Free Trade, NAFTA and the Saga of North Carolina

Those on the side of free trade support their case with logical reasoning. Roughly speaking they argue free trade benefits everyone because American industry has rising productivity where increasing efficiency saves many hours of labor, which can be released to other uses. When economists see growth in output in manufacturing with falling employment they say "Wow, this is terrific because the economy is producing more goods with less hours of work and now other people can be released for jobs producing more goods and services and growth in other industries.” Economists see these changes as a natural flow of reallocation and a movement toward efficiency.

When the debate was ragging over NAFTA, free traders discussed prospective investments. They said America has employment in apparel manufacturing, which is a labor intensive and low productivity industry. By comparison Mexico has had close to a quarter of its labor force working in inefficient low productivity agriculture. They predicted unemployed Mexicans would be able to shift to apparel manufacturing or other manufacturing, while Americans leaving apparel jobs would work in other expanding industries in the United States. There were confident and made predictions for more jobs on both sides of the border. Free traders admitted less restrictive trading between the United States and Mexico could be a difficult transition, but they have faith free trade would mean growth and jobs for all.

Over at the Bureau of Labor Statistics the hard working folks produce labor data within the North American Industry Classification System, a.k.a. NAICS. The North American Industry Classification System (NAICS) defines a carefully crafted set of industry sectors and sub-sectors, which has sector divisions for agriculture, manufacturing, trade, transportation and others; 20 sectors in all. They publish United States employment data by industry within the NAICS sectors and also many sub sectors, industry groups and industries, over 1000 data series in all. Their data help us compare faith with reality.

Data reported within the North American Industry Classification System includes three Textile industry categories: Textile Mills, Textile Product Mills, and Apparel Manufacturing. These three categories have 23 industry groups and industries. In 1990, there were 1.63 million US jobs in those 3 categories. By 2006 the total was down to 594 thousand, a loss of 1 million and 40 thousand jobs. Every single one of the 23 industries mentioned above lost jobs. Fiber, yarn and thread mills lost 54 thousand jobs. Carpet and rug mills along with mills making curtains, linens, bedspreads, sheets, towels, canvas and canvas bags, all down. Knitting mills making hosiery, socks, underwear and nightwear along with mills in cut and sew apparel for men, boys, women, girls and infants, all down. Apparel went from 932 thousand jobs in 1990 to 238 thousand jobs left in 2006. That does sound like a difficult transition.

The Jobs of North Carolina

The jobs above are for the whole country, but North Carolina has been a major employer in textiles and apparel. In 1990 North Carolina had the highest percentage of manufacturing employment for any state, 26.4 percent. That was 824 thousand manufacturing jobs out of total establishment employment of 3.1 million. Michigan and Ohio, both well known manufacturing states, had lower percentages, 21.1 percent and 21.8 percent respectively. The 1990 North Carolina manufacturing base had a broad range of industries with thousands of jobs in wood products manufacturing including furniture, but also fabricated metal products, machinery, electronics, electrical equipment and transportation equipment. Even more jobs were in non-durable goods like food processing and chemical and pharmaceutical manufacturing in addition to textiles and apparel.

By 2006, manufacturing jobs dropped to 553 thousand, a loss of 271 thousand jobs. Total employment for Textile Mills, Textile Product Mills, and Apparel Mills in North Carolina was down from 286 thousand to 81 thousand, a loss of 205 thousand jobs. That is why I am thinking if we want to know more about free trade and jobs we should look at the saga of North Carolina.

By 2006 North Carolina’s manufacturing employment dropped from 26.4 percent to 13.8 percent of statewide establishment employment, the biggest percentage drop in manufacturing employment for any state. Despite the manufacturing job losses North Carolina establishment employment went up by 898 thousand jobs in the 1990-2006 period. The increase occurred during the same period that manufacturing employment went down 271 thousand jobs with another 14 thousand jobs lost in utilities and agriculture. In that way new jobs have to replace lost manufacturing, utility and agriculture jobs before there can be more jobs. So even though there are 898 million more establishment jobs now than in 1990 there are 1.18 million more service jobs in North Carolina.

