There seems to be more and more talk about our decline in manufacturing prominence and its relation to outsourcing/off-shoring, but these arguments always gloss over (or skip entirely) the relationship of technology/efficiency to the losses in manufacturing employment and every one of these arguments always begins with the assumption that we produce less than in the past (some usually undefined past, but most often refers to sometime between 1950 and 1973). I am going to use this essay to demonstrate how the infamous Luddites may very well have been correct in their fear of technology, but were almost two centuries too early in their conclusions.
First, I want to define that I am going to end my data in 2007 (ie before the recent recession), as the data dramatically skews during the “Great Recession” and it is difficult if not impossible to infer much through this period of time in the data (however, it is my belief that once we emerge from recession, nothing substantial will have changed economically that will alter my conclusions herein).
To begin, I want to state emphatically that industrial production (in actual units of stuff, not dollar value) has continued to increase in the post war period, right up until our most recent recession. We do in fact produce as much (actually quite a bit more) than we ever have and thus the “nothing is made in
So, now that we know industrial production (in units of stuff) was at an all-time high at the end of 2007 what do we know about jobs in goods producing industries (ie manufacturing)? Well, those jobs are at about the same level they were at the beginning of 1992, and although they saw a slight rise during the 90’s (about 11%), they fell again during the 2001 recession and remained around the 1992 level since then. During this same span of time we saw industrial production increase by 50% during the 90’s (so for every one percent rise in jobs we saw a 5% rise in industrial production) and after a shallow drop during the 2001 recession, industrial production moved back to all-time highs while jobs stagnated. Thus, industrial production at the end of 2007 was 65% higher than in 1992, while manufacturing jobs had essentially stagnated since then.
The gap between manufacturing jobs and industrial production is even more evident when we look at the time period between the start of the 2001 recession and the start of the 2007 recession, as manufacturing jobs declined by 10% while industrial production increased by about 10%.
The numbers are even more stark when we look at the value of goods through the personal consumption expenditures component of GDP (in chained 2005 dollars) and back out all imports (this is goods only for both). Doing the simple calculation (http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=6&Freq=Qtr&FirstYear=2007&LastYear=2009) shows us that the difference in inferred domestic output between 2000 and 2007 was an increase of 24% (again during a period in which manufacturing jobs declined by 10%).
Concluding, the information above seems to imply that we have reached a point where industrial production can increase at a rate much faster than the need for jobs to produce the goods. In fact, during the period between the 2001 recession and the 2007 recession manufacturing jobs actually declined while industrial production increased substantially. Coupling this data with recent (and by recent I mean at least the last 10 years) productivity increases, which grew at an average annual pace of 3.71% between 2001-2007 (a total increase of 29% during that period) and we can see that perhaps we have indeed reached a point where our ability to improve output with technology is now increasing at a pace faster than new demand can create a need for new manufacturing jobs. If this conclusion is correct then not only were the Luddites right in their fears (albeit 200 years too early), but that we need to begin rethinking all of our economic policies, as they are not designed for a world in which technology can displace jobs faster than new innovation and demand can create them.
7 comments:
Yes, I see it that way too. Labor is becoming worth less and less. I see no solution in the immediate future. I see no solution in the distant future either, other than when the sun goes nova. The masses will suffer and the masters (pick your own) will not be inclined to share the wealth. Lots of unrest to come, as the masters will continue to manufacture and sell the tools to destroy civilization, humankind and the planet. Or am I being too optimistic?
aClem
Hmmm... I'll have to read this a few times to figure it out. But I don't think it bodes good for many of the middle class jobs that we had before.
JWC
OK...don't panic.
I say we go back in time - find the guy who was going to invent the wheel and off him! Bob's your Uncle Fannie's your Aunt - problem solved.
That was easier than I thought it was going to be.
The problem with economic analysis is that is rare someone has true insight. Productivity is up but that is meaningless with massive debt. Given access to money what differece is there between a car produced in Japan, America, or China for that matter make? It is only during the contraction that true differences are discerned. The Luddites were stupid. There is always the ying and yang, the counter argument. Yes they should have seen the end of there ways but they didn't recognize that there were advantages or put them to use. It is always "know how" and "how to" and there will always be someone who wants quality. But of course quality is never put into the economic equation except in a self serving argument. Fact is the Luddites never went away. Look around you and numerically they have thrived but maybe not in textiles. Next time you are at a farmers market check your wallet.
Wouldn't this be an outstanding time to go to a 32-hour work week? With time-and-a-half up to 35 hours? And double time after that?
We have been here twice before.
At the turn of the last century, or so I once read, the largest collection of people paid a wage or salary were house servants, because 'servants' penetrated well down in terms of how many people could afford them. My late mother thinking back to the 1920s, when her father was a successful engineer, recalled that her mother had had a housekeeper, a gardner, and a part-time cook. That very large class of people is almost entirely gone.
If we go back to the 1920s, a substantial part of the population of the country was employed in agriculture. Increases in productivity and mechanization have largely but not entirely eliminated the agricultural population, but the fraction of our incomes we spend on food is smaller than ever.
Now the same is happening to industrial manufacturing. It is starting to happen to service industries. For example, once upon a time a large industrial firm might have had typing pools. Under modern conditions, computers and voice to text have substantially reduced the need for typists.
It seems to me that the gains in productivity should be shared with those employees who help to contribute to that productivity. The money would then filter down through the economy as goods and services. If the trend is downward pressure on wages that is counterintuitive to reigniting the economy to me since it limits disposable income. You have to have someone who can afford to buy.
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