The AP had an interesting story yesterday that examined how cash-rich American companies have added more than 1 million jobs overseas this year, but fewer than 1 million here in the U.S.:
The trend helps explain why unemployment remains high in the United States, edging up to 9.8 percent last month, even though companies are performing well: All but 4 percent of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.
But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, says Robert Scott, the institute’s senior international economist.
“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.
American jobs have been moving overseas for more than two decades. In recent years, though, those jobs have become more sophisticated — think semiconductors and software, not toys and clothes.
And now many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.
As the story notes, this isn’t a new phenomenon, but it’s more alarming at a time when Rhode Island’s unemployment rate is 11.6%.
One local example that comes to mind is Attleboro’s Sensata – formerly Texas Instruments’ local division – which has gotten high marks from Wall Street for moving its production facilities to cheaper overseas locations. Here’s how I explained it in a May story for PBN:
At its height, TI employed about 5,000 people locally at more than two dozen buildings in Attleboro and Mansfield, making it one of the region’s largest employers. But the company’s local presence shrank significantly in the years before Bain’s leveraged buyout.
The work force started to get smaller in the late 1980s, when TI began multiple rounds of layoffs as it moved manufacturing work overseas to lower-cost countries like China and Mexico. TI sold off the Attleboro division’s metals business in 2000 – it became Engineered Materials Solutions, or EMS, and is still based there – and then in 2006 divested itself of what became Sensata.
The numbers tell the story. As recently as a decade ago, before the EMS sale, TI had an estimated 3,150 employees in the Attleboro area. Today, the two successor companies have roughly 1,022 combined – a drop of two-thirds – with 750 at Sensata and 272 at EMS.
Sensata’s global work force is much larger, though, with 9,500 employees, and analysts say TI’s early decision to go where labor costs are lower is one reason Sensata is poised for success. The share of Sensata’s manufacturing done in low-cost nations rose from just 6 percent in 1995 to 85 percent last year, according to Goldman Sachs. Research and development, as well as corporate functions, remain concentrated in Attleboro.
[Sensata CEO Tom] Wroe – who joined TI in 1972, after graduating from the University of Rhode Island, and never left – recalled executives seeing their customers losing business or heading to China in the early 1990s. “That’s when we decided to go there, because we saw the market migration taking place,” he said. “We also saw great consumption potential, based on the saturation level [for consumer goods] in those economies.”