in terms of pay and job security. He is absolutely correct about the disadvantages; I know many such engineers, and for the difficulty of the degree and the relatively low pay and job security, it's ... view full comment
Burtless made the observation that "[w]orkers in many technical occupations within manufacturing may need the equivalent of 1 or 2 years of specialized training in a college, private training institute, or community college and a couple of years of practical experience on the factory floor" and noted "that a number of manufacturing companies report difficulty finding these kinds of technical workers". But then he jumped to the disadvantages of the highly trained, college-educated engineer both in terms of pay and job security. He is absolutely correct about the disadvantages; I know many such engineers, and for the difficulty of the degree and the relatively low pay and job security, it's not the best choice of careers. But that leaves the shortage of those semi-skilled technical workers. If we had more of them, then companies may not be compelled to move production overseas, and those highly trained, college educated engineers would have more opportunity and job security in America. The crisis of the middle class will only get worse unless and until we make the investment in the job-skills that fit both the times and the capacity of the mass of American males that comprise the middle class; a task that is made more difficult by people like David Brooks, who, in his column today, offers his prescription for the crisis of the middle class: two-parent, stable families, increased morality, less pounding down the rich, and tax cuts for job creators, along with a small bone for Job Corps. It's not that Brooks is wrong (who is against two-parent, stable families), it's just that his prescription is equivalent to treating a cancer with an aspirin.
not to be a killjoy, or in this case the opposite of one, but the manufacturing sector of the American economy is about the same as it always was. The US retains a host of advantages that China doesn't have and there are many small start ups. Not every manufacturer has to be GM or Apple. You try to open a small business in China some time and compare it to the United States. The velocity with which capital moves, the ability to locate whereever you want, the transportation system, the generally superior intelligence (you would be astounded at how dumb so many chinese peasant workers can be as to worker safety and decision making), the environment (such things as getting potable water to work ... view full comment
not to be a killjoy, or in this case the opposite of one, but the manufacturing sector of the American economy is about the same as it always was. The US retains a host of advantages that China doesn't have and there are many small start ups. Not every manufacturer has to be GM or Apple. You try to open a small business in China some time and compare it to the United States. The velocity with which capital moves, the ability to locate whereever you want, the transportation system, the generally superior intelligence (you would be astounded at how dumb so many chinese peasant workers can be as to worker safety and decision making), the environment (such things as getting potable water to workers is taken for granted in the states, not in China) so lets hold off on the death knell for America just yet please.
And yes, there are a shit load of opportunities for engineers. I teach at an engineering school, most students drop out of the program because it is so damn hard, if you make it through you will be fine, lets not kid ourselves.
And healthcare, the law, engineering are radically different disciplines. They simply don't equate. A student who can pass Law might very well flounder in engineering, and an engineering student might find law utterly tedious and difficult to remember.
Gary obviously has never been a teacher.
"The plain fact is that, for the great majority of 17-to-30 year-old Americans, there are better, or at least less risky, alternatives to a manufacturing career. "
And, one might add, less risky alternatives to a science or engineering career. I see graduate programs in Science, Technology and Mathematics which at some schools are populated 75% plus by Chinese, Korean and Indian students. To some extent - and I think it is increasingly the case - this is driven by financial concerns. Public universities are under siege in terms of declining state funding, and these foreign students are full payers who don't require fellowships. That makes them extremely attractive if your department bu ... view full comment
"The plain fact is that, for the great majority of 17-to-30 year-old Americans, there are better, or at least less risky, alternatives to a manufacturing career. "
And, one might add, less risky alternatives to a science or engineering career. I see graduate programs in Science, Technology and Mathematics which at some schools are populated 75% plus by Chinese, Korean and Indian students. To some extent - and I think it is increasingly the case - this is driven by financial concerns. Public universities are under siege in terms of declining state funding, and these foreign students are full payers who don't require fellowships. That makes them extremely attractive if your department budget is stagnant or sinking.
Of course some of them will stay in this country as immigrants, of course, but overall, we are squandering our intellectual leadership in the name of short term "profits" here, as in so many other areas.
This is the comment I left on Samwick's blog:
What is absolutely--absolutely--ridiculous here is the notion that there aren't many Americans who have some college. That has to the majority or plurality classification of Americans in the work force and Americans in their 20s.
About 70% of Americans finish high school and about 70% of that number go on to higher education. That means you have 50% of people in their 20s with some college. The notion that there is a catastrophic shortage of these people is laughable.
There is a shortage of companies who are willing to take these people on and train them (most education needed industrially usually needs to be done on-site: learn how to program this ... view full comment
This is the comment I left on Samwick's blog:
What is absolutely--absolutely--ridiculous here is the notion that there aren't many Americans who have some college. That has to the majority or plurality classification of Americans in the work force and Americans in their 20s.
