Monday, April 05, 2010

Technology and Manufacturing Productivity Improvements Have Destroyed 6 Million Jobs

Update: This BEA link shows that real manufacturing output (in billions of chained 2000 dollars) almost doubled in the 20 years between 1987 and 2007, from $866 billion in 1987 to $1,618 billion in 2007.

Update: Real output per worker (2007 dollars).

According to BEA data on manufacturing output (value added) and manufacturing employment, there has been a decline of more than six million manufacturing jobs from the peak of 20 million in 1979 to fewer than 14 million jobs in 2007 (see blue line in top chart above). During that same period, manufacturing output (value added) has increased by more than three times, from $544 billion in 1979 to $1.63 trillion in 2007 (see red line in top chart), not adjusted for inflation.

Because of the significant increase in manufacturing output accompanied by the huge decline in employment, the manufacturing output per worker increased more than four times, from $27,175 in 1979 to $115,750. The increase in worker productivity is one of the main contributing factors to the elimination of six million manufacturing jobs in the U.S. Simply put, we're producing more and more manufacturing output with fewer and fewer workers.

With that in mind, consider this re-write of a recent news story about China:

"The continuing trade imbalance with China increases in worker productivity has have contributed to the loss of over 5.3 million U.S. manufacturing jobs in the last decade, 300,000 of those in New York State. The Capital District manufacturing sector has declined by 28 percent during that same period, losing approximately 10,000 jobs, and 2,000 last year," said Sen. Charles Schumer, D-N.Y.

“There is no bigger step we can take to promote U.S. job creation, particularly in the manufacturing sector, than to confront China’s currency manipulation, our productivity improvements due to advances in technology like roboticsSchumer said. “This is not about China technology or productivity bashing. It’s about defending the people of New York and the United States from the ongoing increases in worker productivity taking place in America's factories that have contributed to the loss of millions of manufacturing jobs.”

“We have a job crisis in upstate New York and in America,” Schumer said. “China Technology and increased worker productivity is are fanning the flames.” The legislation Schumer proposes would impose new penalties on countries who manipulate their currency, manufacturers who introduce productivity-enhancing technologies as a way to increase output with fewer workers.

Bottom Line: There's really no difference between: a) being able to produce more manufacturing output in the U.S. due to productivity increases that allow us to take advantage of technology advances and employ fewer workers, and b) being able to increase our manufacturing output in the U.S. by taking advantage of low-cost labor in China and employing fewer American workers.

The first example substitutes more efficient capital for labor, and the second substitutes low-cost labor for high-cost labor, but the net result is the same: more output with fewer workers. Imposing penalties on low-cost Chinese manufacturers because some U.S. jobs are eliminated makes as much sense as imposing penalties on American companies that introduce technology (e.g. robotics) and in the process eliminate some U.S. jobs.

36 Comments:

At 4/05/2010 10:37 PM, Anonymous Benny The Man said...

The output of $115,750 per industrial worker is remarkable, and a tribute to man's ingenuity.

In general, worker output per hour in the USA has tripled since 1970.

The minimum wage is lower today than in 1960s, adjusted for inflation.

 
At 4/05/2010 10:44 PM, Blogger juandos said...

"there has been a decline of more than six million manufacturing jobs from the peak of 20 million in 1979 to fewer than 14 million jobs in 2007"...

Hmmm, how much of the loss can be laid at the feet of the federal government and its excessive interference in the jobs market place?

For instance its well past time to get rid of the minimum wage...

What Causes Unemployment?

by Thomas Sowell (November 14, 2005)

 
At 4/05/2010 11:31 PM, Anonymous gettingrational said...

Robotics, process improvements, just in-time inputs, faster working and more skilled humans etc. conbine to increase in productivity.

Assembling foreign inputs with robotics, process improvements and just in-time inventory etc. is also better producitivty.

Value-added manufacturing is subject to debate. The high value jobs to make inputs for the final product is where the high paying jobs are. That is why foreign countries work so hard to gather and keep value-added manufacturing jobs. The final product can be sinmply the assembly of the expensive parts at key distribution points.

The assembly of ever more foreign inputs is resulting in higher productivity numbers and less income for the workers and the country.

