In yesterday's post about January's mass layoff statistics, we pointed out that the manufacturing sector, once again, was hit the hardest. So it is a good time to share this post from Clemson University professors William Ward and William Gartner:
In all of the talk to save automobile manufacturing jobs, doesn't it seem we've been down this road before? One hundred years ago it was farm jobs that needed to be saved. Later, creating manufacturing jobs was the universally-acclaimed path to economic development. As we begin this century, the immediate goal seems to be saving manufacturing jobs.
When the talk turns from creating jobs to saving them, foolish economic policies tend to follow. These include trade protectionism, income support and tax subsidies. None of these policies saved agricultural jobs, but they made agriculture the most distorted sector in the US economy. So, as the political talk shifts from creating to saving manufacturing jobs, we ask: "Do we really need a manufacturing sector policy that matches our agricultural policy?"
Let's take a quick historical tour. Thomas Jefferson argued that agriculture, forestry, fisheries and mining were the basis of economic wealth, a belief supported in employment terms by the US Census of 1820 that showed 83% of the US workforce to be farmers, while only 14% worked in manufacturing. By the end of World War I, farm employment had dropped below 33% of the workforce, and major programs began to emerge to keep agriculture at "parity" with the rest of the US economy.
After nearly a century of these agricultural programs, farm employment represents barely 1% of the US workforce, and farm output barely 1% of US GDP-not because agricultural output declined but because manufacturing and services outputs grew faster. US farm output in 2005 was actually 2.2 times the farm output of 1961. Likewise, world agricultural output went up nearly three-fold, while farm employment as a percent of global total employment declined. Yet, government subsidies to farmers make up 16% of US farm income, one-third of farm income in some EU countries and nearly two-thirds of farm income in Japan.
Manufacturing employment is following the same downward trend as agriculture. Manufacturing employment peaked at the end of World War II at 33% of US employment and has trended downwards to around 10% of the US workforce in 2008 and could easily be down to 5% by 2020. Manufacturing employment is declining, not because US manufacturing output is declining, but because, like farming in the last 100 years, it takes fewer-and-fewer workers to produce more-and-more output.
The decline in manufacturing employment, as a percentage of the total workforce, is not unique to the United States. We estimate that global manufacturing employment declined 15% (by 30 million workers) between 1995 and 2002 alone (years for which we have good data), while global manufacturing goods exports increased by 27% (current values). It should be noted that China is not "absorbing" these manufacturing jobs. China's manufacturing employment declined by 18 million during that period (from 98 million to 80 million), even as China's share of global manufacturing exports more than doubled (from a 2.49% share to a 6.08% share). While we don't have later data for China, we have it for the sixteen major competitor countries followed by US Department of Labor. Between 1992 and 2007, manufactured goods production increased in all sixteen, while manufacturing employment fell in all except Spain (who started out with a 20% national unemployment rate), Taiwan (minuscule growth) and Canada (miniscule totals). In South Korea, for example, manufacturing output-per-worker increased three-fold, exports increased four-fold and manufacturing employment declined by nearly 12%. At the same time, US manufacturing output increased more than 70% (in real terms), manufacturing exports were up by 170% (in current values) and US manufacturing employment dropped nearly 20%.
The future of manufacturing, simply, is fewer jobs. This is what increases in productivity means: Fewer and fewer people are needed to make more and more goods. You simply cannot save jobs in sectors where there are increasing gains through productivity. Providing subsidies to farmers hasn't increased farm employment. So, do we really want future autoworkers and shareholders to get 16% of their income from the US Treasury in the same way that farmers do?
Ward teaches applied economics and statistics at Clemson. Gartner teaches entrepreneurial leadership at Clemson and is author of Handbook of Entrepreneurial Dynamics. Gartner. The above piece first ran in Greenville Magazine.