Manufacturing in decline
Two terrific articles on the declining role of manufacturing in the American economy. One from Bloomberg Businssweek entitled Factory Jobs Are Gone. Get Over It. The other a Steve Rattner column for the New York Times entitled The Myth of Industrial Rebound.
Both clearly present the overwhelming data that manufacturing employment has been and will continue to be a smaller and smaller part of the American economy. And the unwillingness of elected officials of both parties to recognize this reality.
The fact that President Obama, Governor Snyder or any other national or state policy maker declare manufacturing a vital component of job creation and/or rebuilding the middle class won’t make it so. Globalization and technology–the drivers of the manufacturing decline–trump politics and policy. End of story!
The facts: As Businessweek writes:
Any attempt to draw lessons from the 1950s, when many a high school-educated (white, male) person got a job in a factory and joined the middle class, doesn’t account for the changes in the U.S. and global economy since the middle of the last century. While it’s smart to focus on creating more stable, remunerative jobs, few of them are likely to come from manufacturing. In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).
Rattner in addition to reviewing the data on job loss also deals with the new reality that blue collar factory jobs no longer pay high wages. And the combination of the two–fewer jobs and lower wages–make manufacturing not the path to rebuilding a mass middle class. He writes:
But we need to get real about the so-called renaissance, which has in reality been a trickle of jobs, often dependent on huge public subsidies. Most important, in order to compete with China and other low-wage countries, these new jobs offer less in health care, pension and benefits than industrial workers historically received. …
For all the hoopla, the United States has gained just 568,000 manufacturing positions since January 2010 — a small fraction of the nearly six million lost between 2000 and 2009. That’s a slower rate of recovery than for nonmanufacturing employment. “We find very little real evidence of a renaissance in U.S. manufacturing activity,” a recent Morgan Stanley report stated, echoing similar findings from Goldman Sachs. …
This disturbing trend (declining wages) is particularly pronounced in the automobile industry. When Volkswagen opened a plant in Chattanooga, Tenn., in 2011, the company was hailed for bringing around 2,000 fresh auto jobs to America. Little attention was paid to the fact that the beginning wage for assembly line workers was $14.50 per hour, about half of what traditional, unionized workers employed by General Motors or Ford received.
With benefits added in, those workers cost Volkswagen $27 per hour. Consider, though, that in Germany, the average autoworker earns $67 per hour. In effect, even factoring in future pay increases for the Chattanooga employees, Volkswagen has moved production from a high-wage country (Germany) to a low-wage country (the United States). (Emphasis added.)
As we explored in our latest report, rather than manufacturing, the key sector of both job and personal income growth (the two together create a mass middle class) in America going forward are knowledge-based services. That is where the combination of job growth and high wages have been, and almost certainly will continue to be, the strongest.
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I agree with the general idea in both articles, that manufacturing is declining in the United States. They do point out that manufacturing outout is still increasing. But because of rapidly improving productivity, it takes fewer and fewer workers to make more stuff. The improving productivity seems to require three things: more highly trained, skilled workers, tecnological improvements and capital investment. This seems to fit right into What Michigan’s Future believes. Michigan cannot stop the outflow of low skill manufacturing jobs to lower wage areas whether it is China, Mexico or Mississippi. But we can try to make sure our state is educating sufficient numbers of people with the skills needed to perform the remaining higher skilled jobs, and encourage our cities to keep improving so that more such people attracted to our state.