Yoshikami: Unemployment and the Inevitable Shift
With the jobless rate at 8% and employment growth stagnation still hampering the US economy, it's time to stop hoping for a strong bounce back in employment and instead recognize the reality of current conditions.
The bottom line is that employment in the United States is simply not going to recover to pre-2008 levels as the global economy has slowed and outsourcing continues to gather pace to lower-cost labor countries. We expect the long-term US unemployment rate to be closer to 7%.
After recent trip to Shanghai, as well as a surrounding business district by the name of Hangzhou, a new trend is catching on that will further negatively impact employment in the United States. Emerging markets including China, emerging Asia, and Latin America are not satisfied with capturing low-cost wage jobs. Instead, they are beginning to focus on providing infrastructure and business conditions that will support higher paying, education required positions.
In the city of Hangzhou for example, there are numerous colleges all within a short distance that are producing masters level engineers, accountants, and other professional level graduates that are keen to work in China. This will no doubt negatively impact employment conditions as the United States will no longer be the default go to country for skilled positions. We expect the United States will still continue to be an economic leader in the world. Graduates from around the world will still clamor to gain entry to seek skilled labor positions. But it's important to recognize that the world is not standing still as they attempt to compete for these jobs and industries.
The consequences for the United States are significant as this trend plays out. If the US expects compete successfully in this new world economy, certain behaviors and changes will be necessary. Innovation, which is at the heart of US success, will need to be ramped up and further embraced. Regulation must reflect current global conditions and needs to be slashed (within reason) to help US companies be more competitive. Educational standards need to be improved as the competition is sending their children to schools 6 days a week 8 hours a day. Is it any wonder educational results in the United States lagged other countries given that time commitment to education?
Globalization will shape investor strategies for the next 20 years. The past will not be like the future as the world changes and morphs into an unrecognizable worldwide economic community. Investors that recognize that corporate revenue needs to be diversified on a global basis will be rewarded with global returns. On the other hand, investors that continue to maintain a perspective of strategy stagnation will likely underperform.
From an investment standpoint, investors need to recognize that companies that capture cost differentials in labor costs in more skilled positions will reap positive economic benefits. Pfizer and Merck have done just that as research and biotech efforts expand beyond the borders of the United States. Technology companies continue to diversify on a global basis and you can expect labor savings to the bottom line as they explore attractive business conditions around the world. Companies like IBM have long recognized that having a presence in emerging markets including China will help them be competitive for the long-term.
There's a reason why Warren Buffett of Berkshire Hathaway is appearing on Chinese TV on Chinese New Year. There's a reason why Warren Buffett is keenly aware of the growth in India and China and how these locations will shape investment strategy for the long term. He correctly recognizes that the world has changed and strategy must change as well. We completely agree and encourage investors to think anew about what constitutes a successful long-term strategy.
Global is the way to go to provide for returns that capture the beginning of economic worldwide parity. Don't be left out.
Michael Yoshikami, Ph.D., CFP®, is CEO, Founder and Chairman of the DWM Investment Committee at Destination Wealth Management. Michael is a CNBC Contributor and appears regularly on the network. DWM is a San Francisco Bay Area-based independent money management firm that provides fee-based wealth management services to institutions and individuals around the world. Michael was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009, 2010 and 2011.