Vanishing Act

A growing number of U.S. manufacturing firms, ever greedy for profit, are shedding their American employees and opening plants in lower-wage countries like Mexico and China. What can be done to stop it?

By Clyde Weiss

Even a $210-million incentive package offered by the state of New York and a union wasn't enough to keep Connecticut-based Carrier Corporation from shutting down its manufacturing operations in Syracuse in 2003. The world's largest manufacturer/distributor of air conditioning, heating and ventilation equipment was determined to close the plant and move production to the company's facilities in China and Singapore.

For Carrier, it was simply "good economics," company officials said. For Gary Galipeau — one of 1,200 loyal, well-paid employees tossed out after many years on the job — it was not only a personal blow from which he is still reeling, but also a sign that something terribly wrong is happening in America.

The company chose short-term gain when they shipped jobs overseas, says Galipeau, 57, a union machinist at Carrier since 1967 (and now a member of the retiree chapter of Sheet Metal Workers International Association Local 527). "However," he says, "they take a very shortsighted view of the United States in general, because once you give up this expertise, you cannot get it back. It's gone."

Carrier is far from alone: By one conservative estimate, about 406,000 domestic manufacturing jobs were shifted last year alone to foreign plants owned by U.S.-based multinational corporations.

Exactly how many such well-paying jobs have been shifted offshore to low-wage countries is uncertain. But manufacturing employment has shriveled from its peak of 19 million in 1979 to about 14 million today — a plunge created by a variety of causes including offshoring, new technology and pro-business, anti-worker trade policies such as the North American Free Trade Agreement (NAFTA).

U.S. corporations justify their job shifts to less-costly countries by saying they need to reduce fixed costs like wages and taxes in order to compete more effectively in a global market. They also argue that because many of their customers are overseas, manufacturing there makes sense.

Yet — like the canary in the coal mine — manufacturing is a measure of the health of our economy, and the prognosis seems to worsen every day. The initial disappearance of low-wage jobs in textiles has now reached such high-tech industries as information technology, radiology and software design. The "canary" is now dying.

OPEN SPIGOT. Although California lost the largest number of jobs between 1998 and 2005 (followed by North Carolina, Illinois and New York), relative to population, the South suffered most. North Carolina was hardest hit, losing 182,000 textile manufacturing jobs between 1977 and 2002, according to federal statistics. Just since 1997, 131 textile plants have closed there. Nationally, the apparel industry has shrunk to roughly one-fifth of its 1966 size.

The list of U.S.-based companies that have shipped production to places like Mexico, Asia and India reads like a Who's Who of American business: Texas Instruments, Whirlpool, Levi Straus, Mattel and many more.

Leaked company memos reveal that computer giant IBM plans to outsource some 14,000 jobs to India's software engineers. This disclosure came shortly after the company announced plans to cut up to 13,000 workers — about a quarter of them in America. A U.S. software programmer who earns $75,000 a year can be replaced in India with one who earns a fifth as much, according to The New York Times, which obtained the documents.

Many familiar products are now made outside the country: Barbie Doll playhouses, Samsonite luggage, Rubbermaid kitchenware, John Deere cotton pickers, Radio Flyer Wagons. It seems that nothing is too American to produce offshore.

ABANDONED HOMELAND. Outsourcing of U.S. production "crosses nearly every major industrial sector, from communications and information technology to ... low wage manufacturing in food processing and textiles," report two labor experts, Kate Bronfenbrenner and Stephanie Luce, professors at Cornell University and the University of Massachusetts/Amherst, respectively. The researchers analyzed this corporate abandonment of their homeland by U.S. manufacturing firms during a three-month period last year. Their conclusion: Jobs leaving this country are "more likely to be good jobs, with full health care and pension plans, making the costs of these production shifts to workers and communities even higher." The shifts were done primarily by "large, publicly held, highly profitable and well-established" U.S. multinationals.

Mexico captured the bulk of our manufacturing jobs — an estimated 140,000 annually. No wonder: The average manufacturing worker there earns the equivalent of $2.48 an hour (including benefits), according to the U.S. Department of Labor.

China is the second-favorite destination for runaway U.S. companies, lured by hourly compensation (wages and benefits) equivalent to about 63 U.S. cents in 2002, according to a 2004 study for the department's Bureau of Labor Statistics. Bronfenbrenner and Luce estimate that at least 99,000 manufacturing jobs were shifted to China last year — and many "were in higher-end manufacturing of goods such as bicycles, furniture, motors, compressors, generators, fiber optics, injection molding and computer components."

Manufacturing workers in America make an infinitely better living than their Mexican and Chinese counterparts, earning an average of $21.97 an hour in wages and benefits in 2003. The Bureau of Labor Statistics reports that U.S. workers in manufacturing were paid, in 2003, an average of $45,916 a year. That's why forming alliances between U.S. and foreign workers to help them organize unions and raise their standard of living is in their interest and ours. (More on this later.)

Unionized workers have been among the most vulnerable. The rate of union membership among manufacturing workers declined from 27.8 percent in 1983 to 14.3 percent in 2002, according to the Congressional Research Service. And in the three-month period last year studied by Bronfenbrenner and Luce, nearly 39 percent of all manufacturing jobs sent out of the country were from unionized plants.