About 70% of Americans finish high school and about 70% of that number go on to higher education. That means you have 50% of people in their 20s with some college. The notion that there is a catastrophic shortage of these people is laughable.
There is a shortage of companies who are willing to take these people on and train them (most education needed industrially usually needs to be done on-site: learn how to program this factory equipment).
There is also a shortage of companies that are willing to pay competitive middle class-conducive wages to these Americans. This is actually more significant than the unwillingness to invest in and train workers.
Vindictively enough, there happens to be a glut of corporate profits as a direct result of the deliberate action of shafting American workers and refusing to invest in them or employ them at middle class wages. Only by efforts like the Times article will people be able to see that Apple could have diverted with half of its record profit haul into sustaining an American supply chain. Apple is a high-end brand. The right industrial policy could keep those jobs in the US easily.
The problem: Apple is charging premium rates to produce things cheaply in China and padding its own pockets with undeserved profits. It would be as if Whole Foods sold conventional milk with an organic label and at the organic price. That extra money redounds to them as outsize profit. If they had any corporate social responsibility or indeed held to the model that a corporation benefits its stakeholders and profits most in the long-term if its customers have well-paying jobs that enable them to afford its products, Apple would do what companies like GM and Boeing are being forced to do: pay wages that build the middle class and look on in horror as the knock-on effects of millions of jobs in a well-functioning supply chain afford the company positive vibes as an American company that is proudly "made in America". Apple is currently coasting on its laurels since its products win over fanboys. But if things like deaf ears to Foxconn suicides show they are just as evil as any other corporation, they might want to look at other ways to charge luxury prices even though labor are treated like slaves and paid not much better.
IowaBeauty's observation about graduate programs in engineering seems about right to me -- the engineering grad students at my University are heavily dominated by Indians, Chinese and so on, and those students are paying full non-resident tuition for much of their time. Although the demographics in science are not so different, the finances are. Most grad students in physical sciences are on assistantships or fellowships -- most are not paying their own way, at least not those enrolled in graduate programs that are successful. This boils down to economics -- an engineer can expect to make enough extra money with the Master's degree that they can recoup the cost of the degree program, which i ... view full comment
IowaBeauty's observation about graduate programs in engineering seems about right to me -- the engineering grad students at my University are heavily dominated by Indians, Chinese and so on, and those students are paying full non-resident tuition for much of their time. Although the demographics in science are not so different, the finances are. Most grad students in physical sciences are on assistantships or fellowships -- most are not paying their own way, at least not those enrolled in graduate programs that are successful. This boils down to economics -- an engineer can expect to make enough extra money with the Master's degree that they can recoup the cost of the degree program, which is usually just 2 years and mostly taking classes. Scientists know they would never recoup the cost of a 6 year Ph.D.
But the trend of a shortage of US-born scientists and engineers has been with us for a generation, and I don't think it all comes down to worries about job security. There are a lot of US-born students who are not prepared and just can't handle the program. From the beginning, the foreign grad students started coming in when we didn't produce enough qualified candidates here in the US. Today, the lure of making a fortune in finance or whatever probably helps pull even more of those
Blackton is right -- you can't compare engineering, health care and law -- the skill sets are totally distinct. Even with engineering and science, which liberal arts types might be hard-pressed to tell apart, the skill sets are pretty different in a number of key respects.
Oops. Incomplete sentence:
Today, the lure of making a fortune in finance or whatever probably helps pull even more of those who do have the brains and preparation to do science or engineering away from the fields and into more lucrative pastures.
Oops. Incomplete sentence:
Today, the lure of making a fortune in finance or whatever probably helps pull even more of those who do have the brains and preparation to do science or engineering away from the fields and into more lucrative pastures.
It gets rather old hearing the canard that American students at the university level don't stack up to their foreign (namely Chinese and Indian) counterparts in engineering. Having worked as a design engineer for over 2 decades I've observed the Chinese and Indian engineers, if they only went to grad school in the US 'couldn't design their way out of a paper bag' as many of my colleagues have said. They've vastly better at the text book stuff that US students but too I find little creativity nor problem solving ability.
If they were educated here starting in high school or at a minimum at the undergrad level, it's a different story. But the blanket statement that our youth are unprepared i ... view full comment
It gets rather old hearing the canard that American students at the university level don't stack up to their foreign (namely Chinese and Indian) counterparts in engineering. Having worked as a design engineer for over 2 decades I've observed the Chinese and Indian engineers, if they only went to grad school in the US 'couldn't design their way out of a paper bag' as many of my colleagues have said. They've vastly better at the text book stuff that US students but too I find little creativity nor problem solving ability.