 
At 4/05/2010 11:40 PM, Anonymous Lyle said...

If you look at it one way the plot proved Ned Ludd right. Machines are the enemy of people. This is also true in Ag where machines are being developed to do more and more harvesting all the time. For a long term example cotton is not picked by hand any more. Should we create jobs by banning the cotton picking machines? Combines? Tractors?...

Note that the minimum wage is really an issue in fast food and service businesses and the like, not in an environment where value added is $115k per worker.

 
At 4/06/2010 12:29 AM, Blogger bobble said...

MP:". . .our productivity improvements due to technology advances . . ."

you are asserting that most of the productivity increase comes from technology advances.

i don't know myself, but isn't it possible that the most of the productivity increase comes from using parts obtained cheaply offshore? in that case your analogy is irrelevant.

can you substantiate your assertion?

 
At 4/06/2010 2:54 AM, Blogger PeakTrader said...

The State of U.S. Manufacturing
September 17, 2003
Bruce Bartlett

"It is important to remember that much of the change in industrial employment is an effect of changes in the classification of various jobs. Big companies used to do everything in house, so that people like janitors and accountants were classified as "manufacturing" workers simply because they worked for manufacturing companies. Over the years, such companies discovered that it was more economical to outsource such work. That is why "business services" is one of the fastest rising categories of employment in the United States."

 
At 4/06/2010 5:54 AM, Blogger sethstorm said...

The problem is that the people who escaped the cuts from manufacturing got hit by the offshoring of IT.

For what our country is worth, China deserves whatever penalties that comes their way. They've done enough damage and have yet to be called on it. They embody what it means to not care at all about the producer.

 
At 4/06/2010 6:41 AM, Anonymous richard said...

Mark,

> to the loss of over 5.3 million U.S. manufacturing jobs

How about:

> to the freeing up of 5.3 million people for additional wealth creation

 
At 4/06/2010 7:19 AM, Blogger juandos said...

"to the freeing up of 5.3 million people for additional wealth creation"...

Hmmm, personally I like the way richard puts it...

None the less if Amity Shlaes is correct government interference will continue to cause more job losses...

 
At 4/06/2010 8:22 AM, Anonymous Anonymous said...

This seems a bit intellectually, if not dishonest then "slippery". The output in dollars is not adjusted for inflation and should be. I suspect, but don't know, that increased efficiency has resulted in more production per worker and in total but I do know nowhere near the difference these numbers suggest.

 
At 4/06/2010 8:49 AM, Anonymous Anonymous said...

Hmmm, Part of our problem has been that we have subsidized the destruction of US manufacturing policy through our tax code.

Specifically, even though we are no longer a major manufacturer of machine tools, we have, during recessions, increased accelerated depreciation for new manufacturing equipment that will result in fewer employees after the equipment is installed.

What we need to do is recognize that there is both HUMAN capital and Machine capital. We subsidize the substitution of one for the other, and we underinvest in human capital, mostly for political and wealth maintenance reasons.

 
At 4/06/2010 9:16 AM, Anonymous Anonymous said...

... there is both HUMAN capital and Machine capital. We subsidize the substitution of one for the other, and we underinvest in human capital ...

B.S. We spend more on education than any nation on earth. However, we get comparatively little return on this investment thanks, in large part, to the teacher's union monopoly of our school system.

The UAW has fought every effort that the auto companies have made to increase capital investment, and look at how many jobs they've managed to save.

 
At 4/06/2010 9:24 AM, Blogger Walt G. said...

bobble,

We ship about as many tons of pressed metal today with about 1000 workers as we did 12 years ago with 3100 workers. How's that for productivity improvements? I doubt that we are an anomaly in the manufacturing business.

Some people feel better when they can blame others for their problems; however, a huge amount of the current labor market problem is failure to adapt to inevitable change.

 
At 4/06/2010 12:14 PM, Blogger Ron H. said...

>"you are asserting that most of the productivity increase comes from technology advances."

Where did you read that in the post?. I believe the point of the post is that increased productivity whether because of improved technology or because of using cheaper labor from offshore has the same affect on American jobs.

