In my first blog post, I contrasted the U.S. manufacturing industry with the newspaper industry. I indicated that both industries are similar in that each one is hemorrhaging jobs. Some of you commented about that post, pointing out that US labor costs—which are substantially higher than those in China and other developing countries—have caused US manufacturing companies to move work offshore.
There are other factors as well that have caused the loss of US manufacturing jobs. Industrial production has declined during the worst recession since the great depression. All things being equal, the drop-off in demand translates into fewer jobs. Second, the Chinese are manipulating (undervaluing) their currency, making the value of Chinese goods artificially low. This stimulates demand for Chinese producers thereby creating jobs for the Chinese economy at their trading-partners’ expense.
But on a structural level, what is happening to US manufacturers is similar to what has happened to our farmers. In 1900, the farming sector employed approximately 11.6 million people, representing the largest sector of the work force (43.5%). In 2000, the farming sector employed only 3.3 million people, a 72% decline in employment. Farming is now the smallest sector of the workforce (2.4%). Although there are significantly fewer people working in agriculture, the output from this sector of the economy has grown dramatically, spurred by technological innovation.
Similarly, US industrial production has more than quadrupled since 1950, despite the fact that US manufacturing now employs fewer workers. As in the agricultural sector, improvements in productivity–in effect, the substitution of technology for labor– has translated into job losses in the manufacturing industry.
Despite the bleak job picture, US manufacturing is still strong overall, if one uses the level of industrial production as a measure. As pointed out in a Barron’s article, as recently as 2007, American factories produced 5,250 complete civilian aircraft, 15,341 complete civil-aircraft engines, 81 million metric tons of raw steel, 10.7 million motor vehicles, 25.6 million computers,…and $125 billion of pharmaceuticals. We are still the worlds’ largest manufacturer. Although some producers are actually moving some work back to the U.S., the jobs that have been lost will probably never come back.
What do you think about the future of U.S. manufacturing?