As
we are all aware, Donald Trump is on a mission to bring jobs back to the United
States. In large part, his plans include renegotiating trade deals that
have led to job losses in what was once America's economic foundation;
manufacturing.
Here is a graph showing what has happened
to manufacturing jobs in the United States since 1939:
At
12.392 million jobs, America's manufacturers have shed 7.161 million jobs from
the peak of 19.553 million in June 1979, a decline of 36.6 percent. As
well, since March 2010 when manufacturing jobs hit their post-Great Recession
nadir of 11.453 million, the addition of 939,000 jobs is a very poor showing,
particularly given the lengths that the Federal Reserve has gone to since 2008.
While
there is no doubt that freer trade has led to offshoring of American
manufacturing jobs, a study entitled "The Myth and the
Reality of Manufacturing in America" by Michael Hicks and Srikant
Devaraj at Ball State University strongly suggests that other factors are at
play as you will see in this posting.
Let's
start with a graphic that shows the U.S. manufacturing production index from
1919 to 2014:
As
you can see, the Great Recession put significant downward pressure on national
manufacturing production, pushing it well below the trend line.
Nonetheless, in real dollars (inflation adjusted), the value of
manufacturing production continues to climb and, by 2014, it had recovered
completely from the setback of the Great Recession.
Here
is a graphic showing the value of all manufacturing as well as nondurable goods
(those used for less than a year) and durable goods (those used for more than a
year) from 1987 to 2014:
While
the real value of nondurable goods (in light blue) has been static for more
than a decade, the real value of nondurable goods (in dark blue) continues to
rise. As well, you can see that the real value of all manufacturing goods
continued to climb throughout the two and a half decades with short
interruptions during recessions. This clearly shows us that manufacturing
is still a very important part of the U.S. economy. In fact, while the
total value of manufactured goods fell by 11.5 percent during the period from
2006 to 2009, rose by 32.9 percent over the period from 2009 to 2013, leaving
us with overall growth of 17.6 percent from 2006 to 2013.
Now,
let's look at how productivity has changed in key manufacturing sectors.
Here is a table showing how the average product of labor changed between
1998 and 2012 and the GDP growth for each sector over the same timeframe:
As
you can see, when adjusted for inflation, productivity grew for all sectors
over the period from 1998 to 2012, ranging from a low of 6 percent in the
nonmetallic mineral products sector to a high of 829 percent in the computer
and electronic products sector with an average of 90 percent for all
manufacturing sectors. This compares to overall production value increase
(i.e. GDP growth) of 32 percent for all sectors.
What
caused this substantial increase in productivity? The authors note
that the increase in productivity is largely related to the adoption of
automation and information technology. The
authors focused on the period from 2000 to 2010 when the U.S. economy
experienced the largest decline in manufacturing employment in history as shown
here:
In January 2000, there were 17.284 million manufacturing
jobs in the United States, by the beginning of 2010, this had dropped to 11.46
million, a decline of 5.824 million. The authors calculated the total number of employees needed to produce the 2010 levels of production using the 2000-level worker productivity levels. Had the economy kept the level of
productivity from the year 2000 and applied that to the 2010 production levels,
manufacturers would have required 20.9 million workers rather than the 12.1
million that were employed in the sector.
The
study then examines the job losses in manufacturing that are attributable to
trade, changes in domestic demand for goods and changes to productivity. The
authors found that losses in productivity and trade varied by sector but,
overall, the share of job losses in manufacturing were relatively small when it
came to international trade (13.4 percent of jobs lost) compared to losses related to increases in productivity
(87.8 percent of jobs lost). This means that only 750,000 of the jobs
lost in manufacturing during the period between 2000 and 2010 were related to
international trade compared to job losses of over 5 million that were related
to increased productivity (i.e. the adoption of automation and information
technology).
From
what we can see in this study, very little of the job losses in the
manufacturing sector are related to international trade. It appears that,
unless America's domestic manufacturers are willing to forgo the productivity
gains made by adopting automation, the U.S. economy will find it increasingly
difficult to create significant numbers of manufacturing jobs. Gone are
the glory days of the factory worker no matter what Donald Trump may want.
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