Saturday, May 2, 2009


Some economists have purported the ideas that domestic spending has shifted away from manufactured goods, growing international trade is at most a minuscule reason for the declining manufacturing employment, and the decline in employment is a part of a natural, comparatively advantaged, order involving a rise in demand for skilled workers.

The last point was directly addressed in a previous post, The Skills Crisis and Job Training, "There is little evidence of absolute declines in cognitive or hard skills in the United States or generally poor performance relative to other advanced industrialized countries," as reported by associate professor Michael Handel.

Another relevant question is whether or not this supposed rise in demand for skilled workers was simply the by-product of having more college graduates available for the workforce. It's the chicken or the egg question. Also, even though a country moves toward higher skills and education among more and more of its citizens, does that necessarily mean that the productive use of the workforce also follows in-line by only providing services and offering more "professional" employment opportunities?

No matter how advanced a country might be, every citizen cannot be a lawyer, doctor, or CEO. As I reported in The Skills Crisis and Job Training, Marc Levine finds, "Over the next decade the Bureau of Labor Statistics projects the greatest job growth in occupations requiring a high school education and short-term, on-the-job training."

Manufacturing productivity has been consistently increasing throughout the years, but demand supposedly hasn't kept up. Josh Bivens dissects and dismantles this (and the other claims) idea of decreased demand in his report, Shifting Blame For Manufacturing Job Loss. He finds:

Trade imbalances in manufacturing accounted for 59 percent of the decline in employment.

Demand for manufactured goods as a share of total demand has grown over the past 10 years.

The rising trade deficit in manufactured goods accounts for 58 percent of the decline in manufacturing employment between 1998 and 2003.

The use of contract, part-time, and temporary workers by manufacturing companies also hurts wages and overall employment numbers. A development obviously connected to increased productivity and cost-cutting initiatives at firms (induced by global competition of cheaper labor).

Some also explain the (mythical) decline in domestic spending for manufactured goods with the supposition that goods have become cheaper. But this is a glaringly, sweeping generalization. Which goods? Cheaper for whom? Sure VCRs are relatively inexpensive, but cars are the second largest purchase for most families, and the price of most cars is near the yearly median income of most workers. And, let's not forget that wages have stagnated for the majority of workers since the 1970s.

Dean Baker writes, "At the end of the 1960s, nearly twenty-nine percent of workers in the U.S. were employed in manufacturing...part of the decline of manufacturing is attributable to the decisions of firms to move operations overseas...the U.S. has been running an annual trade deficit in excess of $150 billion for the last several years. If this trade deficit were eliminated it would create over two million additional manufacturing jobs, and increase of almost fifteen percent."

The trade deficit has been accelerated by the high value of the dollar versus other currencies.

"The American dollar had been high through much of the Bretton Woods period, but in 1979 it took off and rose some 60 to 70 percent...Manufacturing thus did not decline as a consequence of natural causes, but was hastened to the edge of the cliff and pushed off by the high dollar," concludes Jeff Madrick. As a share of overall employment in the Midwest, manufacturing has fallen from 29 percent in 1969 to 12 percent in 2007. Declines were pronounced during the Clinton administration because of Robert Rubin's high dollar policy.

Howard Wial and Alec Friedoff, in a report for the Metropolitan Policy Program at the Brookings Institution, found that, "Despite these job loses, manufacturing remains a major driver of the nation's economy and the economy of the Great Lakes region."

Manufacturing represents 20 percent of GDP in Europe, 14 percent in the U.S., 33 percent in China and 18 percent worldwide. David Huether of the National Association of Manufacturers, in a New York Times article by Nelson Schwartz, explains, "Manufacturing makes up two-thirds of U.S. exports and contributed more to GDP growth over the last 20 years than any other sector of the U.S. economy. Our share of global manufacturing output has remained steady at 20 to 23 percent over the past decade."

In a recent posting, Failure Bonuses, I noted that the Economic Policy Institute had found:

Of the 20 richest countries tracked by the U.S. Bureau of Labor Statistics, the United States ranks 17th in hourly pay for production workers in manufacturing.

Of the 16 nations with higher compensation for production workers in manufacturing, the United States ranks behind only Ireland (a nation with a manufacturing workforce less than 2% as large as that of the United States) in terms of “value-added per employee” (a rough measure of productivity).

The combination of relatively low compensation and high productivity means that U.S. manufacturing leads the world in terms of competitiveness of per unit costs of manufacturing output.

If the wages claimed by managerial and non-supervisory labor in the United States were the same as the median of comparable countries, U.S. manufacturing would have a 6.4% cost advantage over major trading partners.

Robert Scott elucidates, "Manufacturing supported 14 million jobs in 2007, about 10.1 percent of total employment...generating $1.6 trillion in GDP in 2006 (12.2 percent of total U.S. GDP)...gross output of $4.5 trillion in 2005, by far the most important sector of the U.S. economy in terms of total output." In Wisconsin, manufacturing generated 20.8 percent of GDP, $47 billion.

Manufacturing is a hugely important industry. It deserves our attention and support. To simply allow it to steadily decline is a failure of national, industrial, economic, and security policy. Manufacturing is an important element of our economy and a source of many well-paying jobs. Manufacturing also allows us, as a nation, to innovate and produce products sought after the world over. Doing nothing and allowing America to become a nation of service-providers leaves our choices to the whims of foreign producers.

After all that has happened since the economic collapse of 2008 (the fault of our "professional" financial service providers - Wall Street), I think it's time we rediscovered production of tangible objects. I'd much rather be helping assembly line workers get back on their feet and securing America's future building and providing things - such as wind turbines and electric cars, rather than seeing my money gambled on the black hole that is Wall Street.

For Further Reading:

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