Economics

Making More with Less: U.S. Manufacturing Efficiency

According to Bureau of Labor Statistics data, employment in the U.S. manufacturing sector has fallen steadily since the 1979 peak of 19.5 million jobs to a 69-year low of only 11.5 million manufacturing jobs today. Eight million factory jobs have been eliminated in the last 30 years, and we now employ fewer American workers in manufacturing than at any time since 1941.

It would be easy to assume that manufacturing output in the U.S. was also shrinking, but that’s not the case. Federal Reserve data on the gross value of manufacturing output produced in the United States shows that despite a contraction in output during the 2008-2009 recession, manufacturing production has continued on an upward, long-term trend at the same time that manufacturing employment has been falling to record-low levels (see chart below).

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Because the huge declines in manufacturing employment over time have been more than offset by even greater increases in manufacturing output, manufacturing output per worker has skyrocketed to record-high levels (see chart below). Workers today produce twice as much manufacturing output as their counterparts did in the early 1990s, and three times as much as in the early 1980s, thanks to innovation and advances in technology that have made today’s factory workers the most productive in history. Simply put, we’re producing more and more manufacturing output with fewer and fewer workers, and the increase in worker productivity is one of the main reasons that 8 million manufacturing jobs in the U.S. have been eliminated since the late 1970s.

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With that background, consider this rewrite of a recent news story about China:

“The continuing trade imbalance with China increases in worker productivity has have contributed to the loss of more than 5.3 million U.S. manufacturing jobs in the last decade, 300,000 of those in New York State,” 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 robotics” Sen. Schumer said. “This is not about China technology or worker 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 8 million of manufacturing jobs since 1979.”

“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 their output with fewer workers.

Bottom Line: There’s really no difference between: a) producing more manufacturing output in the U.S. due to productivity increases that allow us to employ fewer workers, and b) increasing the amount of manufactured goods available in the United States by taking advantage of low-cost labor in China and employing fewer American workers.

In the first example above we substitute more efficient capital for labor, and in the second example we substitute low-cost Chinese labor for high-cost American labor, but the net result and undeniable benefits are the same: access to more manufacturing output in the United States with fewer American workers. Economist Steven E. Landsburg summed up this point very well when he wrote, “International trade is nothing but a form of technology.” And if China’s currency policy results in even lower prices for the Americans who buy Chinese imports, we should graciously accept their charity.

Despite all of the political rhetoric about China’s currency manipulation, imposing penalties on Americans who buy manufactured goods from China at reduced prices due to a currency policy that does eliminate some U.S. jobs but creates huge net benefits for our country makes as much sense as imposing penalties on American companies that introduce labor-saving technologies that eliminate millions of U.S. jobs but improve our overall standard of living immensely.

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