The populist
shift in the world these days seems to be driven in large part by employment. In
the USA, the lament seems focused on manufacturing employment (ME). So I
decided to take a little trip down memory lane to see what has happened to US ME, especially within the context of a little history, globalization,
and NAFTA. As you might guess my
conclusion is that the data does not support the idea that trade, unfair or fair, is mostly responsible for robbing the US of its manufacturing prowess and employment.
Has US
manufacturing employment declined? Yes. See the table below. In 1948 ME was about 14.3 million
workers and represented almost 25% of the US workforce. But that was a
long time ago and I hadn't even heard of JD then. ME grew after that and peaked in 1979 at 19.4 million workers.
But already – before globalization – ME had fallen to less than 20% of the US
employment in 1979. Point – a downward trend had begun without globalization or Nafta. Between
1948 and 1979 ME fell from one-quarter to one-fifth of US total civilian employment.
Even
1979 was a long time ago. At that point I was mixing JD with Coke and grooving to disco music. Between 1979 and 1994 the number of MEs fell from
19.4 million workers to 17 million. By 1994 ME was down to 13.8% of total
employment. So before Nafta or before the fall of the Soviet Union (1991) could
impact trade very much, ME was down to less than 14% of all US jobs. Note the
fall from 25% to 20% to 14% from 1948 to 1979 to 1994.
It took
another 12 years to push ME down even farther. By 2006 and just before the
world economic crisis, US ME has fallen to 14.2 million workers and accounted for just under 10% of all employment. So in those 12 years ME fell by another 2.8
million workers and by another 4% of the total employment. This was the time period in which
NAFTA, the opening of China (in the 1990s), and other major global forces were in full bloom.
But it would
be exaggerating the truth to say that globalization was responsible for all of
the ME declines between 1994 and 2006. For example, whatever was causing firms to
replace workers with machines before 1994 was surely still
operating after 1994. And another important cause of falling ME was recessions.
After the recession in the early 2000s, ME fell from more than 16 million to
about 14 million workers. After the 2008 recession ME fell from about 14
million to about about 11.5 million. We expect many of those jobs to come back if and when the economy regains its former strength. But for now recession aftermath continues to impede ME.
In 2015 ME
was down to a humble 8.3% of total US employment. That’s a steep fall from the 25% it
garnered in 1948. During those years many factors were impacting ME in the USA. Equipment, robots, and other capital improvements have displaced labor
continuously. Globalization has caused some US producers to move offshore and
has allowed other countries to compete for US consumers, thus displacing workers. Recessions always caused temporary declines and they continue to do so.
ME
employment fell from its peak of 19.4 million workers in 1979 to about 12 million
recently. It is not easy to decompose
that decline and to know exactly how much of it was caused by globalization. Conversely it is not easy to say by how
much globalization increased ME in the USA. Surely as foreign firms have geared
up to compete internationally US business productivity has benefited by
importing new capital, parts, and assemblies—making US firms more competitive and
allowing them to expand output and employment in the USA.
Don’t be
easily persuaded to think that globalization and free trade agreements have
decimated US ME. Note that ME in 1948 was not the major US employer. Even back then
ME accounted for only 25% of jobs. It is true that ME declined to 12 million jobs today. But the numbers say that globalization is only one of many things causing US ME to decline. It is
foolish to think that extreme nationalistic and protectionist policies will
do anything to stop or restore these changes in US economic structure.
Table. Manufacturing Employment (ME)
Selected Years since 1948
Year Millions % of Total Employment
1948 14.3 24.5
1979 19.4 19.7
1994 17.0 13.8
2006 14.2 9.8
2015 12.3 8.3
Table. Manufacturing Employment (ME)
Selected Years since 1948
Year Millions % of Total Employment
1948 14.3 24.5
1979 19.4 19.7
1994 17.0 13.8
2006 14.2 9.8
2015 12.3 8.3
From front line experience.
ReplyDeleteWe import parts from Asia and South America that are made with cheap labor and good machines. We assemble them and resell them as x-ray machines and sensors. We can claim " Made in America" status as per the FDA who governs our little part of the manufacturing world. These finished products are sold to dentists and have increased their care efficiency by over 40% since 2007. That translates to more money for them which is invested partly in technology and enables them to keep their prices within reason. On the other hand without these products the opposite would be true. Dentistry is a small microcosm of the end use for manufactured equipment things. I am not a give-away globalist but I do firmly believe manufacturing has been replaced by technology which in turn is produced with technology. Those jobs will not be back .... so that partially explains the flat wages for the past 20 years. The jobs other than manufacturing just do not pay what the manufacturing jobs pay unless they are in technology development and or sale....and many are....they just require a higher level of education.