Since free trade advocates admitted there would be manufacturing job losses states like North Carolina would not be happy to hear about, they predicted there would be new investment and expansion into sectors with higher productivity. In effect they said textile and apparel jobs were expendable because they were low paid anyway and new jobs would open up to replace the old ones. If we just count the jobs they look right in their predictions, but counting jobs implies that one job is the same as another. In the saga of North Carolina the new 1.18 million jobs look very different from the old ones. Remember that number, 1.18 million.

North Carolina’s Big Four in New Jobs

Start with government because the biggest expansion of jobs in North Carolina from 1990 to 2006 came in government, but not the federal government. State and Local government created 179 thousand new jobs, half of them in education. If we add the new jobs at private schools and colleges the total comes to 222 thousand new jobs. Since 1990, North Carolina state and local employment and all categories of public and private education have been growing faster than the statewide average. Both government and education make up a growing percentage of North Carolina jobs, which is important given NAFTA and the loss of manufacturing jobs.

Despite all the nasty and derogatory things said about government, governments create transactions and employment. Take the auto safety inspection. In North Carolina it is $18.20 for a yearly inspection. On the Bureau of Transportation website, they report just over 6 million vehicle registrations for North Carolina. At two inspections per hour that creates more than 1500 statewide jobs, assuming an 8-hour workday five days a week. It’s just a yearly inspection. How about twice a year? How about four times a year? There was a time when people did their own car inspections. Checking your lights, your wipers, your tires, are among life's easier do it yourself jobs. No more in North Carolina. The legislature created transactions and some jobs.
Government employment is already large. Actually 22 million work as employees on government payrolls nationwide. There are 2.7 million in the federal government, 5.1 million in state government, nearly 14.2 million in local government including education and government hospitals. In North Carolina 675 thousand work in government, 16.8 percent of statewide employment. Still it undercounts employment that is the result of government action such as service station employees who do auto inspections since they are on private payrolls even though they are doing the government's work. The terms government contractor, outsourcing and privatization all connote private businesses, but they are private businesses doing government funded or government sponsored work.

In education, we hear complaints in the popular media about failing schools and the need for more accountability. Complaints help bring pressure for smaller classes, all day kindergarten, special education, counselors, and testing. Better education coincidentally means more jobs.

Government and education took first place for job gains, but then comes health care with 218 thousand new jobs for North Carolina. The new health care jobs are in physician’s services, hospital care and nursing and residential care facilities. The total includes 41 thousand social service jobs. Many of these jobs are counselor and social work jobs, which can be attached to the health care industry, although they are also in government and sometimes private firms.

When people think about health care they typically think about doctors and nurses. At the BLS though, doctors and nurses are part of a category of 52 health practitioner occupations, which also include pharmacists, therapists, and a variety of health technologists and technicians. Another occupational category called healthcare support has 15 additional jobs and all of them have aide, assistant or attendant in their job title. Health care practitioners and health care support occupations are two of what are really three segments of employment in health care. A third segment might be called administration or overhead and there is lots of it.

If the American health care system had a history like public education it might not be as bloated with administration as it has come to be. With education people live somewhere and that somewhere is in a school district. Families with school age children send their children to the school in their district.
Americans could have universal health care. Instead we have a decentralized health care system with three large groups making transactions. On the medical side we have health care venders: hospitals, laboratories, clinics, HMO’s, PPO’s, independent practice offices, groups and associations. They do business among themselves but also with private insurance companies and patients. Medical venders send out bills and private insurance companies maintain bureaucracies to take them in.

Then we have government where the federal, state and local governments all maintain health care bureaucracies to administer Medicare, Medicaid, Social Security Disability, workmen’s compensation and the Veterans Administration. Separate programs with separate bureaucracies create lots and lots of administrative jobs. Medicaid is a federal program for the unwanted poor with federal guidelines but it is administered through 50 state bureaucracies. Medicare is administered state by state with separate administrative contractors processing claims. Medicare does not cover an entire bill so private insurance companies sell Medigap policies to millions so one hospital visit or one physicians service visit can generate two bills and brings action at many bureaucracies.

