How to save U.S. manufacturing jobs

@CNNMoney February 23, 2012: 10:07 AM ET





There are two common versions of the "inevitability" argument. One holds that U.S. manufacturing wages are too high to be internationally competitive. The other maintains that manufacturing job losses are the result of productivity growth. Both arguments are wrong.


Manufacturing: Not a magic pill for the economy

Moreover, the United States lost manufacturing jobs at a faster rate since 2000 than several countries that paid manufacturing workers even more. Among the 10 countries for which the Bureau of Labor Statistics tracks manufacturing employment, Australia, France, Germany, Italy, the Netherlands and Sweden both had higher manufacturing wages and lost smaller shares of their manufacturing employment than the United States between 2000 and 2010.

Nor is technology to blame. Factories have become more mechanized, so fewer workers are needed to produce the same amount of goods. If that were the end of the story, then technology-driven productivity growth would indeed reduce manufacturing employment.

But it's not the whole story. Technology increases productivity. And when productivity grows, manufactured goods become less expensive and the market for them expands. That creates a demand for more workers, and that extra demand usually outweighs the labor-saving impact of mechanization. The result is more manufacturing jobs, not fewer.

And there is evidence that productivity wasn't killing jobs. Between 2000 and 2007, manufacturing productivity grew at an average annual rate of 3.9 percent, nearly the same as the 4.1 percent average annual rate during the 1990s.

If productivity growth were the cause, then job losses should've been equally bad in the 1990s. But that wasn't the case. The nation lost an average of only 0.2 percent of its manufacturing jobs per year during the 1990s, compared to 3.0 percent per year between 2000 and 2007.

If neither productivity growth nor high wages cost us manufacturing jobs, what did?

One likely reason is there was insufficient productivity growth in U.S. manufacturing. If productivity had grown more rapidly, American manufactured goods would have been more competitive with those of other countries.

Another likely cause was incentives for manufacturers to offshore work to low-wage countries, which accelerated after China joined the World Trade Organization in 2001. After China's accession to the WTO, the U.S. trade deficit with China grew at an accelerating rate - due mainly to offshoring of manufacturing.

Manipulated currencies and artificially low wages of China and some other low-wage countries made them attractive locations for manufacturers looking to save on labor costs.

But there is hope for the future.

Both offshoring and insufficient productivity were the result of public policy choices. The United States could have reduced the incentives for manufacturers to offshore jobs by taking a harder line against China's currency manipulation and wage suppression. It could have improved productivity growth at home by increasing rather than cutting funding the Manufacturing Extension Partnership program, which helps small and medium-sized manufacturers improve performance.

Chinese wages are now growing faster than productivity and manufacturers are beginning to reconsider whether the costs of offshoring outweigh the benefits.

Funding for the Manufacturing Extension Partnership program has increased, and other federal and state efforts to strengthen manufacturers' performance are taking shape.


Overnight Avg Rate Latest Change Last Week
30 yr fixed3.94%3.91%
15 yr fixed3.05%3.07%
5/1 ARM3.05%3.14%
30 yr refi3.94%3.97%
15 yr refi3.10%3.12%
Rate data provided
View rates in your area
Find personalized rates:
Economic Calendar
Latest ReportNext Update
Home pricesAug 28
Consumer confidenceAug 28
GDPAug 29
Manufacturing (ISM)Sept 4
JobsSept 7
Inflation (CPI)Sept 14
Retail sales Sept 14
  • -->