Sunday, April 26, 2009

Manufacturing: More Output With Fewer Workers

Don Boudreaux in the Pittsburgh Tribune-Review:

Many of you protectionists hyperventilate about America's alleged loss of manufacturing prowess. Are you aware that your worries on this front arise solely because you confuse manufacturing jobs with manufacturing output? Manufacturing jobs, as a percentage of all jobs in America, are indeed declining (see top chart above). And you hysterically interpret this fact as somehow proving that foreign producers are undermining America's economy.

But are you aware that America's manufacturing output today is near its all-time high (see middle chart above)? Are you aware also that America is by far the world's largest exporter of manufactured goods?

Are you aware that the reason manufacturing jobs are declining as a share of all jobs has far more to do with increased productivity of American industry -- that is, increased strength of American industry -- than it has to do with increased foreign trade (see bottom chart above)? Manufacturing jobs are being lost to technology and improved efficiencies. Do you think that this trend is undesirable?

MP: The middle chart above shows U.S. Manufacturing Output (Gross Value) from
The Federal Reserve, and U.S. Manufacturing Payroll Employment from the BLS (via Economagic), monthly from 1972 through March 2009. In the last 37 years, manufacturing output in real dollars has more than doubled, while manufacturing employment has dropped by about 35%, resulting in an almost tripling of the amount of manufacturing output per manufacturing worker in the U.S., from less than $80,000 in 1972 to almost $240,000 per worker today (bottom chart).


At 4/26/2009 11:39 AM, Anonymous gettingrational said...

Manufacturing accounts for 20% of U.S. GDP while retail expenditures account for 67% of GDP. This means we like to consume and pay people for providing the consumption pipeline (duh). BUT to pay for this consumption we need to borrow huge amounts because our jobs (what's left) don't provide enough income.

Higher productivity is not bad. What is bad is the false assumption that our economy can support so much consumption. Retail jobs will not provide the easy entry jobs anymore for people who would otherwise work in easy entry manufacturig jobs.

The U.S. must demand that trade barriers for U.S. goods be removed and new barriers not be erected with our trading "partners" --especially China. Then, maybe we can get a more balanced economy because borrowing to consume is not going to work anymore.

At 4/26/2009 12:55 PM, Blogger PeakTrader said...

gettingrational, the U.S. has been overconsuming for 25 years. If export-led economies want to work for the U.S. almost for free, that's their choice. Why should the U.S. respond by adopting a suboptimal position and lower its living standards?

Global imbalances caused this recession. Export-led economies overproduced and underconsumed, while the U.S. overconsumed and underproduced. U.S. actual output has generally been below potential output throughout the 2000s. It was appropriate the U.S. raised actual output towards potential output, which caused export-led economies to overproduce even more.

The optimal goal is to raise U.S. living standards at the fastest sustainable rate. Unfortunately, there's still a "credit crunch." A large tax cut (e.g. $2,000 per worker, and increasing unemployment benefits) would have minimized the recession (which worked under JFK in '61, Reagan in '81, and Bush in '01). There remains not enough money chasing too many assets and goods.

I suspect, Obama, by design or luck, wants to blame the entire recession on Bush and then take credit for the expansion, to support his Marxist policies, i.e. create a deeper recession in the first half of '09; so the recovery will look stronger.

At 4/26/2009 3:46 PM, Blogger marketdoc said...

Interesting perspective on an issue that is not well understood by most people.

At 4/26/2009 4:44 PM, Anonymous Anonymous said...

Bourdreaux is the most inconsistent economic analyst I have ever seen.

Now when he wants to make a point about the role of productivity in the current environment he is all for it.

But when he discusses the economy in the 1930s he completely ignores the point that productivity was stronger in the 1930s than in any era in US economic history, including the recent years.

Moreover he completely ignores the changing composition of US manufacturing. Probably because he is completely ignorant of it.

But over the last quarter century the growth rate of US manufacturing output has stemmed from a nearly 25% annual growth rate of computers, semiconductors and communication equipment while all other manufacturing output has grown at a 1.1% rate.