Workmen’s compensation, which is really health care for people injured on the job, operates under federal guidelines through 50 state bureaucracies, but the states allow private companies to write the insurance so it supports jobs in private companies and insurance agencies. Military veterans have a separate health bureaucracy. Disability coverage supports additional bureaucracy through the social security administration and several specialty programs.

In the national economy the health care industry supports 2.5 million office jobs as bill and account collectors, billing and posting clerks, file clerks and general office clerks. In North Carolina, it looks like 60 to 64 thousand of the 218 thousand new health care jobs will be in office work. BLS reports a decline of 15 thousand jobs for North Carolina Sewing Machine Operators, assuring some new faces to fill those office jobs.
Universal coverage would consolidate health care administration and reduce the need for the multitude of bureaucracies and the multitude of paper forms. With universal health care it is easy to imagine standard procedures and the use of unified computer billing to eliminate paper. That would be efficient. America could get rid of those costly and inefficient office jobs filing and shuffling bills, but we have to be careful about efficiency when America needs jobs. In North Carolina, they lost 271 thousand manufacturing jobs and economists and free traders think of that as an opportunity for new investment and new jobs in more efficient and productive pursuits. In North Carolina though, people know an inefficient office job is better than no job at all.

The next biggest category of North Carolina employment growth generated 125 thousand new jobs in a sector called Administrative and Support Services. In the NAICS documentation manual, administrative and support firms perform routine support activities for day-to-day operations of other businesses on a contract or fee basis. The NAICS definition does not tell us what companies in this sector are actually doing. The answer is lots of things. If I was going to work in this sector I would definitely pick a job in a travel agency. I can picture myself relaxing in a cheery office full of travel posters offering a witty patter of conversation describing sunny Caribbean tour sites. Pick your favorite! There are so many choices. Try a job in contracted office administration, facilities support services, employment placement, temporary help services, desktop publishing, word processing, telephone call centers, telephone answering services, telemarketing bureaus, copy centers, private mail centers, collection agencies, credit bureaus, repossession companies, court reporter companies, travel agencies, tour operators, convention bureau services, ticket services, investigation services, armored car services, security guards and patrol services, security systems companies, pest control companies, janitorial service companies, landscaping companies, carpet and upholstery cleaning services, chimney sweep companies, packaging and labeling services, convention and trade show organizers, and a few more, but I am out of breath.

With the decline in manufacturing from productivity increases, NAFTA and the global economy, administrative support services looks like the ideal sector for unemployed Sewing Machine Operators from North Carolina’s apparel industry. They can start a small business. Free traders sometimes speak in grandiose terms of investments in new innovations and technologies, but the administrative support services do not need much investment. A computer, a telephone, some office space should be enough to get started in many cases. Maybe a few tools: a vacuum, a feather duster, a toilet brush for the janitors; a sprayer and some chemicals for the pest control workers.

Establishments in this sector sell almost everything they do to other firms as supporting services to be carried out during a contract period. Contracts spell out performance criteria. There was a time when firms employed their own custodians and janitors. Even if starting wages were low, wages would rise with the cost of living for all employees in the company. The terms of employment were not subject to bidding and re-bidding as long as a custodian stayed with their employer.

A system of outsourcing administrative support services generates a cycle of bidding for contracts for landscaping, security services, janitorial services and others. Custodians work for contracting firms that constantly bid new contracts. Contracts tend to be one to three years, but allow cancellation on 30 days notice. It is labor intensive work. Seventy five to eighty percent of total costs come from wage costs and the contractor with the low bid is likely to be the one that pays the lowest wage.
Sometimes administrative support services do not specify outsourcing of any particular service, but people are leased as hours of work by a temporary help agency. The NAICS manual explains that temporary help establishments do not provide supervision of their employees at the clients work site. The manual explains that Professional Employer Organizations “typically acquire and lease back some or all of the employees of their clients and serve as the employer of the leased employees for payroll, benefits, and related purposes.” The arrangement makes it possible for a client to fine tune employment to the ebb and tide of business. Actually 77 thousand of North Carolina’s 125 thousand new jobs in this sector fall in this category.

