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Home Publications Blogs Beat the Press The WAPO Tells Us How Not to Think About Manufacturing and Jobs

The WAPO Tells Us How Not to Think About Manufacturing and Jobs

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Tuesday, 20 November 2012 06:10

A Washington Post blogpost, whose headline told readers that manufacturing jobs are not coming back, gave an incredibly misleading rationale for this assertion. It told readers:

"Manufacturing contributed 20 percent of the growth in global economic output in the decade ending in 2010, the McKinsey researchers estimate, and 37 percent of global productivity growth from 1995 to 2005. Yet the sector actually subtracted 24 percent from employment in advanced nations."

Note that the first two figures refer to global growth, as in whole world. The third number refers to growth in advanced nations. This matters in a huge way. The trade deficit in manufacturing goods that advanced countries ran with the developing world expanded hugely in this decade.

This was conscious policy in many countries as they removed barriers to trade in manufacturing goods while maintaining or increasing barriers to trade in many services, like physicians and lawyers services. Apart from the political implications of this policy (even greater inequality, as a small group of sheltered professionals gain at the expense of the rest of the workforce), there is also the economic problem that trade deficits cannot expand indefinitely.

At present, China and other developing countries are effectively willing to subsidize U.S. consumption of their manufacturing exports by buying up U.S. government bonds that pay negative real interest rates. It cannot be too long before these governments figure out how to create demand by spending money domestically, rather than paying U.S. consumers to buy their stuff. When this happens, manufacturing, which continues to dominate world trade, is likely to flow back to the advanced countries. 

In contrast to the decade from 2000 to 2010, when they were losing shares of world output, advanced countries will then likely be gaining shares. This will almost certainly mean substantial growth in manufacturing employment unless productivity growth, and therefore GDP growth, turns out to be much higher than is generally projected. 

Comments (6)Add Comment
just for the record
written by Brett, November 20, 2012 8:04
Here is Ezra Klein's tweet on this article:

https://twitter.com/ezraklein/status/270575734509154304

"The numbers in @neil_irwin's third paragraph are amazing:"

The third paragraph refers to the one Dean specifically highlights here as tremendously misleading.

This shows you Ezra's level of economics competence. Good writer, but not a good thinker.
Manufacturing employment in China peaked in 1995
written by Jed Harris, November 20, 2012 9:39
at 98 Million. It has never gotten as high as 84 million since 1998. If we got all the manufacturing employment growth instead of China we'd still have falling manufacturing employment. (See "Manufacturing Employment and Compensation in China by Judith Banister, US Dept. of Labor)

The problem is not off-shoring. The problem is productivity -- and the way the economy passes that on to workers as poverty. The manufacturing jobs are not coming back. But we can have plenty if we fix the economy.
...
written by skeptonomist, November 20, 2012 9:58
Productivity increase is hardly a new problem; since the start of the industrial revolution employment per unit output has decreased. Productivity in farming has also increased, maybe even more, in the past shifting employment from farming to manufacturing. Now China and India are undergoing some of the same changes that the western world underwent in the 18th-20th centuries. Productivity increases have not meant that that jobs disappeared over the last 200+ years and there is no fundamental reason why this should be the case now.

I think that under "free-trade" policies jobs will not begin to shift back to developed countries until the standard of living and wages in the developing countries come near equality. If the standard of living of US workers is to be preserved and not dropped down to meet that of Asian workers, some degree of protection is necessary. The protection which US capitalists and professionals have is unfair, but not directly relevant to the wages and living standards of US workers.
Manufacturing in the USA will come back
written by John Wright, November 20, 2012 10:16
I work in hi-tech manufacturing and frequently deal with USA and Asian contract manufacturers.

The USA high tech companies have created a system that has much of their product produced in Asia, giving up geographical diversification.

And there is a willingness to source from a single vendor to get the lowest price, which sacrifices supplier diversification.

For example, many USA semiconductor companies do not make their own products but instead have Taiwan Semiconductor Manufacturing Company (TSMC) ( with most capacity in Taiwan ) fabricate their parts.

If there is a severe supply chain disruption in Asia through a natural (see floods in Thailand) disaster, man made disaster (see Fukishima) or political/labor unrest, some high tech firms might find that while their manufacturing philosophy resulted in lower prices for a while, they have no product to sell for months during the disruption.

Then the executives of these companies will herd to a newly discovered "who could have known" option, sourcing product in stable developed nations such as the USA.

And manufacturing jobs will come back to the USA.
Manufacturing may come back to US, but (net) jobs will not
written by Jed Harris, November 20, 2012 11:28
John Wright makes a fine argument that manufacturing may come back to the US. However at the end he implicitly assumes that if manufacturing comes back, net jobs will increase.

However any manufacturing that moves back will be using processes designed to the best current standards -- which means as automated as possible, with provision to add more automation as quickly as possible. So the jobs added will not be enough to offset the trend.
Mfg.
written by Nick Batzdorf, November 22, 2012 4:22
My question - and this is a question I'm trying to think through, not an assertion - is why the bulk of the world's manufacturing would move back to rich countries rather than continuing to go to the next "developing" country. Is that not the story with, say, Hong Kong, Japan, Singapore, Korea...even Ireland for that matter?

Actually, I wonder whether the United States might not even fit that picture: as the country gets richer, manufacturing goes to places with cheap labor.

I hope I'm wrong!

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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