Why Our Service Sector Labor Force is in Danger

There are three stages to industrialism primary, secondary and tertiary.  A society starts out with farming economymost of its labor force in the primary stage.  As industrialism advances the labor force transfers to the secondary stage and on the final level of industrialism where most of the labor force resides in the tertiary stage.

The three stages are also known as agriculture, manufacturing, and services.  While all three stages always exist, depending on the stage of industrialism determine what percent of the labor force is in each segment.

As you might suspect industrial economic systems throughout the world can be on the same or different stages of industrialism.  There is no problem with this happening until we decide to trade with one another and then the issues arise.  As we mentioned when discussing the global economy, cost are different throughout the world, therefore selling prices are different. For countries that sell the same product this can cause a problem.  One country can outsell the other country.

This problem of products costing less to manufacture in other countries because of cost difference is an issue that will never change.

Over time a country’s different cost structures (standard of living) will always result in the same  products being made cheaper in other countries, this is a process called product life cycle.  The length of time it takes for a product to go from servicing the domestic economy and exporting to otherfactory_building_smoke_stack_3948 countries to importing the product and no longer producing domestically.

The only way to keep a domestic economy going was to be innovative, which is kind of what happened.

The ultimate solution was moving the American labor force from the secondary stage (manufacturing products) to the tertiary stage of services.  A large percentage of our labor force no longer manufactured products but instead worked in service industries, increases in retail, financial, operational, and IT services with less manufacturing plants.  The technology industry was at the forefront of the service economy, providing many high paying jobs.

So now one country produces products and another country produces services (i.e. IT solutions). This is the ideal outcome for the advocates of free trade, countries specializing in what they do best and trading their specialties duty free.

However something happened on the way to the forum.  Developing nations started to advance into the last stage of industrialism or more specifically had significant segments of their labor force in services.  So now we have two countries that offer the same service and one can provide that service cheaper.  This places US tradeable service industry labor force in danger.

This causes industrialized nations domestic labor force who are part of tradeable service industries to experience significant permanent job reductions, forcing massive unemployment.   The impact targets two labor groups the over 50 and entry level professional (recent college graduates).

The last stage of industrialism is a service labor economy, there is no option for maintaining job stability and growth in the U.S. tradeable service industries except wage rate equilibrium.

There are two solutions, have your entire labor force in non-tradeable service industries, which is not practical or charge duty on the imported tradeable services.  This is not protectionism but equilibrium of wage rates attributed to differences in standard of living.  The American economy is in danger unless the assault on tradeable services to eliminated.

Adding a duty fee and/or tariff to bring imported service labor wages in line with American service labor rates and/or limit the amount of tradeable services allowed would immediately change the course of organizations outsourcing service labor to other countries.  There would still be opportunities for business to expand their markets, service economyhowever they will not be able to service their domestic market without adjusting labor cost.

More importantly it would enable countries that have different cost structures and standard of living to interact without hurting the others economy, true free competition.

However providing a solution to one area of the problem is not a complete solution. How America can compete with other foreign companies on a global scale is dependent on cost differences.  The reason for American organizations outsourcing jobs is the costs to do business are extremely high in America.

The various government regulations categories maybe legitimate however, the implementation inefficiencies and duplication of regulation within all government agencies federal, state and local along with unnecessary & excessive fees handicaps American industries in world markets.