Here's Why US Manufacturing is NOT Dying

Blog Post - Here's Why US Manufacturing is NOT Dying

You often hear people talk about how the United States does not produce anything because manufacturing was taken over by China. Although some manufacturing has left the United States, it has been replaced with more specialized manufacturing and new industries. Furthermore, there are foreign companies with manufacturing operations in the United States because of the access to a larger pool of highly qualified employees.

A research group for the Federal Reserve Bank of New York compiled an analysis of employment trends in U.S. manufacturing. While there has been an employment contraction in manufacturing, high-skilled employment has risen sharply. In 1961, there were 16 million workers in manufacturing, which is the exact same number as 2003. So what is going on here? Lost jobs were primarily in low-skilled labor that is easily substituted. On the contrary, high skilled employment has sky rocketed.

As the Fed report states, “while heightened productivity and globalization have led to job losses for less-skilled U.S. workers, they have also helped create high-skill jobs.” From 1983 to 2002, U.S. total manufacturing jobs contracted about 9.3%, but grew an additional 36.6% in the high skilled area. In other words, employment has not been lost, but restructured.

Resources are finite and labor resources are being shifted to higher skilled, higher paying jobs. Manufacturing labor is producing high-tech products that require specialized skill sets found largely in the United States. We manufacture revolutionary technology; not trinkets.

It’s also worth mentioning that the Fed’s definition of manufacturing does not include software and IT production, which are two of the fastest growing industries in the United States. Both of these are technically manufacturing because it is the production of a good. The Fed report, however, only defines manufacturing as the production of material goods.

There’s been a restructuring of manufacturing as a result of low-skilled jobs being off-shored. There’s no doubt about that at all. As previously stated, higher skilled jobs have taken over US manufacturing. So what does output look like?

Manufacturing output has grown consistently since 1970. It is true that US manufacturing has declined AS A SHARE of world manufacturing. As of 2009, however, the US still ranked number one in total output.

Why has our share of manufacturing declined, but output remained strong? Growth of low cost manufacturing in countries like Brazil and China reduced our share of total manufacturing. We still see output growth because the US is manufacturing high tech products and we are the world’s epicenter for high tech manufacturing. As with all things economics, the pie has grown and we have smaller share of the pie, but our share is more valuable than ever before.

In other words, the US economy shed non-value add activities, such as building dolls. You can still get American-made dolls, but they’re more expensive and unique. Now, instead of making dolls, the US produces extremely high tech products, such as industrial equipment.

Foreign based companies relocate their manufacturing operations in the United States strictly because of our highly skilled work force. For example, ASML is a Dutch company and currently the largest supplier in the world of photolithography systems for the semiconductor industry. Per their website: “ASML is the world's leading provider of lithography systems for the semiconductor industry, manufacturing complex machines that are critical to the production of integrated circuits or chips”. Their equipment uses cutting edge materials that are machined by US-based suppliers. Guess where their final manufacturing is done? Connecticut and New York.

While there has certainly been a restructuring of employment, output growth has remained constant. Much of the lost employment has been offset by growth in other industries. On net aggregate, total employment has not declined. We are simply going through a restructuring period that favors more highly trained labor.

In my opinion, I do not think low-cost manufacturing countries will be able to maintain their competitive advantage much longer and a paper published by the Boston Consulting Group supports this opinion. Labor markets in China, for example, will continue to develop and wages will inevitably increase. Market developments plus a strengthening dollar and transportation costs could very easily result in a resurgence of American manufacturing.

The fear surrounding a loss of "good paying factory jobs" fails to extend beyond stage one. Our global economy is not static and it restructures constantly based on supply and demand of labor skills. We produce more with less and our production value outranks anyone in the world.

 

Tags: Economics

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