THE BLOG
10/10/2012 06:06 pm ET | Updated Dec 10, 2012

The Truth About Jobs: Why Both Sides Are Wrong

(This is a slightly revised version of a post originally appearing on MoneyTalksNews.com on Feb 14, 2012)

Barack Obama says the recovery is underway, and all our economy needs is a little stimulus.

Mitt Romney says what this country needs is a president with experience in creating jobs.

The truth is that neither camp is admitting the truth.

If you want to know what's really behind the absence of employment of the type that created and sustained generations of American workers, forget the politicians and listen to American Airlines. From a recent story from CNN/Money called American Airlines to lay out cuts to unions...

AMR Corp. said at the time of its Nov. 29 bankruptcy filing that it was forced to file because of the need to achieve a more competitive labor structure. Most other major U.S. airlines have already cut labor costs by their own trips through bankruptcy over the last 10 years.

Among the moves that American's unions expect include having aircraft flown overseas to low-cost maintenance facilities for the extensive overhaul required for planes on a regular basis. Most U.S. airlines, including United Continental, Southwest Airlines and Delta Air Lines, already have costly maintenance performed at overseas facilities.

Today, American Airlines employs about 9,000 union mechanics who do the heavy maintenance on their planes. Most are in Tulsa, Okla., with the rest in Dallas. They're highly skilled and efficient, but they earn about three times more than their counterparts in China and South and Central America.

So in order to compete with the other airlines that have already outsourced this work, American Airlines is saying it needs to follow suit. And since they promised not to do this in previously signed union contracts, they'll simply get rid of those prior obligations by filing bankruptcy.

And those 9,000 maintenance jobs are the tip of the iceberg. According to the story above, American intends to reduce its labor force by more than 80,000. Lowering their labor cost is the primary reason for filing bankruptcy in the first place. Here's a quote from the Nov. 29, 2011, CNN/Money article about the bankruptcy filing...

He (Thomas Horton, American Airlines Chairman and CEO) said that American is paying $800 million a year more in labor costs than it would be if it had labor contracts comparable to its competitors.

"Clearly it was our preference to do this in consensual fashion," he said. "Unfortunately, we were not successful in that regard." American will now gain significantly greater leverage in those talks given the bankruptcy court's power to void contracts.

The American labor market is too complex to fault one company, industry, or trend. But there's little doubt that what's shrinking our middle class isn't high taxes, stifling regulations, or a president without experience creating jobs. It's simply that countless companies are finding ways to do the work with fewer American employees - and paying less to those they retain.

Why are they doing it? Because they can
Imagine you owned a business and could hire workers for one-third the pay. Would you? What if you could use the threat of hiring lower-paid workers as leverage to force your existing staff to accept lower pay. Would you? If you answered "no" to these questions, then answer this one...

What if your competitors used lower-paid staff and, by continuing to pay your employees more, you were unable to compete and went out of business. Would that make you feel better?

American Airlines and other companies like it aren't the bad guys. They simply have the ability to get the job done for less - and they're taking it like anyone else would.

One of the most valuable companies in the world is Apple. Most of their products are made in China by workers making a tiny fraction of what Americans make. In India, you can hire an MBA for your IT department for $6,000 a year. Walmart stocks its aisles with products made in countries with vastly lower labor rates than those here.

And Americans have been demonstrating for decades that in order to get the lowest prices on everything from clothes to iPhones, they're willing to sacrifice their neighbors' jobs.

What's the solution?
If you ask Mitt Romney, the solution is less government interference. Here's what he says about jobs on his website...

Mitt Romney will rebuild the foundations of the American economy on the principles of free enterprise, hard work, and innovation. His plan seeks to reduce taxes, spending, regulation, and government programs. It seeks to increase trade, energy production, human capital, and labor flexibility.

If you ask President Obama, it's about using government to train more Americans for jobs. From a recent AP report:

President Barack Obama called on Congress Monday to create an $8 billion fund to train community college students for high-growth industries, giving a financial incentive to schools whose graduates are getting jobs.

Reducing taxes and regulations in no way addresses this problem. Job training, on the other hand, at least goes in the right direction: If you're an American Airline mechanic, you'll certainly appreciate learning marketable computer skills when your job goes to Central America.

But it's disheartening that while both campaigns are undoubtedly aware of the underlying issue - it's not complicated - neither seems willing to acknowledge its existence.

The undeniable facts: 1. Lower prices on the things we buy is good, because it raises our standard of living. 2. Companies like American Airlines and Apple are obligated to reduce their costs to deliver goods and services at the lowest price. If they can, they will. 3. Achieving lower labor costs via outsourcing has an inevitable result: fewer high-paying blue collar American jobs and a shrinking middle class.

Both candidates are whistling in the dark, and every news outlet is ignoring the obvious: When it comes to anemic job growth and a shrinking middle class, keeping this president won't change the facts, nor will electing a different one.