Unionized or not, manufacturing workers who lose their jobs often end up in less-desirable employment in the service industry. "It's all part of the race to the bottom," said Bronfenbrenner in an interview. "Companies are looking for the cheapest place to invest their money in a search for ever-cheaper labor and less rigid environmental restrictions."

Some economists like that approach: What's good for American business, they claim, is good for the country. By reducing their costs, U.S. multinationals can lower the price of their products, leaving consumers with more money to spend on other goods and services. The problem is, that comes at a huge cost to America and its workers. As we know from examples here at home, like Wal-Mart, good jobs are the key to a healthy economy. (See column on Page 8 and, to read about Wal-Mart, the January/February issue of Public Employee.)

ALL FOR PROFIT. Carrier, which today employs about 40,000 people worldwide, was enticed with tax incentives to move its manufacturing operations in New Jersey and Pennsylvania to Syracuse in 1937. Syracuse was then struggling to emerge from the Great Depression. Decades later, people like Gary Galipeau thought they would be able to retire with the company.

For decades, Carrier was a great place to work. Wages in 2003 averaged around $23 an hour. The typical machining and assembly worker took home around $40,000 a year, says Galipeau, who also served as a benefits specialist for his union, the Sheet Metal Workers International Association Local 527.

Laid off in May 2004, Galipeau now seeks a career in human resources. He's had about eight interviews, but his age is a drawback. "I get the impression, when I go for an interview, that they consider me qualified, but kind of old." They don't really come out and say it, he says, "but it's always, essentially, ‘we're looking for somebody who could spend more time with us.'"

About 500 of Carrier's laid-off workers in Syracuse have gone back to college or vocational school, assisted by a federal program and tuition benefits for up to four years offered by Carrier (much of this assistance was required by the union's contract). Many, however, are still looking for work, and others who have found jobs are earning less than they were at Carrier, union officials say.

Carrier's Syracuse shutdown was necessary in the global economy, claimed the firm's senior vice president for operations. The sheet metal union mounted a defense, working with the state to create a $210 million package of tax incentives, including $105 million in wage-and-benefit concessions, to preserve the jobs. Carrier rejected it out of hand. That clearly indicates Carrier was not interested in a solution that keeps well-paying jobs in the United States.

STRIKING BACK. U.S.-based multinationals "really don't care to make a change" in how they are conducting business, says Bob Baugh, executive director of the AFL-CIO's Industrial Union Council. By going overseas, "they're taking advantage of cheap labor, lack of environmental regulations and systems that have no worker benefits or health care costs."

To change course, we must fight to stop outsourcing altogether. Some states and localities have restricted outsourcing of public services, such as call centers, to other countries. In addition, some local governments have imposed rules requiring that certain purchases be made domestically. Although manufacturing jobs cannot legally be kept in the United States, many legislatures have passed laws establishing domestic preferences for state-purchased products or prohibiting state-contract work from being done abroad; and numerous governors have spoken out on the issue. Arizona Gov. Janet Napolitano (D), in her most recent annual address to the legislature, called for tax relief for industries that manufacture in the state, declaring, "Let's export our goods and not our jobs."

Three key policies must be addressed. First, existing trade policies are anti-worker. Because companies offshore jobs for economic reasons, "our job is to make it unprofitable for them to do that," says Dr. Robert E. Scott, director of international programs at Economic Policy Institute. One way is to reduce trade agreement incentives to offshore jobs.

"NAFTA tilted the playing field against American workers and communities in favor of multinationals," explains Scott. "It encouraged them to move plants abroad by guaranteeing investors complete control of their investments, free from any restrictions. What does the United States get in return? We lose jobs."

But the Bush administration and the Republican-controlled Congress have expanded NAFTA rules into Central America, which would encourage U.S. firms to ship jobs there as well. So prospects for change depend upon changing the political landscape in Washington. That's why labor fought the Central American Free Trade Agreement (CAFTA), which was passed by Congress in July. Also, unions and interest groups are advocating laws and trade policies that prohibit companies from using foreign sweatshops, where children and adults are forced to work under degrading conditions for almost no pay.

Another partial solution is to help manufacturing workers in Third World countries form unions. Better jobs, and a higher standard of living for workers everywhere, is the best way to protect our jobs here. Through collective bargaining, foreign workers could improve their wages, reducing the earnings gap with their American counterparts while helping them to afford American products manufactured here.

Third, we need to reduce health care costs and corporate giveaways. Creating a national health care system in the United States and eliminating or reducing tax breaks that encourage corporations to move production overseas are other ways to reduce incentives to offshore jobs.

In the meantime, just as we've aggressively attacked sweatshops in the United States, it's time to address the exportation of American jobs. When manufacturing workers become unemployed due to trade agreements like NAFTA, much more should be done to help them find new work opportunities. Currently, about 50,000 workers a year get help through the Trade Adjustment Assistance program, which provides job retraining for up to 2.5 years while guaranteeing income equal to unemployment benefits plus a health care tax credit. But the $1 billion TAA program has been shrinking for years, and is slated for another $100 million cut under President Bush's fiscal 2006 budget.

Real danger to the American workforce lies ahead unless something is done to stop the hemorrhaging. "The loss of American manufacturing jobs — from the front line to the highest level technical engineering research and development — means this: The next innovation, next generation of ideas, next investment, next new product, will all be made in another country," says the AFL-CIO's Baugh. "That is very troubling from the prospect of where this country's economy is going in the long run."

Joyce Winslow contributed research for this story.