The Plunge in Manufacturing Jobs in the U.S.

Mark Muro and Siddharth Kulharni write,

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.

22 thoughts on “The Plunge in Manufacturing Jobs in the U.S.

  1. “[G]lobalization, 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.”

    So is this why the US desperately needs to import millions more unskilled Central American peasants? To fill all those jobs we don’t have here anymore?

  2. My view is that utility is more driven by relative success than absolute success (above a certain minimum threshold). I’m not saying this is “rational” but I believe it to be true. The “lower-half” has not done poorly, they simply have not shared in the gains of the upper 20%. There exists no policy prescription for this other than to ignore it, call it irrational, and hope it goes away. This is dangerous in a democracy, as we are seeing.

    Reduce inequality and I bet all this talk of “trade / manufacturing” goes away. That issue is simply an easy scapegoat for the real issue (the feeling of “falling behind” with no policy help other than embarrassing government “handouts”).

    • I think that would be unfortunate. The purpose of manufacturing is not to provide good jobs. It is to advance the division of labor. I suppose this has few constituencies.

      Manufacturing is inherently job destroying. That is its main benefit, not the few jobs left watching the machine.

      Chinese manufacturing however is thus far very labor intensive. Eventually they will start buying stuff. Then maybe we’ll have to work through rising prices. Finally we will have a world economy and all the bebefits of the extent of rhat market. Hopefully it happens before we are all retired.

        • I agree division of labor is good in aggregate. I’m all for trade (my biggest complaint is that too many areas are “protected”…notably services, and intellectual property).

          But in a democracy I believe you need some answer to address the situation of the “losers.” Our ideas are “transfer payments” (bad for morale), “retraining” (not realistic in many cases), or “moving” (terrible for family structure, etc). Is it any wonder the “losers” are upset? The banks get in trouble and we move mountains to save them. American labor gets in trouble and we have zero attractive policy responses.
          I’d be pissed too.

          • Yeah, they are mad, but I see nothing productive from them either, so I understand being mad, but I can still blame them. I agree with Arnold’s ideas to reduce the cost of employing labor. But by fixating on labor we also miss the point that capital formation is probably the major source of true welfare, depending on where we draw definitional lines.

            There is no satisfying way to split the shrinking pie. So, if we are going to either not address that, or do things counter-productive to it, then all we have left is to buckle in for the ride.

    • That is a problem in a society built around advancement and achievement. If half the population can no longer hope for a better tomorrow, expect things to change, and not necessarily for the better of those at the top.

  3. I think $ output of manufacturing has continued to increase — both in the US and in China. Not long ago I read that China, too, has troubles keeping so many people employed in mfg, and has even suffered some reduction in workforce size just as the US.

    It would be more effective for #6 to include some stats, like: (guess only, data would be nice) 21,000,000 left jobs in 2015, 1,000,000 began retirement, 19,600,000 started new jobs, including those entering their first jobs. So a decrease in total employment, a net decline of 400,000.

  4. I would lean instead in the direction of cutting payroll taxes and decoupling employment from health insurance.

    Doesn’t decoupling employment from health insurance strengthen Obamacare in the long run?

    • Noy fundamentally, no. The driving force for something like Obamacare is the idea that there is a class of insured (employed) and uninsured (underemployed).

      An individual market is really the opposite of Obamacare. But when the government has,caused one problem (subsidizing employer insurance and thus undermining the individual market), they have to then subsidize counter-solutions. It would be preferable to fix the primary problem.

      • For each to buy insurance from the income from the job they no longer have. Brilliant.

        • 1. Lots more people have plenty of income, more than have employer sponsored health insurance.
          2. Insurance is only too expensive because of interventions like subsidizing employer-sponsored insurance.

          This pattern is recognizable everywhere the government restricts supply only to subsidize demand for anyone able to recognize it. Next up is college.

  5. Education is largely paying people to play corkball. The politics around it is an effort to feel good about it. One of the key features of feeling good about it is demagoguing those opposed to it. I hope your students don’t read this!

  6. I like to imagine the entire labor market as being like the tourists standing on the terrain near le Mont-Saint-Michel when the tide is coming in with ‘feet above sea level’ corresponding roughly to ‘substitutability’ (by technological capital, outsourcing, whatever,) and increased crowding of any particular spot corresponding to lower wages. Small changes in technological innovation or wage ratios will cause the tide to rise, but the scale of the effect depends on how many people are already packed together on the waterfront.

    If all domestic workers have to stay out of the sea (i.e. not be replaced by some substitute), then the people nearest the tide line will get John-Henry’d soon and they will have to seek a new place to stand on higher ground (or maybe break ground on some high spot no one has occupied before).

    Some people are in the castle, and they don’t have to worry for a long time. But if lots of people are right on the edge of the fast-moving shore and, for one reason or another, find it hard to move and find a place sufficiently uphill, then there is going to be a lot of labor-force reduction and social disruption.

    It’s possible to enrich the metaphor with plenty of complementary imagery.

    Maybe the members of some uphill profession see the throng approaching, know they their turf is going to get ‘crowded’ which will lower their wages, and so sets up supply-constraining ‘barriers to entry’ in the form of unions or licensing requirements or whatnot that builds a fence around the territory and, in a kind of beggar-thy-neighbor policy, forces the tide-refugees to crowd even more densely into the remaining free-entry spots.