If they were educated here starting in high school or at a minimum at the undergrad level, it's a different story. But the blanket statement that our youth are unprepared is BS. The ones that come to the US are the best and brightest from their home countries. Compare comparable students from here and there's little difference but still a big difference in thinking out side of the box, so to speak. I'm convinced it's the western mindset (and the American cultural trait of individualism at work).
Another problem is the engineers of today don't even bother encouraging their children to follow the career path they themselves chose. I'm still torn if I'll suggest engineering to my kids and I know that no CTO in Silly Valley, and I mean none, of the big firms have their kids in any science/engineering program nor did they encourage them to follow in their footsteps (as reported in "EE Times"). This is the same clan that bellyaches about an engineering shortage, so their personal actions speak volumes.
"Today, the lure of making a fortune in finance or whatever probably helps pull even more of those who do have the brains and preparation to do science or engineering away from the fields and into more lucrative pastures."
I was quite shocked to see how many graduates with engineering/mathematics/stats degrees were in the finance sector. Going into that field never occurred to any of us when I graduated with my electrical engineering degree in the mid 80s.
"Today, the lure of making a fortune in finance or whatever probably helps pull even more of those who do have the brains and preparation to do science or engineering away from the fields and into more lucrative pastures."
I was quite shocked to see how many graduates with engineering/mathematics/stats degrees were in the finance sector. Going into that field never occurred to any of us when I graduated with my electrical engineering degree in the mid 80s.
I think that across the board generalizations can be misleading.
For example, in my own limited experience I know two young engineering grads who can't find jobs in their field. One is working as a ski instructor -- the other is just taking odd jobs.
On the other hand, my daughter's European boyfriend was transferred here from his country by his multinational software company because his company can't find enough qualified software engineers in the US. His company also has design teams abroad -- including in China and Israel -- to fill the gap.
As for engineering as a career, many don't stay at it for their lifetime. Many go on to get MBA's and law degrees (lawyers with electrical or softwar ... view full comment
I think that across the board generalizations can be misleading.
For example, in my own limited experience I know two young engineering grads who can't find jobs in their field. One is working as a ski instructor -- the other is just taking odd jobs.
On the other hand, my daughter's European boyfriend was transferred here from his country by his multinational software company because his company can't find enough qualified software engineers in the US. His company also has design teams abroad -- including in China and Israel -- to fill the gap.
As for engineering as a career, many don't stay at it for their lifetime. Many go on to get MBA's and law degrees (lawyers with electrical or software engineering degrees are in great demand) and others become executives in their companies, start their own businesses (not necessarily in a technical field), go into health care as hospital managers or product designers, become salesmen, and even go into secondary school or junior college teaching of math and science.
In the US today, jobs are not guaranteed. You have to be entrepreneurial and hustle to survive. In fact, I suspect that the unemployment statistics are a bit overstated -- many of the "unemployed" are working in the cash economy, free lancing, etc.
Nostalgia is not a solution.
You are quite right, tmmats, that we are getting only the best and brightest from overseas. The mediocre students over there don't try to come here, so as a group the overseas applicants are going to look stronger on average. But my point is that many if not most Departments can't fill all of their incoming graduate student positions with qualified people if they restrict themselves to US applicants only. I've seen that myself as a Professor since the mid-1990s, but it has been that way for longer than that. By qualified, I'm meaning meeting the same standards grad students of my time met. Actually, in the physical sciences we get quite a few applicants from Europe, it is not just students f ... view full comment
You are quite right, tmmats, that we are getting only the best and brightest from overseas. The mediocre students over there don't try to come here, so as a group the overseas applicants are going to look stronger on average. But my point is that many if not most Departments can't fill all of their incoming graduate student positions with qualified people if they restrict themselves to US applicants only. I've seen that myself as a Professor since the mid-1990s, but it has been that way for longer than that. By qualified, I'm meaning meeting the same standards grad students of my time met. Actually, in the physical sciences we get quite a few applicants from Europe, it is not just students from Asia. A certain fraction of top western European students want to come to top universities in the US, or to universities in interesting or exotic places in the US (mine is one of the latter...). I also agree with you about the book learning vs. creative thinking. I've run into students from China who could do amazingly hard things if you assigned them a problem, but never could figure out on their own what problem to work on. It was like creative thinking had been trained out of them.
I think the reason is not that we are raising a generation of ill-prepared dummies, but rather that they are choosing at an early phase not to go into science. Maybe the same for engineering, but others here know more about that than I do.