Making a living in administrative support services sounds hard, but the next biggest category of new jobs may not be any easier. It is restaurants. From 1990 to 2006 North Carolina restaurant employment nearly doubled with a 111 thousand new jobs. In the Standard Occupational Classification they use for government data these jobs are called food services occupations. There are various categories of cooks, hosts, hostesses, bartenders as well as your waiter or waitress.

Cooking used to be one of America’s biggest do it yourself occupations. Everyone can stay home and cook, but more and more we go out. In the production-marketing chain of food this helps our employment and probably more than most people realize. Start on the farm and let’s count America’s farmers. Next add all the jobs in pesticide, fertilizer and agricultural chemicals, and all of the jobs in agricultural implement manufacturing. Add in the jobs at farm supply wholesalers, and farm raw material wholesalers. Then move on to food manufacturing. Add all the manufacturing jobs milling, canning, freezing, bottling, refining, slaughtering, baking, brewing, distilling, fermenting and packaging. Add them to grocery store merchant wholesaler jobs and all the jobs at grocery stores, convenience stores, liquor stores and food stores. The total comes to 6.6 million jobs.

There are 9.1 million jobs in the restaurant business including fast food outlets, bars, and caterers. The total does not include food service workers at school cafeterias, hospitals, retail stores or ball parks, museums and other recreation facilities. Add them to the total and it comes to 11.7 million food service jobs.
Worse, jobs from the farm to the supermarket continue to decline due to productivity growth and imports in the global economy. Restaurants are the only part of the food chain Americans can count on for new jobs. You may like to go to restaurants; you may need to go to restaurants, but American and North Carolina need jobs, so now you know, you must go to restaurants. It’s your civic duty. Go out often. Be kind; leave a cash tip for your waiter or waitress.

Bringing in the Exports

Remember we are looking 1.18 million new jobs in North Carolina now that we have a global economy, NAFTA and free trade. We have 676 thousand new jobs so far but we need 506 thousand more jobs. North Carolina still has a manufacturing base, but smaller by a third at least in terms of employment. Notice that many of the new jobs mentioned above are local jobs. Very likely government, education, health care, administrative support, and restaurants have North Carolina buyers and sellers. States losing their manufacturing base may need to pull inward to replace their lost manufacturing transactions. Losing manufacturing pressures North Carolina’s economic agents, be they individuals, families, business or government, to transact with each other to generate local jobs. If state and local governments will spend all their money as fast as they can and be ready to borrow and raise taxes, they can keep pumping money in the local economy and support essential job creation.

Even so a state like North Carolina must pull in some transactions from outside its borders. To buy things from out of state, things like gasoline for example, North Carolinians will have to sell something out of state, or bring in others who spend their money. States losing their manufacturing base need to bring in some exports.

The federal government helps immeasurably in the need to bring in outside money. North Carolina has only 4 thousand more federal jobs since 1990 so it is not helping much with actual jobs. Federal government jobs continue to decline modestly in most of the states. However, the Federal government brings in outside money when it pays social security to a state’s retired residents. It is not only that the state’s current retirees bring in social security money, new retirees moving to North Carolina from other states and metropolitan areas bring any pensions they might have and a capital gain from selling their over priced suburban home.
Maybe North Carolina’s new retirees like to go to restaurants and helped to create some of the above mentioned restaurant jobs. Maybe they built or remodeled a new retirement home, which helped to create some of North Carolina’s 77 thousand new construction jobs, which include 62 thousand new jobs in establishments that do the specialty trade contracting that is common in residential construction. In North Carolina they are smart enough to love the elderly, they don’t take jobs, they create jobs.