    Maybe the minimum wage and other labor-market regulations are like a ‘super-moon’ that keeps the tide higher than it would be, flooding otherwise functional job opportunities. Maybe some of the land is ‘too hot’ or ‘too expensive’ (i.e. requires too much human capital) and most labor-substitution refugees can’t climb there, and certainly not quickly. Maybe the welfare state is like a bunch of rafts that people can survive on but mostly by giving up and getting out of the game. Of course there will always be plenty of people electing to engage in the alternative pursuits of larceny, extortion, fraud, and smuggling.

    Now, of course, this process has been going on for centuries now, and just as some people make the ‘this time is different’ mistake, a lot of people also make a ‘this time isn’t different’ error. The power of this metaphor is that it gives us a framework to discuss the relative severity of prevailing conditions to help us know whether we should be especially worried this time around. We can, conceivably, form labor-market maps and try to estimate substitutability-proximity (or elasticity) for different positions. We can investigate the character of hard-to-substitute jobs, and try to look forward and imagine what an economy will look like when most people are doing that type of work.

    As I’ve said before, I judge that there is good reason to believe that most people will become greatly centralized in high-rent regional hubs or international super-hubs and they will have to be performing ‘close proximity interpersonal services’ with almost no productivity growth and at low wages.

    If you go to some metropolis in the developing-world or middle-income Latin America you will often see people earning subsistence wages so they can eat rice and beans and freshly ground cumin in the favela for doing things like sitting in a folding chair and ‘protecting’ a parking lot from unauthorized entries.

    Just like there in an unlimited potential demand for expensive, labor-intensive health care, there is an unlimited demand for labor-intensive ‘security’ (both public and private), but mall cops are a lot cheaper than nurses.

    So, we probably won’t pay people to play corkball, buy we can certainly pay them to be guards in every conceivably insecure space.

  7. Internal restrictions on migration also hamper the matching process. Compared to the 50s, we have two new major restrictions: occupational licensing and housing supply restrictions.

    Occupational licensing now covers many more jobs than before, and typically these licenses are state-level. So moving now as a much higher cost.

    Housing supply restrictions have hit hardest the metros that are also key centers for knowledge jobs, that have high returns to agglomeration. You can’t start a tech company in Tulsa because you can’t find enough people from all the different specialities you need. But housing supply restrictions in the Bay Area have meant that there’s an increasing outflow of people to cheaper locations with lower wages. In fact, for the first time ever, internal migration is now from places with high wages to places with low wages because of differences in the cost of living.

  8. Bob beat me to it. Along with removing the link between employer and health insurance that Arnold mentioned, it needs to be easier for workers to move.

    Part of that ease is the public school system and school zoning. When moving, people do not usually have to worry that they’ll be able to find good stores to buy what they need. If they have children, they will have to look carefully at the limited supply of good government schools.

    Even if movers do not have children, how a school zone is doing can have a large effect in other areas.

  9. Any business owner or HR professional can tell you that for some decades now, Washington and many states have done nothing but increase the marginal cost of employees.

    This has been especially acute the past seven years, and they’re at it again with the revised overtime rules, which are going to be hugely-disruptive to far more workers than seems to be widely appreciated. In many cases, these added costs are equal whether the marginal hire is a senior engineer making $750 a day or an entry-level dock jockey making $500 a week. And yet so many heavily-educated people are surprised when wages and employment stay stagnant for strong-backed high-school graduates with petty criminal records and go through the roof for computer science graduates from Carnegie-Mellon.

    The explosive growth of the so-called “task economy” companies are a hint of how many people are being regulated out of jobs. Fortunately, regulators and legislators are starting to catch on and have promised to bring order and discipline to protect people from this wild west of companies lining up to offer them work they are happy to take.

    So yes, while we managed to get through the introduction of steam, electricity, the internal-combustion engine, automobile, telephone, containerized shipping, interstate highways, and the personal computer without starting a nationwide professional corkball league, this time is clearly different, because technology. Nope, nothing to do with all those regulations introduced in the past forty years.

    • Good points. However, some new technologies increase employment, even if they are labor saving. I think the problem now (vis-a-vis The Great Stagnation) is that there aren’t as many new patterns of trade and specialization that increase employment opportunities relative to those that are only labor-saving.

  10. I’d like to know the IQ of typical holders of jobs due to unsustainable trade pattern, and the IQ of typical holders of jobs that are created by new sustainable trade patterns. My guess is that the median IQ of new job positions is higher than lost job positions, which may contribute to the general “left behind” feeling. Output definitely keeps going up, as the quest for increased output is the thing that is causing trade patterns to realign. I’m less concerned about “Average is Over”, and more concerned that the absolute requirements to be an average, productive member of society are rising, and that simple biology is going to be a hard cap for an ever increasing share of the population

  11. In many aspects, STEM jobs are more easily automated which is why those non STEM opportunities are increasing, from food service to entertainment. That in part is why this is the golden age of television.

    The limited resource is often demand. Demand is the temperature of the economy. In a cool economy even the best new enterprises grow slowly and others never get underway at all. In a warm economy the best grow fast and spawn competitors and even marginal ones can succeed. But yes, it is dynamic and changing rather than static and one dimensional.

    Decades sounds about right, largely due to the complexity of those patterns and hysteresis, but varies with accumulated human capital, less experienced more easily shifting, more experienced often impossible.

    Supply does not create its own demand. Lowering employment costs would increase demand, and universal programs would lower them, but who is willing to pay them? If they were, we wouldn’t be where we are now.

    • This is why we need more STEM jobs. Not pursuing technology will be a fool’s errand.

      Demand is not a long-term limited resource. Short-term, demand shortfall is a hand waving fudge factor. It says “people planned on demand level x, for reasons we can’t understand, maybe the past trend, now,we observe demand level y, for reasons we can’t understand. Therefore the problem and the solution is x minus y.”