Thursday, March 27, 2008

Creative destruction

David Ignatius points to Pennsylvania as an example of what economist Joseph Schumpeter described as "creative destruction." As the steel industry began to decline under the forces of globalization, there was a great gnashing of teeth and a rush toward protectionism to save the industry and the jobs that went with it. But even as the protectionism failed, new industries were moving in to fill the vacuum, and Pennsylvania is emerging as a center of new industry.
But if ever there were a case that documents what the economist Joseph Schumpeter described as "creative destruction," it's what happened in Pennsylvania. Steel and other manufacturing industries were indeed shattered by competition from the globalized economy that was just emerging. But new industries that nobody could then have imagined took their place, and they provided new jobs, year after year.

Employment in Pennsylvania reached an all-time high in January 2008, and then fell slightly in February. People here fear that a steep recession may be coming. But as of February, the last month for which statistics are available, unemployment in Pennsylvania was just 4.9 percent. Since January 2003, the state has added a total of 178,000 new jobs, according to the state government.
Just as the agriculture industry once gave way to manufacturing, jobs lost in manufacturing are replaced with jobs in technology and communications. As long as states remain attractive to new business, investors will identify areas of surplus labor and move in to put them to work, and the new jobs often offer better salaries and benefits.
A glimpse of Pennsylvania's future comes from statistics gathered by the state's Department of Labor and Industry. It forecasts that by 2014, jobs in Pennsylvania will increase overall by 6.8 percent. But manufacturing jobs will decline by 19.5 percent, including a further 22 percent drop in the iron and steel sector, a 25 percent decline in motor-vehicle parts and a 21 percent fall in industrial machinery.

The new jobs will come in areas such as professional and technical services (up 17 percent by 2014), computer systems design (up 30 percent), wireless telephone (up 30 percent) and data processing (up 32 percent). This transformation is evident in Pennsylvania data recording gains in wages and salaries from 2003 to 2005. Pay rose 20 percent for information technology managers, 35 percent for biotech engineers, 24 percent for computer researchers.
When we hear about the numbers of jobs lost in a given industry, or those lost to "outsourcing," we seldom hear about the new jobs and industries that take their place. While there may actually be a net increase in jobs, journalists seldom follow up with those who have lost their jobs, so we only get the bad news.

[Via Betsy]

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