The Economist: Manufacturing in the U.S.

There’s lots of chatter among politicians and in the popular press about bringing tens of thousands of manufacturing jobs back to the United States. The perception seems to be that the only reason the jobs are gone is because they went to low-cost Chinese workers who toil in sweatshops with no benefits and little pay. But a look at the facts shows it is much more complicated.

There are two ways to look at the importance of manufacturing to the U.S. economy. People who moan that we’ve lost our manufacturing industry and become a service economy – by which they mean we cut each other’s hair and flip hamburgers – are looking at the number of manufacturing jobs and its relative position in total employment.

Here there is no question there has been a big change. In 1950 manufacturing provided 30.9 percent of U.S. jobs. By 1980 it was 20.7 percent; in 1990, 16.2 percent. In the aftermath of the Great Recession manufacturing fell to 8.9 percent of U.S. jobs.

In Colorado the situation is similar. Although manufacturing was never as important here as in many other parts of the country, it was 16.1 percent of Colorado’s job base in 1970. In 1990 it was 11.2 percent; today is it 5.7 percent. For many years Boulder County was the state’s most heavily manufacturing economy with 21.8 percent of county jobs in that sector in 1990.

There is another, important way to look at the role of manufacturing in our economy – the portion of our output of goods and services the sector provides. Here the story is somewhat different. Value added in manufacturing peaked at 28.3 percent of the U.S. output of goods and services in 1953. As late as 1980 it comprised 20 percent. In 2010 it totaled $1.7 trillion of our $14.5 trillion economy, 11.7 percent of the total.

Despite the job decline, the U.S. remains the world’s largest producer of manufactured goods. What seems on the surface to be impossible is explained by a huge increase in manufacturing productivity, the output produced by each worker.

When I was growing up, my father was an engineer at a large paper mill in the South. The mill employed hundreds of men and belched pollution and noxious odors. If I complained, Mother would say, “It smells like money.” She remembered her early married life in the 1930s when no smell meant no paycheck – the mill wasn’t operating.

By the end of my father’s career, a new mill had been built. Not only was it shiny and clean, the only humans on the factory floor were a couple of men sitting in a glass-enclosed cubicle monitoring the computers that ran the machines. Productivity had soared – many fewer workers were producing much more paper.

In summary, the changes in manufacturing are being driven by two factors: globalization and rising productivity. There is no question that low value-added production has moved overseas. At the same time, high value-added production such as product design and R&D remain in the U.S. The market for American-made products has expanded, creating new jobs in the export industry. We’ve learned new technologies and methods of production from other countries. Foreign firms have invested in the United States. The increase in trade since World War II has raised the income of the average household by $10,000.

Higher productivity also involves a payoff. There are significant costs to the workers who lose their jobs. But society benefits from cheaper products, new ideas and new technologies. Today many firms report that finding skilled workers is their biggest challenge. A good education or training program is more important than ever if one wants a good job.

A few manufacturing jobs will return to the U.S. as wages increase in other countries and transportation costs rise. Other jobs will continue to migrate offshore. The worst possible policy would be to adopt protectionist policies such as quotas and high tariffs. Our country has an obligation to use some of the gains from free trade to help displaced workers adapt to the new jobs. That way free trade will benefit everyone.