Missing jobs

During 2004 and 2005 the US manufacturing sector expanded more strongly than the rest of the economy. Yet after losing 1.5 million jobs during the 2001 recession it subsequently lost another 1.5 million jobs while the rest of the economy gained 5 million new jobs. US manufacturing employment at 14.2 million workers is the lowest it has been for 50 years.

David Huether in Business Week views the issue optimistically.

'Some blame ... outsourcing ... to...China and India. Others fault our growing trade deficit. And some posit that the current manufacturing recovery has not generated as robust a demand for US goods as have previous post-recession upturns. But none of these interrelated factors has influenced manufacturing employment nearly as much as has ...productivity growth.

Since 2001, with the aid of computers, telecommunications advances, and ever more efficient plant operations, US manufacturing productivity, or the amount of goods or services a worker produces in an hour, has soared a dizzying 24%. That's 72% faster than the average productivity advance during America's four most recent recession-recovery cycles dating back to the 1970s. In short: We're making more stuff with fewer people.

US manufacturing has for decades been the world leader in the productivity gains that drive living standards higher. But more recently, practically every manufacturing economy around the globe has posted strong productivity gains and experienced job losses as a result. ...China has actually lost more manufacturing jobs than America since 2000, with 4.5 million jobs gone vs. 3.1 million in the U.S. Among the top 10 industrialized economies ... which represent 75% of world manufacturing output, only Italy managed not to lose factory jobs since 2000.

It's ... true that US manufacturers face stiff competition in low- and mid-tech products from increasingly capable global rivals. Our trade deficit is a reflection of those competitors' collective capacity to deliver affordable consumer products to America and other international markets. But it's also true that persistently slow economic growth in Japan and Europe has limited demand for US-made goods and thus worked to lower post-recession output from American plants.... So, contrary to popular belief, it has been this lower demand and output, coupled with high productivity growth, that has conspired to depress ... manufacturing job creation ....

US manufacturing output has increased a welcome 13% since the end of 2001. But that growth is barely half the average increase during the initial four years of the previous four recoveries. Remember, our manufacturing productivity has increased significantly faster than in earlier recoveries. You don't have to be an economist to see how this combination of far slower output growth and much higher productivity has been very bad for employment.

Indeed, if manufacturing output and productivity growth rates during the current recovery had equaled those averaged during the previous four upturns, US manufacturing would have created 3 million more jobs than it has, and employment would have recovered to its pre-recession level of 17.2 million by the end of 2005. Fortunately, demand for US-made products has increased, and manufacturing's output has grown at a solid 4.8% annual pace during the past two years.

Because that figure almost matched manufacturing's 5.1% productivity growth, factory employment has remained relatively stable. But US manufacturers aren't about to invest any less in productivity improvements in future years. International competition won't let them. Looking ahead, the number of manufacturing jobs we create or lose will depend entirely on the global demand for U.S.-made products'.