If he were even remotely aware of the changing composition of US manufacturing growth he would not be making most of the comments he makes because the growth of productivity has paralleled the growth of output with a few high tech firms accounting for virtually all of manufacturing productivity growth and the traditional firms being left in the dust.

He should really try to read the research of real economist in the refereed professional journal that the charlatans in the right-wing
think tanks.

At 4/26/2009 5:35 PM, Anonymous Ralph Short said...

Anonymous 4:44 PM, your statement is worth zero. I was in manufacturing for 40 odd years and finally retired at the end of 08. The fact is every company I was with, and every company that either bought or sold from us saw exactly the growth in output that was cited here.

A manufacturing manager, an engineer, an executive in manufacturing is always looking for a way to increase production without increasing people or just adding machines. Fortunately, the capitalist system is able to provide that because someone else is looking to sell a new tool, something faster, more accurate, more reliable, etc.

My guess would be you never manufactured anything, and are totally unfamiliar with equipment, processes and the dynamic free market.

I venture to guess though, you are a believer in the "chosen one" and the "leadership" of lawyers posing as legislators. None of whom ever manufactured anything either.

At 4/27/2009 12:11 AM, Blogger DaveinHackensack said...

It's true that the U.S. remains a manufacturing powerhouse in terms of output, but it's also true that the decline in manufacturing jobs as a percentage of our workforce is problematic. Manufacturing is one of the few industries that can create the sort of good-paying blue collar jobs that support a broad middle class.

If conservatives want to win an electoral majority in the future, they ought to advocate policies that can facilitate the creation of more high-paying blue collar jobs, and draw contrast with liberal policies that have the opposite effect (e.g., the anti-carbon jihad that will make energy more expensive, and, consequently, chase energy-intensive businesses such as manufacturing out of the country).

I expanded on this in a recent blog post, in response to a liberal pundit's column in the FT last week which argued, essentially, that a broad-based prosperity could be built on a middle class of teachers and home health aides, while manufacturing and other industrial jobs were offshored: "How Not to Create a Broad-Based Prosperity".

At 4/27/2009 9:39 AM, Blogger juandos said...

Hey Peak Trader what does, "the U.S. has been overconsuming for 25 years" mean?

'Many of you protectionists hyperventilate about America's alleged loss of manufacturing prowess'...

Hmmm, maybe the protectionists have their eye and ire on the wrong target...

At 4/27/2009 5:08 PM, Blogger PeakTrader said...


It means U.S. trade deficits. Even in years when the U.S. overproduced, it overconsumed even more.

Here are some statements from the Cato Institute (from June 1998):

A trade deficit that reflects both rising exports and even more rapidly rising imports can be a sign of health. That has been the case in the United States for most of past two decades. Since 1980, the U.S economy has grown an average of 3.1 percent in years in which the current account deficit has expanded from the previous year, and an average of only 2.0 percent in years in which the deficit has shrunk. If trade deficits are bad for growth, why does the U.S. economy grow more than 50 percent faster when the trade deficit expands?

There is a strong correlation between rising trade deficits and falling rates of unemployment. The reason is simple: The same expanding economy that stimulates demand for labor also raises demand for imported goods and capital.

Since 1992, the U.S. trade deficit has tripled. During that same time, U.S. industrial production has surged 24 percent and manufacturing output 27 percent. The American people sell more goods and services in the global marketplace than people of any other country.

At 4/27/2009 8:27 PM, Blogger juandos said...

"It means U.S. trade deficits"...

O.K. thanks Peak Trader...

I thought that's what you meant...

"A trade deficit that reflects both rising exports and even more rapidly rising imports can be a sign of health"...

Personally I like your explanation...

You worded it better than I could...

Again thanks for the info...

At 7/31/2009 12:07 PM, Blogger Jeff said...

700 billion trade deficits werre a sign of good health!!


We are a manufacturign powerbhouse.. but 90% of what we buy is from other countries..

Look.. something doens't smell right with that..

There is a logical disconnection

Are we counting hamburger flipping as manufacturing now?

Last I checked.. we have stopped producing a huge number of goods.. do we even make ic's anymore? Tv's microwaves? What's next, cars?

I can look at government produced statistics, and make some conclusions from them, but that does not make them right.. There are a lot of assumptions in the data.


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