Before Trump, one of the popular lines in the Democratic party was that companies outsourcing jobs were a significant threat to the American worker. Free trade agreements opened American jobs--particularly manufacturing--to under-cutting from cheaper foreign competition with lower costs of living.
Now Trump and the GOP are on that train, and the Democrats are less gung-ho about it. The message is surprisingly similar--still directed towards corporations, but with a greater focus on the trade policies of other countries like China.
Let's dig into the data: what happened to American manufacturing jobs?
This one's a doozy--but you'll learn a lot.
Manufacturing jobs took a steep decline starting in the 2001 recession, but the slide kept going during the recovery. They took another sharp drop in the Great Recession, but have started creeping back up. Total employment has dropped from about 18MM to about 12MM.
What's driving the change?
Is the US Manufacturing Sector Shrinking?
We can look at this two ways: as a percentage of GDP and as total output. Since we're looking at total employment, total output makes more sense.
Looking at data from the Fed, we actually see that US manufacturing output (inflation adjusted) is at an all time high.
As a percentage of GDP, it's dropped from 16.5% to 12.5% between 1997 and 2014--meaning it has grown more slowly than the services sector. This is actually directly in line with declines across the entire world. (Note the UN measures manufacturing slightly differently from the World Bank but the trends are the same.)
Ball State University has a pretty good (short) report you can read here.
What's Driving the Change?
There are two primary culprits: trade is one, automation is the other.
Given that US manufacturing output is at an all-time high, it cannot be the case that a net loss in jobs is due to a net offshoring of manufacturing. We're building more stuff than we've ever built before--we're just doing it with fewer people. (And, given that the prices of most manufactured goods continue to drop thanks to technology and efficiency, we're actually making even more stuff and just spending less on each individual unit of stuff.) Productivity per worker across manufacturing is up 68% between 2000 and 2010 alone (pg 6). Even the much-bemoaned steel industry is producing more steel than in 1980, despite losing half its labor force.
The primary driver of the decline of US manufacturing jobs is automation. In the long-term, this is a good thing--in the 1790, 90% of Americans were in agriculture. We're definitely better off by having more than 10% of Americans doing stuff other than making food (the % of the labor force in agriculture is now 2%, by the way). And, as the economy chugs along, it creates different jobs.
What About Trade?
Trade is not a zero factor. An MIT paper suggests 2.0 - 2.4 million manufacturing jobs were lost due to the rise in import competition from China between 1999 and 2011. This means that manufacturing production would be even higher had those jobs not left, but not all of those jobs would still remain: domestic production prices would invariably be higher if the work was re-shored, which would mean lower demand for the products than currently exists from cheaper sources.
Some of the drop is due to the fact that we're just using less heavy stuff than we used to. Cars are lighter and use less metal. Buildings are better engineered and require less material per floor. Between 1998 and 2012 (pg 4), paper production dropped 30%, plastics and rubber dropped 10%, furniture production dropped 35%, mineral production dropped 24%, wood dropped 4% and fabricated metal products dropped 9%. We run physically leaner. Lots less physical stuff goes into your iPhone than went into your CD player + phone + compass + VCR + calculator, etc.
Note also that software development is not considered manufacturing.
Another Important Question: Wages
The reason we're talking about manufacturing at all is really income. The question to ask is not, "are there enough manufacturing jobs?" but "are enough jobs available for Americans?" and "are people getting paid less for the jobs replacing these?"
Looking at the BLS Real Unemployment rate (which includes those who are highly underemployed or marginally attached to the workforce), we're sitting at 9.4%, which is about equal to where we were in 1995 and 2005. The lowest recorded in the modern age was 6.8% just before 9/11. So there's work to do, but it's not historically terrible.
Most people have jobs--but what about their pay? We can look at this a few ways.
Median Income hasn't quite returned to the highs of 2000--it's at about $56,500, compared to $58,000. This is a measurement of how the very middle of the pack is doing, so it's better than mean income, but it's not perfect.
So the dead center is doing alright. What if we break it down into quintiles?
If you're less educated, you earn a ton less and are far more likely to be unemployed.
Here's Why People Care About Manufacturing
Manufacturing jobs typically don't require a college degree (the engineers and managers in the factory typically have them, but floor workers don't). So if manufacturing pays well, it's a door for people with lower education to make a better living. Looking again at BLS, here are the manufacturing-related major occupational sectors and their average incomes:
- Production: $36,220
- Installation, Maintenance, and Repair: $45,990
- Construction and Extraction: $47,580
If those are going away, what are they being replaced with?
The fastest growing sectors are: leisure and hospitality, health care and social assistance, educational services, and professional and business services. The latter are primarily occupied by people with higher education levels (leading a lot of the middle-upper class income growth). Teachers get paid about $56,370 on average but also require degrees.
How do these pay? (Again from BLS)
- Personal care and service: $25,650
- Food preparation and serving: $22,850 (note this doesn't include tips so it's more complicated)
- Healthcare support: $29,520
- Building and grounds cleaning and maintenance: $27,080
In short, higher paying jobs are being replaced by lower-paying ones. And besides manufacturing, there's a lot of head-scratching about how to help lower-paid people attain more valuable occupations.
So Can the Manufacturing Jobs Come Back?
No, but that's a post for another day.