Innovation explains manufacturing job losses, not “bad trade deals”

manuf-jobsvoutput

Much was made during the Presidential campaign of manufacturing jobs being “exported” due to unfavorable trade pacts. Yet when we look at the data since 1960, we don’t see evidence for this claim. If jobs were being exported, then manufacturing output associated with those jobs would be leaving to. Instead, as shown above, we see that manufacturing output (and value added which is the value added to production inputs, e.g., the car value after paying for the iron, aluminum, rubber and plastic) has grown steadily with momentary dips for recessions in 1981, 2001 and 2008. Meanwhile manufacturing jobs remained fairly stable from the peak in 1979 to 2001. And then the bottom fell out: employment fell one-third from 2000 to 2009.

manuf-growthcomps

So if those jobs weren’t exported (obviously since the output growth was largely unchanged), then what might have happened? The chart above provides one explanation: Technological innovation replaced those jobs. The chart compares a rolling five-year average of productivity gains (measured as output per job) to sector job growth. Productivity growth had an early peak in the 1970s that coincided with the flattening of job growth through the 1990s. Then in 2001 productivity growth begins to rise to a new peak just before the Great Recession and manufacturing job growth plunges to new depths. (Note that this contrasts with the decline in overall productivity cited by the St. Louis Federal Reserve Bank that I posted.) Only in the last couple of years has the sector brought back jobs in the recovery.

Data from the countries where the U.S. has supposedly “exported” jobs in fact reinforces this point–they are also losing manufacturing jobs. The simple truth is that, as happened with agriculture at the turn of the 20th century, increased productivity means that fewer jobs are needed to make ever more goods. We could never feed everyone in the world if we had stopped innovation in farming in 1900; change was inevitable and largely beneficial. We can never return to the “good old days.”

Instead of trying to stop the future, we need to turn our attention to how we help those left behind by these changes. In 1900, farmers were able to move to the cities and find jobs that paid better than their farmwork. This time around, that doesn’t seem to be the case–we can’t just “leave it to the market.”

 

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