However, calls for penalizing cheaper labor from offshore are much more common than calls for penalizing improvements in technology, but don't make any more sense.

Your example of using parts obtained cheaply offshore is simply an example of using cheaper labor from offshore.

 
At 4/06/2010 12:19 PM, Blogger Singularity said...

It would be interesting to figure out how many jobs have been created by the companies creating the technology that destroyed the manufacturing jobs. (Robotics for starters) Destroy a manufacturing job create a tech job, probably not a one to one exchange but think of all of the industries created by technology? CD kills the Tape, IPOD kills the CD, and can the IPOD make you more productive? You no longer have to go to the store to get more music (drive time, gas). Think of the military now you= have pilots flying jets sitting at base camp; if they get shot down you don’t need another pilot only a new jet. Think how much better a pilot can get if when they make a mistake in battle they don’t die.

 
At 4/06/2010 1:37 PM, Blogger Lyric said...

$544 billion in 1979 is $1.62 trillion in 2010. Manufacturing output has remained steady -- why did you show a misleading graph and indicate that value added has increased?

The output per worker (adjusted for inflation) has risen, but total output has not.

 
At 4/06/2010 4:01 PM, Blogger Michael said...

I'm sorry, Mark, please help me with this. You write: "manufacturing output (value added) has increased by more than three times, from ... 1979 to ... 2007 ..., not adjusted for inflation."

Adjusted for inflation (using CPI at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt) manufacturing value added has increased by 1%, not CAGR but a grand total of 1% in 28 years!

Doesn't this shoot a bullet through half your post? What am I missing if not?

Thanks,
Mike

 
At 4/06/2010 4:07 PM, Blogger Mark J. Perry said...

Michael: See updated chart on real output per worker.

 
At 4/06/2010 4:31 PM, Blogger PeakTrader said...

Anon says: "We underinvest in human capital."

Leontief Paradox:

"Leontief found that the U.S., the most capital-abundant country in the world, exported labor-intensive commodities and imported capital-intensive commodities, in contradiction with Heckscher-Ohlin theory."

The U.S. may have more human capital than the rest of the world combined (e.g. percentage of revenues and profits earned in Information and Biotech firms, proportion of Nobel Prizes, percentage of top universities, etc.).

 
At 4/06/2010 4:55 PM, Blogger Marko said...

This article is brilliant Dr. Perry, thank you for posting it. It also shows why people should not want to be in manufacturing jobs. Government supported union labor monopolies give a false incentive through unnaturally high wages for you people to go into manufacturing that would be better off going into other fields.

Come to think of it, unnaturally high wages may be partially driving the incentive to increase productivity through technology, since labor is more expensive than one would expect based on the available of workers with the necessary skill level.

 
At 4/06/2010 4:58 PM, Blogger PeakTrader said...

U.S. Manufacturing: Dying... or Still Going Strong?
2006 U.S.-China Business Council

"The U.S. share of global manufacturing is just over 22%-the same as it was in 1995 (it has been hovering around 20% since 1982)."

That's remarkable, because since the U.S. became an open economy around 1980, U.S. trade deficits increased, reaching over $800 billion in 2007. The U.S. has been the main engine of global growth pulling the rest of the world's economies.

 
At 4/06/2010 5:02 PM, Blogger Marko said...

I meant young people, not you people. I don't want to be accused of being prejudiced against economics professors. :)

 
At 4/06/2010 5:05 PM, Blogger Marko said...

The U.S. are also still the world's largest manufacturers, right? And I think the third or fourth largest manufacturing exporter. It is the largest exporter when you consider total exports, including both manufacturing and services.

Whenever I point that out to people they are shocked - I am guessing that the average U.S. citizen thinks China produces two to four times what the U.S. produce. WRONG.

 
At 4/06/2010 5:09 PM, Blogger PeakTrader said...

Exports in E.U. countries are overstated, compared to the U.S., because U.S. states aren't countries.

 
At 4/06/2010 6:16 PM, Blogger Jet Beagle said...

