Monday, March 03, 2008

Increases in Productivity Have Caused Job Losses



1. According to annual BLS data on manufacturing productivity, there was a 30% increase in productivity from 1993 (before NAFTA passed) to 2005, following a period of flat productivity growth from 1985-1992 (see top chart above, click to enlarge).

2. According to BLS data on manufacturing employment, there was an increase of almost one million manufacturing jobs in the five-year period following NAFTA (see middle chart above).

3. According to Federal Reserve data,
manufacturing output increased by almost 60% in the period between 1994 and 2005 (see bottom chart above).

Bottom Line: Despite all of the political rhetoric about NAFTA, free trade and globalization causing U.S. job losses in manufacturing, one of the most significant factors in the recent decline of American manufacturing jobs is the significant increase in productivity of U.S. workers. Manufacturing output and productivity in the U.S. are both at all-time highs - we're able to produce more and more output with fewer and fewer workers.

Although some manufacturing jobs are gone forever, we're much better off as a country to be able to get increases in manufactruing output with fewer workers, just like the productivity gains in agriculture that eliminated millions of farming jobs. In the long run, we are much better off with fewer jobs in the farming sector producing an increasing amount of agricultural output, and likewise, we'll be better off in the long run with fewer workers in the manufacturing sector producing an increasing amount of output.

16 Comments:

At 3/03/2008 11:41 AM, Blogger Marko said...

It is long past time that the Government (and most likely this can only be done by the Great Obama) do something about the appalling loss of jobs in the Buggy Whip industry. The jobs have all but disappeared from this country and must be rescued. Let us also not forget the horrible situation among candle manufacturers and all of the surrounding industries, such as candlestick makers. And perhaps saddest of all, lets not forget the HAVOCK wrought by global warming on the whaling industry. All those people out of work, something must be done and soon! We have reached the tipping point.

 
At 3/03/2008 12:33 PM, Blogger happyjuggler0 said...

Zero productivity gains over time equals zero salary gains over time.

 
At 3/03/2008 2:26 PM, Anonymous Colin said...

And the service industry is next -- think about all the jobs that those self-checkout machines are going to steal!

 
At 3/03/2008 3:14 PM, Anonymous Machiavelli999 said...

Mark makes a really good point here. I mean can you imagine back when the invention of crop rotation and other agricultural innovations came into be and how it made it uncessary for most of the population to work in the fields and allowed people to pick up other trades such as blacksmith and carpenter.

Well, in our current environment, crop rotation would be seen as a malaise, destroying our economy and leading to mass job losses.

Its similar to the case in Atlas Shrugged when the railroad executive decides to bridge the Mississipi river to greatly expedite travel over the river, but is blocked because people worry what will happen to all the ferry boatsmen whose job it was to ferry people from one side of the river to the other.

The Democrats are insane. John McCain is no genius, but I think his quote where he says he doesn't know much about the economy is a good thing. It suggests a hands off approach to the economy and thats the best type of approach the government can take.

 
At 3/03/2008 3:26 PM, Anonymous Jakob said...

Great post, Mark! It's ridiculous how NAFTA has become the catch-all whipping boy for any displaced worker, and nobody in the mainstream is calling this out for what it is. Pure political BS.

 
At 3/03/2008 4:29 PM, Anonymous Bob said...

Here in Ohio, this is a hot topic (especially as we vote tomorrow in the Primary).

The Economic Policy Institute (a center-left economic think-tank) writes, "Manufacturing cars, trucks, and auto parts is one of the most important industries in Ohio, and NAFTA has produced a large and growing trade deficit with Mexico in this crucial sector. While NAFTA has increased automotive trade between the United States and Mexico, the effects on Ohio and other industrial states have been overwhelmingly negative. U.S. exports to Mexico increased, but imports from Mexico increased much faster. In 1993—the year before NAFTA took effect—the United States had a positive trade balance in auto parts of $2.4 billion. By 2007, that balance was a trade deficit of more than $12 billion (See Chart: U.S./Mexico trade balance in motor vehicles and parts, 1993 and 2007). Overall, including both vehicles and parts, the U.S. trade deficit with Mexico has ballooned from $2 billion in 1993 to nearly $31 billion in 2007. Nationwide, the auto trade deficit with Mexico has cost us 363,000 jobs. That is why Ohio voters want the next president to rewrite NAFTA, and that is why Senators Obama and Clinton are so critical of the trade deal as it approaches its 15th anniversary."

PI is very anti-NAFTA.
Just thought I'd offer the "other side" for argument's sake!

 
At 3/03/2008 4:36 PM, Blogger spencer said...

