Labor Day Highlights the Need for American Restructuring

The world has changed!

Of course, entrenched interests fight the change.

An instance is the United States Postal Service: we heard over the weekend that the Post Office faces the possibility of bankruptcy.

The high profile cause of this situation: email.

The cause that gets a lesser play is the position of the labor unions connected with the Postal Service. The Postal Service is the nation’s second-largest civilian employer, after Wal-Mart. As of 2011, it employed 574,000 personnel, divided into offices, processing centers, and actual post offices. The employed are served by four major labor unions, the National Association of Letter Carriers being the largest.

Offices have continued to be kept in existence in spite of declines in business and expenses, including wage and pension costs, have continued to grow relative to the services provided. Now however, cuts are being proposed: proposed cuts include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.

In terms of the labor situation, Steven Greenhouse writes in the New York Times that “decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.”

There are, of course, many different plans that are being floated around relating to what can be done to “save” the post office. But these plans all point to one thing…the U. S. Postal Service must be restructured. It cannot go on as it has been going on.

Resistance is expected: “The post office’s powerful unions are angry and alarmed about the planned layoffs. “We’re going to fight this and we’re going to fight it hard,” said Cliff Guffey, president of the American Postal Workers Union.”

This is just one high-profile example of what is going on all over America.

The world has changed.

Entrenched interests reject the fact that they must change as well.

Let me just point out three major changes that are impacting the work force these days which have, I believe, massive implications for the future re-structuring of the United States economy.

First, the majority of labor unions no longer reside in the manufacturing sector. Most employees that belong to labor unions work in the public sector. The public sector, as we know, has vastly over extended itself, fiscally, in many areas of the country. The existing economic problems connected with slow economic growth, high rates of under-employment, and a depressed real estate market have put government finances in these areas in bad straits. Existing relationships are being re-worked as these governments try to get themselves back in control of uthe situation.

The relative growth rates in manufacturing employment dropped off beginning in the 1970s, and now growth in the public sector is seemingly dropping off. This is a re-structuring problem.

Second, there has been a demographic shift in the workforce. As reported in ‘The Slow Disappearance of the American Working Man,” (Bloomberg Businessweek, August 29—September 4, 2011) “The (economic) downturn has driven the share of men who have jobs lower than any time since World War II.”

“The economic downturn exacerbated forces that have long been undermining men in the workplace,” and “the impact has been greatest on moderately skilled men, especially those without a college education,” and African-American men and Hispanic men.

This is another re-structuring problem related to the changes in technology and the changes that have taken place in education: “college graduation rates essentially stopped growing for men in the late 1970s,” whereas “women continued to pursue college degrees in greater numbers and have been more responsive to the changing economy in other ways.”

Third, the last fifty years has also seen a tremendous shift in American employment from the manufacturing sector to the financial sector. The credit inflation created by the United States government has underwritten the finance industry and resulted not only in growing institutions but also in more and more innovation leading to the greater horizontal diversification of financial institutions.

The example of this is four of our large commercial banks: GE Capital, Goldman Sachs, Morgan Stanley, and ALLY (formerly GMAC). GE Capital has $606 billion in assets and is bigger than all but seven U. S. banks. It now finds itself regulated by the Federal Reserve where the Office of Thrift Supervision formerly regulated it. But more, important is that GE Capital recently provided 40 percent of the profits of its parent company General Electric. (Before the financial collapse, the contribution of GE Capital reached 75 percent of GE earnings.) This shows how manufacturing has given way to finance in the United States.

The re-structuring of the American economy is going to have to take place over the next ten years or so. This “fix” cannot be achieved through short-run solutions.

In fact, short-run solutions will only exacerbate the situation. This, of course, is what most of the economic policy of the last fifty years has done for the United States economy. The credit inflation of this period has built up the financial sector of the economy relative to the manufacturing sector. The credit inflation has also supported the growth of the public sectors as the inflation in real estate prices supported the government tax base and open capital markets allowed even small governmental units to expand their expenditures. Finally, much of the economic policy of the government during this fifty years was aimed at putting people back into the jobs they had lost during periods of slow economic growth. This “Keynesian” approach to the government’s economic policy had an unfortunate impact on male employment, especially those with a lesser education, because the jobs these people were put back into were jobs that were becoming less and less important in the economy.

The times have changed. Employment practices must change to meet the needs of the modern world.

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About John Mason 79 Articles

Professional history: Banking--President and CEO of two publically traded financial institutions; Executive Vice President and CFO of another. Academic--Professor at Penn State University and at the Finance Department, Wharton School, University of Pennsylvania. Government--Special Assistant to Secretary George Romney at Department of Housing and Urban Development; Senior Economist in Federal Reserve System. Entrepreneurial--work in venture capital and other private equity; work with young entrepreneurs in urban environment.

Visit: Mase: Economics and Finance

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