Thursday, August 11, 2005

Strong Productivity Growth Hurts Some

Since January of 2000, the U.S. has lost almost 3 million manufacturing jobs, or approximately 17.0 percent of the nation’s manufacturing workforce. During this same period of time, the nation’s non-manufacturing sector added 4.8 million jobs for a 4.0 percent gain. As a consequence, the share of the workforce employed in manufacturing declined from 15.0 percent in 2000 to 12.0 percent in 2003. Americans mistakenly blame these losses on offshoring to Mexico, or on the importation of cheap Chinese manufactured goods.

However, even the Chinese lost manufacturing jobs. According to the Conference Board, between 1995 and 2002, China lost 15 million manufacturing jobs, while productivity growth exploded at 17 percent per year. In fact China is losing manufacturing jobs in the same industries as the U.S. For example, the U.S. lost 202,000 textile jobs between 1995 and 2002, while China lost 1.8 million jobs in this industry.

The real “culprit” in the job loss story is rising manufacturing productivity. That is, U.S. manufacturing firms continue to get more and more output from fewer and fewer workers. American productivity, which measures output per hour, doubled during this period in comparison to the early 1990s when manufacturing employment was growing. In China, productivity growth likewise grew, but at an incredible 17 percent per year during this period.

Of course some politicians consistently whine about U.S. factory losses and how it signals the end of the U.S. middle class. However, I contend that the manufacturing loss will parallel the loss in the farm sector. In 1929, over 8.0 percent of the U.S. workforce worked in farming. By 2004 only 0.6 percent of the nation’s workers were employed in farming. Between 1929 and 2004, U.S. farm employment declined by 75 percent while farm output rose by a remarkable 2000 percent. Rarely does one hear a member of the press, a politician or economist lament these farm job loses.

Just as the U.S. economy will not resurrect agricultural hiring, the country’s manufacturing sector will see few factory gains and will instead witness continuing manufacturing job losses. That is, over the next decade, the manufacturing sector in the U.S. will bleed jobs as productivity growth reduces jobs but adds to output, profits and wages. Workers, investors and consumers will benefit from this trend.


1 comment:

Bill Waddell said...

It is an interesting theory, but not true. Mr. Heuther's piece in Business Week cited data from the Bureau of Labor Statistics as the source. However, when look into the BLS productivity calculation, you will find that it says the following:

"Conceptually, the impact of offshoring is more pronounced in manufacturing measures than in the business sector measures, provided the domestic manufacturer is purchasing the offshored goods or services as inputs. (As with the business sector, the complete loss of manufacturing production to an importer of finished goods leaves productivity largely unchanged.) If a domestic computer manufacturer switches from domestic to foreign suppliers of intermediate inputs such as computer memory chips or call center services, real manufacturing sectoral output is unchanged. Because U.S. jobs are lost (all other things unchanged), labor productivity will rise. If the U.S. manufacturer switches most of its production to off-shore facilities, labor productivity might rise substantially."

Read the entire section here, if you like:

The whopping productivity increases so widely cited are actually the sum of real productivity gains PLUS outsourcing.

Regarding China's loss of manufacturing jobs, the BLS has reported that to be false, as well. Why they did not publish the results of the study they commissoned on the subject is anyone's guess. Instead, NAM and others rely on a very weak study published by a professor at Clemson University. You can read the BLS study on Chinese manufacturing jobs here:

In fact, the publicly traded manufacturers have become so inept at managing their manufacturing operations, they see outsourcing as their only chance for survival. The true "lean" manufacturers in the U.S. are beating them up as badly as the Asians. Desperate to move everything to China, they push the sort of misinformation you cited.

Be wary of NAM's data. They are just another lobbying organization with an agenda, and they report the facts that help their cause.

Manufacturing & Technology News pulled all of this together quite well in their lead article yesterday. You can read it at: art1.html

I enjoy the blog - Keep up the good work! You are not the only ones to have been duped by the NAM/Business Week write up.