Manufacturing Decline?

Wednesday, March 1, 2017 - 3:30pm

By: Lauren Walker Bloem

Manufacturing productivity in the United States has gone up, consistently, over the years. In fact, we make almost twice as much in manufacturing output as we did in 1987. How is this possible, when total manufacturing jobs over the same period of time has decreased by about 7,000,000 people?

The answer is, in large part due to automation: manufacturers in the US are making more goods, more efficiently, than ever before. Real output per hour, per person, in US factories has increased three fold since the 1990’s. Robots and machinery have replaced people. This trend is not only an artifact of US manufacturing, the same has happened in the US agriculture sector, where employment has gone from 4.5% of the US workforce to 1.5% in 2012 over the same time period.

The decline in manufacturing as a percentage of total jobs has been going on since the 1950’s in a relatively linear fashion. Total manufacturing jobs have decreased notably over the last two decades, and there was a small, additional dip during the recession. This suggests that while the recession did impact manufacturing in the US, overall there is a well-established downward trend over the past 50 years in manufacturing employment.

The clearest growing sector in the US economy is the service industry, including professional and business services, like banking, investments, computer, health and education services. This industry has grown positively and linearly about six fold since the 1940’s.

Overall we continue to make more product in the US for domestic and international consumption (as evidenced by a growing GDP ever since 1950, with only a small dip over the 2009 recession). It is important to note, however, that overall productivity and growth, on average, still leaves some communities behind. The 2016 election should demonstrate that a growing economy and the lowest unemployment rate since the recession does not leave everyone content.

The best explanation is that national averages are just that: averages. An average inherently indicates that some are better off, and others worse off, than the mean. President Trump tapped into this angst. In the 2016 Republican primaries,  President Trump won in 89 of the 100 counties most affected by competition from China. An example is Catawba County, NC, once the “furniture capital of the world”, where the manufacturing employment shrunk to 38,000 jobs in 2014 from 79,000 in 2000. While overall unemployment in this county is not much higher than the US average, the total labor force has shrunk by 13% since 2001. People moved away, and there are simply less people to be employed, and therefore less people to be unemployed.

Economists generally state that labor markets would incentivize people to shift into a more lucrative job. As the data above suggests, this would mean away from manufacturing and agriculture and into the service industry. In reality it takes time to learn a new skill, or may require relocation, so this shift may take longer or not happen at all. What’s more, people find actual value in a job itself; a job is not a value-free conduit for income, as Noah Smith posits, but rather provides value and human dignity above any monetary value.

People want jobs, but the growing employment fields in the US (and other developed nations, for that matter) are in the service industry. These are higher-education level IT, computer, and engineering fields.

Jobs are shifting to automation and robots in other fields, too. Very soon doctors, truck drivers, and Uber drivers will face a similar shift towards automation. It is too soon to know what new jobs may arise as a result, but it is likely to cause an increase in the need for more computer scientists, engineers and IT personnel. These are great jobs; they are not, however, easily transferable from the skills of the past job, and will require higher education.

The current political rhetoric, therefore, misdiagnoses the problem. President Trump campaigned to bring factory jobs back to the US; when factories “re-shore” to the US, however, the factory may move back but total jobs will not be what they were in the past. In the US, companies will rely more heavily on automation than they do in other countries where human labor is cheaper, and efficient technology will only become more available over time.

The real challenge we face is not where a company has a factory; rather, it is that nearly every sector within the US is shifting towards automation. This issue is much larger than just manufacturing, which makes up only 7.5% of the US labor force today. The job market is shifting and our ability to educate people to adequately adjust to these changes is severely lacking.

There are market incentives to produce a better product at a lower price, and mechanization helps achieve that goal. There is a lot of benefit to increasing efficiency in the US economy, but policymakers need to take those without a viable job seriously. It is not easy to shift from furniture manufacturer to software developer and our current economy is leaving some communities behind.

People value a job as it provides dignity and meaning. The US should therefore consider policy options that boost the overall economy, and especially target communities where global trade has left them without viable employment. A simple backlash against all trade will not, in the end, help those most in need of a new job. Creative employment solutions will require effort and innovation from Federal, State, and Local governments and businesses. An awareness of the coming changes from mechanization across all sectors of the US economy will prepare us to welcome the benefits and prepare for the coming challenges.