Michael: "Adjusted for inflation (using CPI at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt) manufacturing value added has increased by 1%"

Michael, I do not believe it is valid to adjust manufacturing GDP using CPI. Rather, you should the Manufacturing GDP Price deflator. BEA has already done that for you, in a table entitled "Chain-Type Quantity Indexes for Value Added by Industry". For manufacturing, the index for 1979 is 50.8 and the index for 2007 is 113.4. This indicates that manufacturing real value added has more than doubled in 28 years.

 
At 4/06/2010 6:32 PM, Blogger Mark J. Perry said...

Michael:

If you check this BEA link you'll see that real manufacturing output just about doubled from $866b in 1987 to $1,618b in 2007.

Mark

 
At 4/06/2010 6:34 PM, Blogger Jet Beagle said...

Lyric: "$544 billion in 1979 is $1.62 trillion in 2010. Manufacturing output has remained steady -- why did you show a misleading graph and indicate that value added has increased?"

Lyric, did you also adjust using CPI? The BEA uses specific price deflators - not the general CPI - to adjust the value of manufacturing outputs produced and the adjust the value of intermediate inputs.

As I showed in my last comment, the BEA has done the complicated work for you. The table entitled "Chain-Type Quantity Indexes for Value Added by Industry" indicates that U.S. manufacturing value added has more than doubled since 1979.

 
At 4/06/2010 6:41 PM, Blogger Mark J. Perry said...

Lyric and Michael: Please see updated post with a BEA link showing that when adjusted for inflation, real manufacturing output just about doubled between 1987 and 2007.

 
At 4/06/2010 6:45 PM, Blogger Jet Beagle said...

Michael and Lyric,

The "Chain-Type Quantity Indexes for Value Added by Industry" are consistent with the "Real Value Added by Industry" to which MP linked:

Chain type quantity indexes for Manufacturing
1987 - 60.746
2007 - 113.488
Increase - 86.8%

Real value Added for Manufacturing
1987 - $866.4 billion
2007 - $1,618.6 billion
Increase - 86.8%

The advantage in using the former is that index data is available all the way back to 1947.

 
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At 4/07/2010 2:47 AM, Blogger sethstorm said...

Come to think of it, unnaturally high wages may be partially driving the incentive to increase productivity through technology, since labor is more expensive than one would expect based on the available of workers with the necessary skill level.

The problem is that people do have to maintain those machines and verify their output. Hopefully it would be a good opportunity to bring the people in who did the work manually to move up to something of that nature.

 
At 4/07/2010 3:54 AM, Blogger Jet Beagle said...

setstorm: "Hopefully it would be a good opportunity to bring the people in who did the work manually to move up to something of that nature."

Some companies have done exactly that. One example: when the huge refinery in my hometown automated many of the plant operators' tasks, it retrained dozens of those operators to use the computer controls. As I understand it, it was much easier to train experienced plant operators to use the computers than to train inexperienced computer operators to run a refinery. Of course, the number of plant operators was reduced, mostly through attrition.

 
At 4/07/2010 6:16 AM, Blogger Walt G. said...

Many of the manual labor tasks that have been automated eliminated jobs nobody should have been doing in the first place.

My first job was hanging 60 pound frames over my head onto a moving hook standing in oil with rubber boots and a raincoat to keep the machine oil off of me from the leaking press upstairs. This was in a factory without air conditioning. Mr. or Mrs. Robot can have that job!

 
At 4/07/2010 10:27 AM, Blogger Ron H. said...

>"Many of the manual labor tasks that have been automated eliminated jobs nobody should have been doing in the first place."

Walt G.'s comment reminded me of some of the part time jobs I had while in college. I told myself I sure didn't want to do THAT for the rest of my life, so I stayed in school.

Three cheers for robots!

 
At 4/13/2010 1:43 AM, Anonymous naveed ahmad khan said...

t was preeti good site then other when i visited last month
and got good information about part time job


part time job

 
At 8/30/2010 2:58 AM, Blogger Rakesh Bhargava said...

Employment has been destroyed by cross trading between countries to get cheapest item or getting job work done from outside the country. With main object to reduce the cost of product/service. That is reason China got good growth. Technology has done the damage but not extent to cross countries trading.
Currently all countries are self depended so why cross country trading required just because of few people interest. Please ban or put heavy restriction on cross trading. I am sure that it will help to all countries which are facing recession.

 

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