As i pointed out in the previous post you should expect a few years lag before the impact of NAFTA would show up in the employment data.The weakness in manufacturing jobs stems from two sources -- one is productivity and the other is weaker growth. As your chart shows there has not been much change in productivity growth, but a major shift in employment growth. That is because with productivity growth of 5%, for example, and output growth of 7% you get 2% employment growth. But if productivity growth is still 5% and overall growth is 4%, employment growth will be -1%.

Over the past decade the drop in employment you show stemmed from slower growth rather then an acceleration in manufacturing productivity growth.

In addition the shift out of manufacturing has a different impact then a shift out of agriculture. Productivity in agriculture is and has been much weaker then overall productivity.
So when someone shift out of ag to other sectors productivity improves . When an individual left the farm in the 1950s to take a job at the local Ford plant he shifted from a low productivity job to a high productivity job. But now, manufacturing still has higher productivity then most economic sectors. So when an individual loses his job at the Ford factory and ends up working at the local Wal-Mart they are going from a high productivity job to a low productivity job and overall productivity suffers.

So the analogy of ag employment shrinking to an insignificant level can not be applies to to the shift out of manufacturing employment.

 
At 3/03/2008 4:59 PM, Blogger David said...

Given the way productivity is calculated, is it not true that offshoring *part* of a production process is likely to result in a higher productivity for the part that remains, and thus positively influence the national statistics, even in the absence of any technological change?

I believe Mike Mandel, who is chief economist at Business Week, has made this argument.

 
At 3/03/2008 7:41 PM, Anonymous Anonymous said...

With Americans relying more heavily than ever on the stock market to fund their retirements, Wall Street's slide has some starting to worry they will struggle financially in old age.

Even worse, the housing crisis has reduced what employees are able to sock away, and some are even tapping their retirement money for everyday expenses like food and gasoline.

http://www.reuters.com/article/ousiv/idUSN1926661520080304

Yeah these are some well off dudes here in the goood old USA, Just wait until they find out they are either going to get stiffed on social security all together, or the dollar will be devalued so much form running the printing presses that a hamburger at MC Donald's will cost the 20 bucks.

 
At 3/03/2008 8:08 PM, Anonymous Anonymous said...

David said...

Given the way productivity is calculated, is it not true that offshoring *part* of a production process is likely to result in a higher productivity for the part that remains, and thus positively influence the national statistics, even in the absence of any technological change

Exactly! With no real increase in productivity only a temporary respite from American style wage levels we have the "USA!, USA!" crowd patting themselves on the back all while a gathering storm of higher wages is brewing offshore.

 
At 3/04/2008 12:41 AM, Anonymous Anonymous said...

Mark Perry said...

"we're much better off as a country to be able to get increases in manufactruing (sic) output with fewer workers, just like the productivity gains in agriculture that eliminated millions of farming jobs."

Except that the productivity gains in agriculture were due to productivity gains not labor arbitrage.

 
At 3/04/2008 4:06 AM, Anonymous Anonymous said...

Folks, all these numbers and percentages are neat, but, real life here in Texas, let me share a little NAFTA facts, we have these mexican truckers with trucks that will not pass DOT inspections and are not subjected to inspections, they run their death trap trucks on mexican fuel that we do not get any taxes from for our roads, we Texans have to duck and dodge them for our safety, and this is the real life situation, I don't see any pie charts on these facts.

 
At 3/04/2008 10:19 AM, Blogger David said...

anon...I'm not arguing that there has been *no* technology-driven productivity change in the US; clearly there has. I'm arguing that the productivity numbers, if they are interpreted as purely reflecting the impact of technology, may overstate this change because of the offshoring of the more labor-intensive aspects of production and the retention of the less labor-intensive aspects.

 
At 3/04/2008 11:31 AM, Anonymous Anonymous said...

I think the Democrats are quite consistent on this issue:

NAFTA causes loss of jobs -> Kill NAFTA

Productivity causes loss of jobs -> Kill productivity

Both can be accomplished via legislation, the first by negating some trade pacts, and the second, perhaps by increasing tax rates.

 
At 3/05/2008 3:27 PM, Blogger Americas Small City Mayor said...

Where would one find information specific to states?

 
At 6/25/2008 7:08 AM, Anonymous Anonymous said...

Historical predictions on manufacturing job evaporation


http://www.umflint.edu/library/archives/westfall.htm

http://michaelwestfall.tripod.com/id16.html

http://michaelwestfall.tripod.com/id6.html

http://unionreview.com/insights-analysis-uaw-betrays-autoworkers
http://michaelwestfall.tripod.com/id81.html

http://westfallmike.tripod.com/

 

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