Tourism can help replace lost manufacturing too. States like North Carolina have ocean beaches and other tourist advantages. Many states promote themselves as tourist sites and if they can do it successfully they bring in outside money, which has the same effect as selling manufactured products to other states. Other states less endowed with natural beauty turn more quickly to gambling. North Carolina has apparently avoided gambling since I do not find gambling jobs in state job files, but worse job totals show only 5 thousand new jobs in traveler accommodations, RV parks and recreation camps, bed and breakfast inns and rooming and boarding houses from 1990 to 2006.

Driving through, or into, North Carolina also has a similar effect to selling manufactured goods outside the state. There were 26 thousand new jobs in transportation, which probably involve some interstate travel and bring in out of state money. Here though airline transportation jobs declined and most of the increase is from 6 thousand new trucking jobs and 10 thousand new storage and warehouse jobs.

Finance and insurance services tend to be local services, but North Carolina is home to two Charlotte based national banks: Wachovia and Bank of America. If major banks like Wachovia and Bank of America lend out of state for credit cards and other loans that suggests some of the new jobs came from selling services outside North Carolina. North Carolina has 74 thousand new jobs from management offices and finance for the 1990 to 2006 period.

Scraping out some more local jobs

In the tally of new and replacement jobs we are up to 862 thousand out of a total of 1.18 million. We have 320 thousand more jobs to catalog in the new mix of jobs now that North Carolina is losing its manufacturing base. In North Carolina the remaining tally of new and replacement jobs look primarily like local service jobs. The next biggest category of job gains in North Carolina comes in retail and wholesale trade with 108 thousand new jobs. Both wholesale and retail trade have growing employment but at growth rates below the rates for statewide and national employment. Using computer technology in trade, especially for barcodes and inventory management increases labor productivity. Retail and wholesale sales volumes per work hour are up and sometimes at rates comparable to productivity in manufacturing. Higher productivity in trade limits job growth.

Retail sales on Main Street or at the mall or shopping center support local employment because people do not drive long distances to shop. Even though many shop while traveling or on vacation, shopping at stores away from home has minimal effect on statewide retail employment. In 1990 retail jobs had 12 percent of national employment with a slow steady drop to 11.2 percent by 2006. In North Carolina it was 12.1 percent in 1990; now it is 11.2 percent. The percentage trends show the same pattern in the other 49 states and the national economy.

Because retail jobs remain around 11 to 12 percent of national and statewide employment the only way to have more retailing jobs is to have a bigger population to serve. For anyone in local government or a chamber of commerce who wants to boast local employment by luring in a big national retailer, the plan will not work. Before much time goes by the new retailer displaces existing retail jobs and its back to 11 or 12 percent. North Carolina retail jobs show the same trends as other states. Retail jobs do not grow fast enough to create their share of new jobs; other service areas have to increase faster to take up the slack.

Electronic shopping has the potential to break the link between retail jobs and the population it serves. In the national economy Internet jobs are growing but still only 241 thousand jobs out of over 15 million trade jobs. To discourage electronic shopping mall designers and owners make sure malls have more than shopping; they have restaurants, fountains, benches, movie theatres, ice rinks and health clubs. Making shopping a pleasant social experience apparently works because there is no sign of any big change in America’s shopping habits. If America takes up electronic shopping in a big way many will pay a visit to the unemployment office.

Other new jobs in North Carolina not mentioned so far continue to be in service categories, primarily local services. Professional service firms added another 82 thousand jobs and 69 thousand jobs in repair and maintenance services, personal services and some non-profit organizations.

Professional service firms have professional jobs in careers like lawyer, architect, engineer, and computer jobs. Management consulting firms, advertising firms and veterinary services are also here with a few other professional jobs among the new jobs in these sub sectors.

Lawyers help pump money into the local economy because North Carolina lawyers belong to the North Carolina bar in order to represent clients in North Carolina courts, or advise them on North Carolina law. America’s legal system with 50 state court systems helps sprinkle lawyers around the country and makes lawyer transactions local transactions.

