The U.S. manufacturing sector is getting killed

Thanks to Steve Feinstein for bringing the article about American manufacturing by Michael J. Hicks at Ball State University to our attention, thereby providing an opportunity to debunk some claims made in Hicks's piece.

Hicks claims the following:

No matter how you measure it, 2015 was a record year for manufacturing production in the U.S. Even with the last few rocky few [sic] months, we are still at record production. There's no ambiguity on this. I think inflation-adjusted dollars are the best measure, but any available metric – nominal or real GDP, industrial production indexes, quality indexes – reveals the same trend. U.S. manufacturing production is booming; we're just doing it with far fewer workers.

Here is a plot of inflation-adjusted value-added manufacturing output in the U.S. since records began in 1947:

Since 2000, real manufacturing production has increased 1.0% in the United States.  Over 15 years!  That is an annualized rate of growth of less than 0.1%.  Even Barack Obama's economic growth rate is an order of magnitude greater than that, and I doubt anyone reasonable would classify that as "booming."

The reality is that U.S. manufacturing is going nowhere.

Hicks goes on to claim that "[t]he high-end estimates are that today we have lost 1.4 million manufacturing jobs across the nation since the 1970s because of foreign trade. My published estimates are closer to 750,000."

Here are the number of manufacturing employees in the U.S. since 1939:

After 160 years of decline, U.S. trade as a percentage of GDP started to increase in 1970.  Magically, that is when manufacturing employment started to flatline – during the '70s and '80s – and then decrease.

Note that after 2000, the bottom fell out of U.S. manufacturing jobs.  Since 2000, America lost 4.95 million manufacturing jobs.  And what happened in 2000?  That was China's accession to the World Trade Organization (WTO).

So only between 0.75 to 1.4 million of the more than 7 million manufacturing jobs lost in the U.S. since the peak in 1977 have been due to trade?  Hicks argues that "[s]omewhere between 81% and 100% of those 7.5 million manufacturing job losses since the 1970s are due to technology."  Just looking at the timeline of technological development and the timing of various trade agreements suggests that this claim is highly unlikely.

In fact, it is more likely that closer to 80% of those lost manufacturing jobs were due to trade, not the reverse, and those jobs went to low-labor cost jurisdictions like Mexico and China.

Hicks further argues that the bargaining power of manufacturing workers remains strong:

Technology eliminates jobs, but it doesn't destroy work. There's more than enough of that to do. Readers unconvinced by these numbers should look at any online help-wanted listing in Indianapolis, where Carrier Corp. (part of United Technologies Corp. UTX, -1.17%) has been criticized for eliminating 1,000 manufacturing jobs. The first online jobs listing currently has 2,264 manufacturing jobs available in the Indianapolis metropolitan area, 331 added in the last week alone. The first listed job pays between $20 and $23.50 an hour, and requires four years of experience and nothing much else remarkable.

And yet, here are the inflation-adjusted average weekly earnings of production and nonsupervisory employees in manufacturing over the past 70 years:

According to this data, manufacturing wages for production workers haven't increased in real terms in nearly a half-century.  Actually, they are now more than 3% lower than their peak in the early 1970s.

Bargaining power?  What bargaining power?  That $20/hour job in Indianapolis is the same hourly wage for 40 hours' work that they were paying in 1968.

As for Hicks's claim that presidential "[c]andidates cannot bring jobs and production back from overseas, since they didn't go there in the first place," the Bureau of Labor Statistics shows that between 2002 and 2009 alone, the number of manufacturing jobs in China increased by nearly 15 million.  Over this same time span, the U.S. shed more than 3.4 million manufacturing jobs.

Those jobs headed overseas; there is no doubt about that fact.  Can they come back?  Not without a president strong enough to stand up to several decades of flawed GOP economic ideology.

Thanks to Steve Feinstein for bringing the article about American manufacturing by Michael J. Hicks at Ball State University to our attention, thereby providing an opportunity to debunk some claims made in Hicks's piece.

Hicks claims the following:

No matter how you measure it, 2015 was a record year for manufacturing production in the U.S. Even with the last few rocky few [sic] months, we are still at record production. There's no ambiguity on this. I think inflation-adjusted dollars are the best measure, but any available metric – nominal or real GDP, industrial production indexes, quality indexes – reveals the same trend. U.S. manufacturing production is booming; we're just doing it with far fewer workers.

Here is a plot of inflation-adjusted value-added manufacturing output in the U.S. since records began in 1947:

Since 2000, real manufacturing production has increased 1.0% in the United States.  Over 15 years!  That is an annualized rate of growth of less than 0.1%.  Even Barack Obama's economic growth rate is an order of magnitude greater than that, and I doubt anyone reasonable would classify that as "booming."

The reality is that U.S. manufacturing is going nowhere.

Hicks goes on to claim that "[t]he high-end estimates are that today we have lost 1.4 million manufacturing jobs across the nation since the 1970s because of foreign trade. My published estimates are closer to 750,000."

Here are the number of manufacturing employees in the U.S. since 1939:

After 160 years of decline, U.S. trade as a percentage of GDP started to increase in 1970.  Magically, that is when manufacturing employment started to flatline – during the '70s and '80s – and then decrease.

Note that after 2000, the bottom fell out of U.S. manufacturing jobs.  Since 2000, America lost 4.95 million manufacturing jobs.  And what happened in 2000?  That was China's accession to the World Trade Organization (WTO).

So only between 0.75 to 1.4 million of the more than 7 million manufacturing jobs lost in the U.S. since the peak in 1977 have been due to trade?  Hicks argues that "[s]omewhere between 81% and 100% of those 7.5 million manufacturing job losses since the 1970s are due to technology."  Just looking at the timeline of technological development and the timing of various trade agreements suggests that this claim is highly unlikely.

In fact, it is more likely that closer to 80% of those lost manufacturing jobs were due to trade, not the reverse, and those jobs went to low-labor cost jurisdictions like Mexico and China.

Hicks further argues that the bargaining power of manufacturing workers remains strong:

Technology eliminates jobs, but it doesn't destroy work. There's more than enough of that to do. Readers unconvinced by these numbers should look at any online help-wanted listing in Indianapolis, where Carrier Corp. (part of United Technologies Corp. UTX, -1.17%) has been criticized for eliminating 1,000 manufacturing jobs. The first online jobs listing currently has 2,264 manufacturing jobs available in the Indianapolis metropolitan area, 331 added in the last week alone. The first listed job pays between $20 and $23.50 an hour, and requires four years of experience and nothing much else remarkable.

And yet, here are the inflation-adjusted average weekly earnings of production and nonsupervisory employees in manufacturing over the past 70 years:

According to this data, manufacturing wages for production workers haven't increased in real terms in nearly a half-century.  Actually, they are now more than 3% lower than their peak in the early 1970s.

Bargaining power?  What bargaining power?  That $20/hour job in Indianapolis is the same hourly wage for 40 hours' work that they were paying in 1968.

As for Hicks's claim that presidential "[c]andidates cannot bring jobs and production back from overseas, since they didn't go there in the first place," the Bureau of Labor Statistics shows that between 2002 and 2009 alone, the number of manufacturing jobs in China increased by nearly 15 million.  Over this same time span, the U.S. shed more than 3.4 million manufacturing jobs.

Those jobs headed overseas; there is no doubt about that fact.  Can they come back?  Not without a president strong enough to stand up to several decades of flawed GOP economic ideology.