Myths about American manufacturing jobs

Posted by AzBlueMeanie:

You have heard much over the years about the deindustrialization of America, the outsourcing and offshoring of American jobs (and capital) overseas, the financialization of the American economy, and the rise of the service economy.

People often confuse two different metrics: manufacturing output, and manufacturing jobs. These two metrics have been moving in inverse directions for decades.

You may have heard recently of a "manufacturing renaissance" with an uptick in American manufacturing jobs. Matthew Yglesias recently posted some useful charts at Slate in The Mythical American Manufacturing Renaissance in Three Charts:

But consider this chart which takes [the long] view:

My last chart really drives it home, by showing manufacturing jobs as a share of all jobs:

Ezra Klein provided an explanation for this back in March. This chart will change how you think about manufacturing:

What this shows is that the decline in manufacturing as a share of overall employment has been ongoing since the 1960s and 1970s, and has not really picked up pace in recent decades.

Consider what this means. If someone had cornered you in 1980 and asked you to predict what the level manufacturing employment would be at in 2009, and you did a straightforward linear projection of the previous two decades, you would have gotten it almost exactly right. You wouldn’t have known about the fall of the Soviet Union or the rise of China or the scale of advances in international communication or automation, but you still would have gotten it almost exactly right.

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[T]he change is due to rapid productivity growth. That is, automation is reducing the amount of labor required to produce a given amount of goods. That means that prices fall. If people respond those price changes by buying more and more of the underlying good, then sales will increase and employment may not fall. But that’s not happened. Instead, people are saving money on manufactured goods and buying more services, instead. That’s led to the decline in manufacturing jobs.

This report by John Walsh from October 2012 puts Ezra Klein's conclusion in stark relief. The Myth of U.S. Manufacturing Decline » CounterPunch:

[T]he decline of domestic U.S. manufacturing is conventional wisdom. The problem is that it is not true – not even close. And this falsehood has important consequences.

Let’s take a look at the facts. Here are the data as the UN has collected them and as put in chart form by John Hunter, on his web site Curious Cat Investing and Economics Blog.

America manufacturing has not been decreasing – it has been increasing. Far from “losing” manufacturing, the U.S. has seen a steady rise for decades- even after the financial crisis of 2008. No other country comes close save for China, which is now slightly ahead. But consider that China has 20% of humanity, and the U.S. has 5%. Not bad for 5%, not bad at all.

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What about jobs, then? Let’s look at the data, just for manufacturing within the U.S., i.e, domestic manufacturing, this time for the entire post WW2 era. These data were put into graphical form by Mark J. Perry, Professor of Economics at the University of Michigan and author of the popular website Carpe Diem:

See also: http://www.bea.gov/iTable/index_industry.cfm and  http://research.stlouisfed.org/fred2/series/MANEMP

Since 1947 the U.S. has seen persistent growth in domestic manufacturing and the rate of growth has in fact increased since the rapid growth of China’s manufacturing in the 1990s. Clearly the China-U.S. relationship need not be a win-lose one. Now let’s consider jobs in domestic manufacturing. They increased in the 1960s and remained roughly constant even as total manufacturing increased – until about 2000. Then jobs took a dive even as manufacturing continued to increase right up until the economic crisis of 2008. These data cannot be explained by offshoring. There is only one explanation – automation. This is not to say that “offshoring” has not occurred – only that it cannot explain these data.

Notice that the automation has been gaining momentum in the last decade with a precipitous job loss even before the economic crisis of 2008. (In fact this must have a lot to do with the development of the current economic crisis – but that is another story, which we will deal with another time.)

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What about exports? The U.S. is the third largest exporter in the world after China and Germany. Again, not bad for the U.S. with only 5% of the world’s population. And the U.S., like Germany, exports high value-added, high profit items, something to which China aspires but which it is only beginning to do.

The takeaway from this is that the labor intensive manufacturing jobs of the past which provided the middle class with a decent living are not coming back due to automation, robotics, computerization, and ever increasing productivity. Manufacturing jobs are not going to lead the way to a jobs recovery and a "renaissance" of the American middle class. A new Luddite movement is not the answer, either, by the way.

Comments

[Thucydides]

There are over three million jobs open in America right now. People aren't as anxious to work anymore. The flat screen tv, a beer from the fridge,, cheap movies from netflixs. Why do that bothersome thing called work.

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Economists have debunked these bogus numbers "ad infinitum". We are supposed to be mesmerized tables and graphs and ignore the reality of shuttered factories, declining industrial cities and the complete exit of heavy industry from the country.

Manufacturing "output" numbers are stilted. Much of the "value" which is counted as output is generated from use of overseas materials and components. An item only has to undergo final assembly here to have its full value counted as "output". Of course, the "productivity" of the works doing final assembly shows up as phenomenal as well.

Similarly US exports are made up of mainly agricultural products (highly subsidized cotton is the largest), military hardware (the US is the largest arms exporter)raw materials (coal) and services. Surpluses in these areas partially offset the 1+Trillion dollar trade deficit in manufactured goods. COntrary to what the article infers as to "high value" exports the US runs a deficit in high-tech goods.

Capital Investment in Factory Plant and Equipment is a much better gauge of manufacturing activity and it has been on the same decline as manufacturing employment.

BTW I have been an Automation Engineer for 30 years. Automation rarely functions as a direct replacement for labor. It allows workers to produce higher quality, varied and more complex products. Simple manual activities were designed out of manufacturing process way back duringthe industrial revolution.

[thucydides]

Get real. Look at that massive drop from 1997 to 2007. That was a staggering increase in productivity associated with the internet and automated tooling and measurement.