Friday, August 06, 2010

Charts of the Day

Free trade opponents often blame "outsourcing" for the decline in U.S. manufacturing jobs. In a July 9th Washington Times op-ed, Ron Bullock, chairman of Bison Gear & Engineering, argued that:
more effective foreign competition has led to increasing manufactured-goods trade deficits and the loss of 7 million U.S. manufacturing jobs since 1980. Our position as the world's leading manufacturing economy is about to be lost to China because of a lack of effective measures in tax and trade policies.
A recent Wells-Fargo report tells a different story:
The number of manufacturing jobs in the United States peaked at nearly 20 million in June 1979, which represented more than 20 percent of the workforce at that time (Figure 1). . .

In terms of factory output, however, the U.S. industrial sector is alive and well. Even as the number of manufacturing jobs has dropped by 40 percent since 1979, manufacturing output has nearly doubled over that period. Despite the widespread perception that "everything" is made in China, the United States remains the world’s largest industrial producer. According to the United Nations, value added in the U.S. manufacturing sector in 2008 totaled $1.83 trillion. The comparable figure in China was $1.79 trillion.

A sharp decline in manufacturing employment coupled with a sizable increase in output implies a marked rise in labor productivity in the industrial sector. Indeed, labor productivity in the manufacturing sector has more than doubled since 1987, significantly outpacing productivity growth in other sectors of the U.S. economy (Figure 2).

source: Wells-Fargo, What Really Drives Growth in the Industrial Sector?
The report's answer: increased investment in information technology has made U.S. manufacturing far more efficient.

I agree, though the share of GDP from manufacturing has declined over the last decade. Further, the non-wage costs of hiring the additional marginal employee -- i.e., various payroll taxes -- may over-encourage the substitution of capital for labor. Still, as prof Mark Perry of Carpe Diem observes, "it's the dramatic increase in the productivity of American workers that helps explain the loss of millions of manufacturing jobs, and this [should be] a cause for optimism, not pessimism."

(via Cafe Hayek)


suek said...

"it's the dramatic increase in the productivity of American workers that helps explain the loss of millions of manufacturing jobs, and this [should be] a cause for optimism, not pessimism."

Is it? How? suppose that we somehow develop machinery that will eliminate all human jobs on a manufacturing floor. What are the humans supposed to do to earn a living? I get that some of the jobs are dreary and monotonous, but unless you're prepared to confiscate the earnings of the company to support the "former" workers, how are they supposed to live? If all manual labor is eliminated, are you to assume that the laborers will become white collar workers? or government supported?

I just don't understand how it's supposed to work...

Carl said...

Sue: Two points--First, that the job losses stem from, in the main, productivity improvements, not free trade. And, second, yes to a great extent, we have become knowledge workers, with lost manufacturing jobs replaced by jobs in service industries. Government funding does, of course, help with retraining, but the market does so itself (hence all the late-night commercials for IT certificates).

Yes, we have high unemployment now. But before the financial crisis, employment was higher than ever, despite the shift from manufacturing jobs. Without "confiscating" anything. I hope and believe that when this recession is over the same will be true again.

O Bloody Hell said...

Sue, the thing to grasp is that we are not a manufacturing economy any more.

As early as the late-60s, the USA was identified as being in a "post-industrial economy".

"Post-" means, in this case, "we ready for the next stage, but we don't know yet what that is".

Now we DO know -- what follows an industrial economy is an "IP & Services Economy" -- that is, most new wealth comes from production of IP (that is, music, movies, TV, research, and so forth) and services (specialists to do jobs of any nature -- accountants, lawyers, doctors, graphic artists, and so forth)

The USA was in an agricultural economy as little as 130 years ago -- as much as 80% or more of the population was needed to produce the food for the whole.

Along came mechanized farming, and that percentage was reduced steadily over the following century until now between 2% and 5% of the populace produces the food for the whole.

Are we screaming about "lost farm jobs"? Do we have programs to raise farm employment back to a much larger percentage of the population? Does the phrase "That would be absurd!" come to mind?

So, too, does automation/robotics apply to former industrial jobs -- that segment of the population should, in time, reduce naturally down to 2% to 5% of the whole.

This is a natural progression of things, and the only way to fight it is to repress economic progress, making the nation immeasurably poorer.

So, in answer to your question -- yes, they will become white collar workers and/or providers of services.

We are at the very beginning of this aspect of the transition, since I suspect that, just as the ultimate expression of organization for the Ag Econ, the Feudal Enclave, with its Lords and Ladies at the head, fell by the wayside as industrialism progressed, so, too, will the corporation, with its CEOs and Presidents at the head, fall by the wayside as the organizational form for the coming society... An IP&S Economy will have its own natural organizational structures, and there is a lot of money to be made in forming the legal basis for those, as well as identifying them as they become recognizable (I have some ideas about this, but this is too long already).

The key point is that -- yeah, there are going to be dislocations as people need to be retrained.

And also, yes, there are issues in the steady deterioration of the modern school system, as well as its overall goals -- the current target output is a perfect candidate for a factory worker -- dull, slow-witted, and unthinking

"Knowledge Workers" need to be intelligent, resourceful, and independent thinkers. Almost diametrically opposed to what our schools are attempting to create.

The next fifty years will be... "interesting", in the apocryphal Chinese Curse sense.

"There is no week, nor day, nor hour, when tyranny may not enter upon this
country, if the people lose their supreme confidence in themselves - and lose
their roughness and spirit of defiance."

- Walt Whitman -

America is uniquely situated to prosper in an IP&SE -- we are a polyglot people -- if it sells here, it will sell almost anywhere, as we are a microcosm of humanity. It is why our IP predominates around the world.

And our people are inherently independent thinking risk-takers -- we're all descended from such people -- it's truly the one single thing we have in common for the most part: Our ancestors all (with one group exception), to a man and woman said, "Screw you guys, I'm outta here!" and went in search of a better main chance.

suek said...

You make it sound so reasonable...and manageable. But it seems to me that there are two parts of the equation - first, the working population = X and second, the non working population. If those who are competent to do the labor required = 1/2 X, what happens to the rest of the population? Is this the motivation behind the socialism drive? If you have half the population (or whatever actual percentage) unable to be gainfully employed, what do you do with those people to keep them from causing an even further drain by their mischief than they do by their non-contribution? It's a bit like a classroom - half the kids working hard on whatever work, the other half raising Cain. Do we have to assume that non-contributory part will be housed in some sort of permanent warehousing facilities? (providing work for some of them I suppose...)

"Idle hands are the devil's workshop"...

Carl said...

Sue: All I can say is that the Luddites believed the same--and they were wrong.