Will the Jobs Come Back?
The booming housing market helped to employ a large portion of the economy. Housing money went to building materials, construction labor, real estate companies, builders, and banks. Around all of these companies were smaller companies providing products and services.
These jobs were there because of the original lending for homes. Home equity loans provided a number of other jobs. Home equity loans from rising home prices led to all sorts of purchases from cars, clothes, jewelry to expensive Swiss watches.
All of these businesses have been effected by declining housing prices. The question is will many of these jobs come back?
Over the years, many bubbles have passed. Starting with the dot-com bubble, this period lasted from about 1998-2000 when the stock market peaked and then tanked shortly after. The growth in share prices in dot-com companies seemed to have brought many new “speculators” into the market which in turn effected the price of most other stocks.
The same thing happened in many places with real estate from about 2002-2008. During this period a rapid appreciation in prices brought more people to the market and brought up the price of other homes. As a result, others were affected by the speculators similarly as with the stock speculators.
Now, we are in a recession period and without any major bubbles present. When the economy recovers, will the jobs that were lost come back?
The real estate bubble will most likely not recover to the bubble that we saw in 2002-2008. Laws are most likely in the works that will prevent this from happening and the bundled real estate securities are now not seen as safe investments anymore.
An interesting development has happened during the real estate bubble period. Outsourcing increased greatly during this period and has continued to this day. The first major outsourcing happened with manufacturing before the internet really took off. Shoe and clothing manufacturers became some of the early adopters of outsourcing.
The “made in China” started making its way into Wal-Mart stores in the 90′s and generated some controversy when the “Made in America” campaign led to investigations showing that some items were labeled as “Made in America” when in reality they were “Made in China”.
Large manufacturers and large retail companies started doing business with the Chinese during the pre-World Wide Web period. Next, came the call center outsourcing such as Dell. The internet has helped to make outsourcing call centers a reality.
The Internet also led to people using outsourcing for IT jobs, data entry, graphic artists, accounting, writing, and many others. Most people typically think of large companies when they think about outsourcing, but now it has found its way into the small business.
Large companies have the money to setup infrastructure for the management of outsourcing. This can be the setting up of buildings, call centers and software to manage the foreign work force.
Now, small businesses can outsource their work. Backed by venture capitalist, there is at least one company that is going after small businesses who want to lower their labor costs.
Using sophisticated software, people from around the globe can work at home from their computer doing all sorts of work such as: virtual assistants, web design, programming, data entry, customer service, telemarketing, software management, network administration, payroll, bookkeeping, legal work and many other jobs.
The employer simply signs up, posts an ad and then looks for employees or goes through the list of candidates that have responded to the ad. Each candidate has a different per hour rate or per job rate. The employer can post the job as a per hour or per project job. The employer then can interview candidates and start the job. No complex paperwork is required.
The employee (independent contractor) logs his/her hours by running an application when then start working that takes screen shots while he/she is working. The screen shots are then posted so the employer can see what the employee is doing. If the employer isn’t happy with the work, it can be disputed.
The employee closes the application when done and the hours are automatically logged. The independent contractor receives his/her compensation each week from the employer. Each employee has a profile which is ranked after they have completed a job. This allows employers or potential employers to pick candidate after seeing their ratings, work history, and work portfolio.
Such a system makes it relatively easy for an employer to find someone for work. It allows them to do so without requiring paperwork, unemployment insurance payments, social security/medicare and any local employment taxes. The employee typically takes care of this (if in the US) in the form of a W2.
Each candidate sets his/her own pay rate, so those with lower rates tend to get more work. This leads to more experience, so even if he/she may not have been as qualified as a higher rate candidate, after working for a while he/she gets experience. It becomes a balancing system where over time, the lower pay rate candidates increases the pay rate. On the other side of the balancing mechanism are the high pay rate candidates. They receive less work than the lower rate employees and will generally see their rates lower over time. I believe this is what we are seeing now with outsourcing. The United States is on the high side of the pay scale and it is being adjusted downwards as outsourcing continues.
The reason for outsourcing isn’t just about the pay rate but it is about the total cost. The cost of paying an employee is one thing, but there are many other factors involved. The government and health insurance fees in addition to this: social security/medicare, unemployment insurance, and local taxes.
Another set of fees come with housing the employees. Most employees don’t work from home but are expected to come in to the office. The office costs money to rent/buy along with the utilities, equipment, and insurance. These costs make having someone in the office locally very expensive.
Many small businesses will find that having employees in the office locally will be too expensive over lower priced, outsourced labor. Over time, many small businesses may outsource just as large companies have.
Some are trying to stay ahead by getting a college education or advanced degrees. This cost lots of money and many will find out afterward that their college education was not as great of an investment as it was in the past. Much of the educated workforce are moving into areas included in the outsourced job list. They are jobs that are now easily replaceable with lower pay rate, outsourced labor. Many of these outsourced candidates also have degrees but in local universities which costs much less money.
Many of the outsourced labor will be educated well enough to complete the tasks required in the different jobs. When taking into consideration the much lower costs, the decision to choose the outsourced candidate over the local makes it much more apparent. “Good enough” labor at the right price will probably work 90% of the time. The other 10% of the time may require a higher skilled person. This 10% can be handled by higher pay rate candidates
which also are available for work online.
The thing about outsourcing is that it is easy to hire and fire people. When separated by thousands of miles and no face to face interaction it is easy to fire someone if they aren’t working out. This is much more difficult to do if someone is coming in face to face everyday in the office.
When the economy does come out of the recession, many of the previous jobs may not be there anymore. Jobs that don’t require someone to absolutely be there may be replaced by outsourced labor. Jobs that require people to be there may be in higher demand as a result of this which will push wages down further.
This will lead to a gradual increase in outsourced labor rates, while the US will see a gradual decrease in labor rates. The result of this is the balancing of wages around the world making labor rates similar no matter which country you are from.
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