If you’ve been following the business pages and economic blogs closely for the past year, you’ve seen stories like the recent one in the LA Times, which raise hopes about a manufacturing renaissance in the U.S. If they’re not predicting a resurgence, they suggest the bleeding of well paying, full-time manufacturing jobs has stopped. An earlier, Washington Post story in 2013, poured some needed cool water on this wishful thinking.
If you are an economics, jobs, wage, or “inequality” debate junkie, both articles are worth a read. Overall, I am on the skeptics’, or the “glass-is-half-empty,” side. Here is why:
There are four perspectives to keep in mind when you hear anything about a reversal in the manufacturing jobs decline. Bring them to bear whenever you encounter this subject:
1) The anecdotal data is just that, stories here and there, which raise hopes, but pale next to the aggregate data.
2) These are not your father’s manufacturing jobs. They are better than flipping burgers at “In ‘N Out,” but they are not the same in terms of wages, benefits, and security.
3) International currency machinations, particularly by the Chinese, play a huge role in determining where manufacturing companies expand or re-locate. That can change on a U.S. dime (or Chinese Renmimbi).
4) Large productivity gains in manufacturing have not stopped; and they won’t. Technology offsets any other factors that may be raising hopes about a manufacturing jobs revival.
If you pour over the manufacturing jobs data from the Bureau of Labor Statistics (BLS) – the BLS is still the authoritative source – it’s very hard to distinguish between a (possible) manufacturing comeback, and the long awaited recovery of a few of the six million manufacturing jobs lost in the Great Recession.
Anecdotes about Chinese firms opening manufacturing plants in the U.S., and U.S. manufacturers bringing back jobs from China, are water drops in the sea of macro data from the BLS. Between January and April 2014, the number of manufacturing jobs has remained about the same. (Yes, that’s better than losing jobs). At 12.1 million in April 2014, manufacturing employment is still about 2 million below the pre-recession number. You can view the data here.
Even if you think the anecdotes are the leading edge of a turnaround, the average wage of recently added manufacturing jobs is about 10 percent below the figure for the rest of U.S. manufacturing. Indeed, one explanation for some of the good news on the manufacturing front, is that it’s been fueled by a decline in U.S. manufacturing wages in real (inflation adjusted) terms. Meanwhile, Chinese and other competitors’ wages have at least kept pace with inflation. A Wall Street Journal analysis notes: “The celebrated revival of U.S. manufacturing employment has been accompanied by a less-lauded fact: Wages for many manufacturing workers aren’t keeping up with inflation.”
This should not be surprising. A large share of the new manufacturing jobs are in non-union companies, generally in states with right to work laws. Even in states more friendly to collective bargaining, unions have made concessions on wages to prevent job losses. See previous posts on Boeing wage concessions in Washington State, here and here.
Part of the rise in Chinese manufacturing wages relative to the U.S., which makes it less attractive to locate abroad, has been a rise in the value of China’s currency; that increases labor costs in China relative to the U.S. These changes have come in part as a result of pressure on China by the U.S. and other western industrial countries to adjust it’s over-valued currency.
That’s good news, but not necessarily a basis for a fundamental turn in U.S. manufacturing jobs. With a restless labor force demanding double digit job growth to keep pace with population growth, can China continue on this course? On the other hand, that same restless labor force, also wants to be paid more. We’ll see how these competing forces play out in China.
Looming over all of this, is a forty year trend in technology related productivity gains, which has enabled manufacturers to produce more with less workers. This trend is not going to abate; if anything, it will accelerate. Since 1975, manufacturing output in the U.S. has more than doubled, while employment in the sector has decreased by 31%.
China is predicted to lead the world in small drone production in the decade ahead. Why isn’t the U.S. becoming the hot spot for manufacturing the millions of personal and commercial drones that will soon be in demand? This looks like another case where the U.S. developed the technology, but won’t likely be producing it. That’s the more likely trend than a manufacturing revival in the U.S.