globalization, offshoring, and automation have since 1980 liquidated nearly 7 million manufacturing jobs in U.S. communities—more than one-third of U.S. manufacturing positions—as manufacturing employment plunged from 18.9 million jobs to 12.2 million. Moreover, as the chart depicts, while the trend is longstanding, it actually accelerated in the 2000s.
The role of China’s expansion in this process is the subject of a Russ Roberts podcast with David Autor.
See comments by four of us here.
My comments on the podcast are below the fold.
David Autor’s work on the adjustment problems for American workers caused by China’s rapid export growth is very interesting. I believe that these sorts of adjustment problems, rather than “aggregate demand,” are the main source of unemployment in the economy. I have discussed this way of thinking about unemployment as the problem of discovering patterns of sustainable specialization and trade (PSST).
I was intrigued that the podcast with David Autor and Russ Roberts discussed structural unemployment and corkball. One of my late father’s favorite expressions was, “We are going to have to pay people to play corkball.” More than thirty years ago, he foresaw a future in which society would have to deal with widespread unemployment by finding it socially acceptable to pay people to engage in leisure. Some additional points:
1. The rules of corkball in St. Louis, where my I grew up, evidently differed from those in Memphis, where Roberts grew up.
2. My father thought in terms of workers displaced by technology, and Autor talks about workers being displaced by trade, and in particular by rapid growth in manufacturing in China.
3. My father thought that once low-skilled workers were displaced, it would not be long before what we would today call non-STEM college majors would find themselves displaced as well.
4. My father was not an economist. In my view, he seemed to be committing the “lump of output” fallacy. That is, imagine that the world is one big factory, producing a fixed amount of output. If the factory “foreman” (meaning the impersonal forces of the market) finds some Chinese welders who can perform welding at less cost than American welders, then American welders will be out of a job. The fallacy is in treating the amount of output as fixed. In a dynamic economy, the factory “foreman” should be able to find another use for the American workers that serves to increase output. Since we teach that the economic problem consists of unlimited wants and limited resources, the unemployment of American workers should be of limited duration.
5. In the podcast, it sometimes sounds as though Roberts wants to defend what we teach against what he sees as “lump of output” thinking. However, one way to characterize the dispute between Roberts and Autor is that what they really disagree about is the meaning of “limited duration” for structural unemployment. For Roberts, it might mean a few months or at most a couple of years. For Autor it might mean a decade, or perhaps from now until the worker reaches the legal retirement age.
6. I believe that this is the most useful way to think about unemployment in general. That is, I do not think that very much unemployment is “cylical,” meaning that factories are shut down until unwanted inventories have been worked off, at which point they are re-opened and the same workers are rehired. Rather, I think that most unemployment is structural. The factory “foreman” finds millions of new jobs for workers each month (see the JOLTS survey), but the “foreman” cannot find a fit for everyone. Even a small increase in the rate of displacement and/or a small decline in the rate of fit-finding gives rise to what we call a recession.
7. Both trade and technological innovation constitute progress. Displaced workers are the victims of that progress. The policy issue raised at the end of the podcast is how best to deal with the victims. I would lean against trying to slow the pace of progress by restricting trade or by making it difficult to introduce technological innovation. I would lean instead in the direction of cutting payroll taxes and decoupling employment from health insurance. Those steps would reduce the cost of labor and thereby make it more likely that the “foreman” will find a use for displaced workers.