How Jobs at 75 Cents an Hour are Killing US Real Estate

I’m not sure what pills are used to treat depression, but they ought to be available to real estate buyers and sellers by the bucket. Real estate folks need such pharmaceutical assistance because for the past five years the news has been dominated by the worst financial conditions since the Great Depression, a time which despite the name was obviously not too wonderful. Thinking about real estate has been a downer, a great depression of another sort.

But, for the moment at least, put the pills away.

Now comes the latest edition of the Case-Shiller report which tells us that home prices were up a touch in April, the first time such positive results have been seen in eight months.

Is this the long-awaited ray of financial sunshine we would all like to see? It would be nice to say yes, economic redemption is here, but that’s not quite the case.

Troubled Bridge Over San Francisco Waters

More troubling is new construction at the San-Francisco-Oakland Bay Bridge.

Now you might wonder why a bridge project has anything to do with home prices or a national economic recovery. The answer goes like this: We cannot truly have higher home prices without more jobs and better wages — those are things you need before people can take out mortgages, pay higher prices or have more confidence in the economy.

The renewed San Francisco bridge is a $7.2 billion construction project which will feature a new span from San Francisco to Oakland. Spending so much money should be seen as a positive economic event because it employs companies and people, cash is spent and there is a multiplier effect which creates jobs and profits as well as a nice, shiny new bridge.

But there’s also a problem. A big part of the construction is taking place overseas. To be specific, large chunks of the bridge are being forged and fabricated in China and then shipped to the US for assembly.

Bridge managers say the foreign construction will save several hundreds of millions of dollars. That’s hardly a surprise given the wages paid to Chinese workers. The New York Times reports that “Pan Zhongwang, a 55-year-old steel polisher, is a typical Zhenhua worker. He arrives at 7 a.m. and leaves at 11 p.m., often working seven days a week. He lives in a company dorm and earns about $12 a day.” (see: Bridge Comes to San Francisco With a Made-in-China Label, June 26, 2011).

This happens a lot.  According to the Wall Street Journal, U.S. multinational corporations reduced domestic employment by “2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That’s a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad.”

How can US workers compete with 75 cents an hour? What about Social Security and Medicare? And if US workers could somehow compete with 75 cents an hour, what would happen to our economy and our society? Would home prices hold up? Rental rates? Car prices? Would there be a middle class? Would we become a new and larger version of Haiti, a country with low taxes, minimum regulation, no social safety net and little public safety?

Not Made In America?

Brian A. Petersen, project director for the American Bridge/Fluor Enterprises joint venture that’s building the new span, told the Times that “I don’t think the U.S. fabrication industry could put a project like this together. Most U.S. companies don’t have these types of warehouses, equipment or the cash flow. The Chinese load the ships, and it’s their ships that deliver to our piers.”

Really? There’s no American company that can make bridge parts anymore? Who built the Golden Gate Bridge? Or the George Washington? Or the Verrazano? Are none of these companies and people left?

Well, certainly, there’s no American company that can pay someone 75 cents an hour.

We are apparently now dependent on China for steel parts, an industry the US once totally dominated. If you want to see how bad the situation is go to Bethlehem, Pennsylvania. There the once-huge Bethlehem Steel plant has been turned into an arts center.

One hopes that the Case-Shiller findings for April are the start of something grand, a better economy and more jobs. But the awful truth is that as long as workers can be paid 75 cents an hour to do the work that Americans once did our economy is in terrible trouble.

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