More North Carolina engineers work in engineering firms now than 1990 but the increase offsets the decline of engineering jobs at manufacturing firms. Manufacturing firms employ many engineers, but layoffs come for them as well as production workers when manufacturing declines or plants close or move elsewhere as they did in North Carolina. Moving from a job at a manufacturing firm to an engineering firm dumps engineers into outsourcing contract arrangements so the gains in the professional sub sector cannot be viewed with too much excitement in North Carolina, although we can hope their new clients will include some of their former North Carolina employers. That would keep their transactions in the local economy.
Other service sub sectors have repair and maintenance services, personal services and some non-profit organizations. These sectors added another 69 thousand jobs by 2006. Repair and maintenance means jobs fixing cars and trucks, although there are some household appliance repair jobs and some work for business machine repair. Personal services are haircuts and beauty salons, funeral homes, dry cleaning, pet care, parking lots, photo finishing and a few others. Non-profit organizations include churches, which can be expected to keep their spending in the local economy. Other non-profits groups include civic groups like the optimists club, but also business groups like the Chamber of Commerce, and labor union locals.

North Carolina did share in some of the growth in information services jobs in publishing, communications and with more jobs at Internet Service Providers, Web Search Portals, and data processing. There are 21 thousand more jobs in these sectors than 1990, but all of them show a decline in employment since the 2000. The last six or seven years show declines for North Carolina, but also in national employment.
There was an increase of 19 thousand jobs in real estate and another 20 thousand jobs in entertainment and recreation. We can expect that North Carolina realty firms sell North Carolina real estate. Entertainment and recreation includes historical sites and some tourist attractions like golf courses, but recreation has lots of local service jobs at private country clubs, health clubs and fitness and recreation centers. Gambling jobs would be included here but BLS reports no jobs in North Carolina as gaming dealers or gaming supervisors so we have to feel admiration for those ethical minded North Carolinians who want to work and survive without gambling.

There we have it: North Carolina’s new jobs with NAFTA, free trade and the global economy. Government and education take the lead, with health care next followed by a smorgasbord of local services, some tourism and finance, but not manufacturing, not mining and not agriculture.

Job growth in North Carolina during a period of NAFTA free trade policies supplies politicians and the media with enough good news to let them talk like job growth is their achievement and the result of free trade and NAFTA. The evidence shows that North Carolina found jobs for itself by pulling inward and buying and selling more services from each other.

With free trade the few people left working in North Carolina’s cut and sew apparel manufacturing compete with every other cut and sew operation worldwide. They compete with low paid Chinese or Mexican cut and sew workers because politicians and free traders have a doctrine that says it is good. The evidence shows that people got jobs in local services like restaurants where it does not matter how many cooks or waiters there are in China, or Mexico or anywhere else.

North Carolina still has a base of 553 thousand manufacturing jobs, despite 16 years of decline. Now that we know how North Carolina tied itself in knots replacing the 271 thousand jobs already lost in manufacturing, it would be a good to have manufacturing employment stabilize and stop its decline. The evidence shows that North Carolina lost 12 thousand manufacturing jobs in 2006 and lost 10 to 50 thousand jobs every year since 1995 with no sign of a high tech revolution to replace hemorrhaging textile jobs.

Several hundred years ago economist David Ricardo wrote a fine analysis of the advantages of free trade and a global economy, describing a process of specialization and division of labor that raises productivity and generates growth. We can think he might be pleased to learn today’s free traders rely on his analysis to support free trade policy. Mr. Ricardo lived in a pre-digital age before electricity, computers, robots and gigabytes of data; an age before global access to technology. We can wonder what he would think if he found so many of America’s and North Carolina’s jobs in restaurants, gambling casinos, pet care salons, fitness centers and office rigmarole. Would he deny free trade creates government taxing, borrowing and spending to keep people employed? Would he deny free trade in North Carolina creates service jobs in restaurants? Would he predict more jobs in “hi-tech” industries after 17 years of manufacturing jobs losses and 17 years of service industry gains? Would he say if free trade means more decline in manufacturing that is good for North Carolina because free trade is always the best policy? Maybe if Mr. Ricardo met the data he would take up managed trade?