Industrial countries have experienced falling world shares of manufacturing value added in favor of emerging countries, in particular China. There is no question that a redistribution of world shares has taken place as a result of globalization, but that does not mean that a protectionist policy will bring back to the United States the good old days of manufacturing employment. Technology and automation are the bigger factor responsible for the falling ratio of industrial employment. For some time, the service sector absorbed much of the exit of industrial employment. Automation is beginning to alter the employment-to-output ratio also in this sector. The big question is how are we going to handle a generalized decline in total employment to total domestic output driven by technology and automation. Capitalism can adjust, but I am not sure that democracy can.
ReplyDeleteMichele Fratianni
Thanks Michele. It seems to me that one avenue for the US is to compete harder. We can't compete on wages -- but we can compete on labor quality and technology. To do that, however, would take a massive reorientation of both attitude and policy. As you say, Democracy might not be able to do that!
DeleteMichele
ReplyDeleteEducation!!!! But what kind? Technology innovation moves very fast. Todays programmer is tomorrows garbage man. Something else moves fast and on a dime and that is new business creation rather by an entrepreneur, high school grads or staff in an existing business. My wife is a director of such a program of academies at our local high school. Each academy prepares the student for specific set of applied technologies in a general market. They can change academies twice prior to graduation and also take AP courses at the local college. They are also charged with fixing a out of date company, starting a new one or helping a startup as advisors. Additionally , shadowing is required. The course load includes design, marketing, accounting, sales, management all built around the technologies of that sector. The graduates should be capable of working in that field after graduation or going on to an accredited college.
These programs are supported by substantial government and private sector grants.....no strings attached except no funds can be spent for anything else outside of the academies.
Dear LSD. ME’s share of total employment certainly has decreased, but only 2 million since 1948 @ 14.3 million vs. 12.3 million last year—about a 15% decrease. U.S. population in ’48 was 146.6 million compared to 325.2 million today—about a 122% increase. Looking at the ME decrease in absolute terms seems less dramatic in light of the much larger increase in total population.
ReplyDeleteGlobalization is surely one of the culprits along with changes in attitude about ME (dirty, loud, unsafe, etc.), the overall shift toward a service economy, and increased technology/capital in M. Jim’s comment about education is also on the mark—many ME applicants can’t even read a ruler. But another factor just as culpable in the slide in ME pertains to a general degradation of traditional social/cultural values and mores that used to promote self-reliance, getting a good education and graduating from high school, the nuclear family, and staying out of jail—e.g. personal attributes. There are over 500,000 ME openings unfilled due to weak attributes and lack of education and skills. So, there have been a lot of contributors to ME decline; I don’t blame globalization and trade agreements only. Despite all this, M has performed admirably by investing in technology/capital and thus increasing productivity significantly—producing more with less labor. Of course, that doesn’t bode well for re-shoring labor-intensive jobs. Further to Jim’s comment—“Education . . .but what kind” suggests that education and business must collaborate to educate for the jobs of the future—like a Manhattan project for M. STEM focus and manufacturers/educators creating trade skills training (as do the Germans) is a good start.
Populist chatter itself won’t reverse the aforementioned factors causing the decline, but it has implicitly focused on a factor I’ve not mentioned—the competitive advantage of foreign labor. I’ve read/heard that the cost advantage of producing off-shore (e.g. indirect costs, quality/logistics problems, communication/language problems, etc.) is lessening, thus improving the potential for a ‘merican made’ renaissance. The Trumpster has not mentioned foreign labor cost advantage in his “bring jobs back” rhetoric but it’s the elephant in the room. Corporate income tax relief and regulation mitigation alone won’t and shouldn’t re-shore labor-intensive jobs but rather attract/create manufacturing jobs that require education and skills that justify higher wages. Renegotiating trade and making agreements that are more favorable (not protectionist) to labor is needed as well as a making M cool again.
Sorry for the lengthy reply but there’s more to causes of the ME decline than globalization, poor agreements, and technology.
Hey Tuna,
DeleteYour comment was more complete than mine and shall we say more reasonable! Anyway, thanks for the nice contribution. I agree totally! Hope to see you soon.