I know quite a few Ph.D.s in Geophysics who ended up in finance, including one of my own students. Some colleagues have reported that almost all of the Chinese grad students went straight into finance as soon as they finished their Ph.D. In terms of "brain drain", there is no question that finance has taken a lot of very smart, technically trained people out of the rest of the economy.
In general I agree with the thrust of the article, however - I don't know Mr. Saragoza from a block of wood, but something smells to me here.
Assuming he still lives on the West Coast (and I'm echoing seattleeng, so perhaps I should just stop here) I struggle to understand why he's looking for a $15/hr job. If no-one wants him in the one of the highest paying and most in-demand sector where he lives, either he is either extremely specialised or there is something else wrong.
I am fortunate enough to not have had to go and look for new work, but we struggle to find good software engineers in the Chicagoland area when we interview.
And sadly I have to echo Jeff Frey's experience. There are o ... view full comment
In general I agree with the thrust of the article, however - I don't know Mr. Saragoza from a block of wood, but something smells to me here.
Assuming he still lives on the West Coast (and I'm echoing seattleeng, so perhaps I should just stop here) I struggle to understand why he's looking for a $15/hr job. If no-one wants him in the one of the highest paying and most in-demand sector where he lives, either he is either extremely specialised or there is something else wrong.
I am fortunate enough to not have had to go and look for new work, but we struggle to find good software engineers in the Chicagoland area when we interview.
And sadly I have to echo Jeff Frey's experience. There are of course exceptions, but we spend more money hiring people on H1-Bs (and pay them the advertised salary that anyone could have gotten) for a reason. I would say that US born graduates tend to be more creative than their peers, but the basic engineering skills can be a bit wanting.
I read the Fallows Piece and was captivated by it. he has a Tom Wolfe eye for appearances and really picks up on what was being said and what was being done in China.
While the story about jobs and outsourcing is interesting and important, I found another aspect of the story, almost unmentioned, interesting.
Fallows discusses the Chinese Companies as simply screwdriver factories with an emphasis on simple assembly and putting together electronics. But he almost misses the technology developed over the last 20 years that makes this possible, and unique.
That we live in an era of unprecedented technological change is obvious. But as Fallows notes in his piece, orders come in via the internet, ... view full comment
I read the Fallows Piece and was captivated by it. he has a Tom Wolfe eye for appearances and really picks up on what was being said and what was being done in China.
While the story about jobs and outsourcing is interesting and important, I found another aspect of the story, almost unmentioned, interesting.
Fallows discusses the Chinese Companies as simply screwdriver factories with an emphasis on simple assembly and putting together electronics. But he almost misses the technology developed over the last 20 years that makes this possible, and unique.
That we live in an era of unprecedented technological change is obvious. But as Fallows notes in his piece, orders come in via the internet, product is tracked along the way with Barcodes, automated testing checks the products, managment communicates via cell phones and email, designs are submitted via CAD Models and Simulations, secondary products like packaging, are designed and developed in the blink of an eye, shipping happens overnight via larger aircraft and sophisticated logistics.
Almost all of this energy is available thank to the Microcomputer really invented by IBM in the late 1970's, and these peripherial devces developed in the 1980'-1990's. Wasn't it George HW Bush who marveled at the laser Barcode Reader at a regular grocery store in 1990 or so? Yes we thought they killed the cashier career aspirations, but did we ever imagine they would be tracking US Products in China for overnoght delivery?
What I found refreshing is that Fallows admits that the Economists have no idea if this Free Trade is good or bad. We have no reference point for what's going on right now. Free Trade at this point has been so warped by Digital Communication and Data Management that we have no idea what's going where or what will happen next.
In my experience, the H1B visa is a ruse to get the cheapest possible labor for highly technical positions. And the applicants aren't the best and brightest, unless by best and brightest you mean senior level software engineers who clobber the development repository because they didn't really know what they were doing and didn't think their administrative level permissions would give th the ability to delete the whole thing. There is something wrong with America, too many companies don't know how to identify appropriately skilled technical employees, and even when they do land an interview with one their desire to keep salaries down precludes the notion of these people being hired in favored ... view full comment
In my experience, the H1B visa is a ruse to get the cheapest possible labor for highly technical positions. And the applicants aren't the best and brightest, unless by best and brightest you mean senior level software engineers who clobber the development repository because they didn't really know what they were doing and didn't think their administrative level permissions would give th the ability to delete the whole thing. There is something wrong with America, too many companies don't know how to identify appropriately skilled technical employees, and even when they do land an interview with one their desire to keep salaries down precludes the notion of these people being hired in favored of the door knobs asking for (an worth) pennies on the dollar. Then there's the glut of consultants and the like who continue to innundate the IT sector because that's where they think they can make the most money, and they know how to fool the typical hr idiot into believing they're technically qualified.