NEW YORK – The recent news that the number of manufacturing jobs fell by 93,000 in August rocked the stock market and dumbfounded members of the Bush administration.

President Bush, in an effort to put the best possible face on this downturn, said it was a cyclical adjustment and he is working steadfastly to ameliorate the problem. But the best of intentions on the president’s part may not be sufficient to address the situation.

Businesses across the board have figured out how to do more with fewer employees. Moreover, in a global marketplace manufacturing gravitates to places with the lowest labor costs.

It is ironic and worrisome that with the economy gathering a head of steam – with indications of strong economic growth expected well into 2004 – manufacturing job losses continue unabated.

In this scenario, there is the question of what the president can be expected to do. Tax cuts were a stimulus for growth along with low interest rates, but that didn’t help the employment picture.

In fact, manufacturing has now lost jobs for 37 consecutive months for a total of 2.7 million since May of 2000. This unprecedented loss may be a lot more than cyclical. Global trade, and the rising cost of production in the United States, suggest a deep-seated structural change in the American economy.

At a dinner I attended quite recently, the president of a major Midwestern company indicated that he has relocated seven of his eight manufacturing plants to China.

When I asked what precipitated the move, he said, “The health costs alone in the one plant that remains in Indiana are more than the total expense for the seven plants in China. I’d prefer to be in the U.S., but I can no longer compete if manufacturing remains here.”

This is a powerful indictment; one that has profound implications for the American economy and the labor market.

Total employment in the United States has in fact gone up. What is instructive about that statement is that manufacturing jobs have been lost and service jobs have increased.

In many instances that translates into the loss of a $25 an hour position for a $15 an hour position. It also isn’t clear whether the effects of job loss in manufacturing won’t soon affect the service sector.

When I called my telecommunications company about a problem with my DSL line, I was connected with someone in Bangalore, India. Surely this individual is not paid as well as his counterpart in Chicago. Many insurance claims and back-office operations have been transferred to Hong Kong. And credit-card tallies might be as easily computed in Ireland as Iowa.

What this means, of course, is that in a globe dominated by the free market, the American standard of living may be in jeopardy unless U.S. based firms can offer value to their products that justifies higher prices or can innovate thereby remaining ahead of international competitors.

I am not reticent to express my admiration for the American worker and the extraordinary innovation in the U.S. market. Yet the challenge we as a workforce are facing is more imposing than any ever confronted in our history.

The combination of technology and globalization have conspired to make many workers irrelevant. In the years ahead this condition will accelerate, demanding ever more from workers who may not be prepared to compete.

If the American worker can come to grips with this emerging reality, he must do two things: scale back his salary and benefit requests so that the cost of doing business does not skyrocket and he must be encouraged to retool so that he is more productive and innovative than the world competition.

So far the labor picture is not heartening. Salary and benefit requests by union leaders are invariably oblivious to global trends. Union leaders must demand more for their constituents or be voted out of office. Lost from view is the fact that U.S. average wages are almost 50 times greater than China.

While some workers are routinely trained and retrained, this group represents a relatively small proportion of the labor market. Corporate training centers and community colleges must cooperate to generate a generation of smart, innovative, technically proficient workers capable of competing on the world’s labor stage.

This isn’t a challenge that can be ignored. The recent reported loss of manufacturing jobs is a trend that will not soon be offset regardless of presidential action. It requires a mobilization effort that puts a premium on innovation.

If present trends continue for another decade and the service economy begins to feel the full effect of globalization, America will look like a very different place and the American worker will be encountering a substantially reduced standard of living.

Herb London is the John M. Olin Professor of Humanities at New York University.

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