Hey Whats That Sound? It’s not the “giant sucking sound” that Ross Perot predicted would signal the drain of millions of American jobs to Third World countries. It’s true that many U.S. workers in manufacturing industries have seen their jobs vanish, and that the U.S. workforce has been declining for more than three years. But the problem isn’t foreign competition with cheaper labor.
Instead, the reality is that manufacturing jobs are disappearing throughout the world, not just in the U.S. In fact, from 1995 to 2002, more than 22 million jobs were eliminated in the manufacturing sector around the globe. That is a decline of more than 11 percent.
According to a recent report in The Asian Wall Street Journal, economists at Alliance Capital Management LP in New York studied employment trends in 20 large economies. They discovered that the U.S. lost about two million manufacturing jobs during the 1995-to-2002 period. This 11 percent drop placed the U.S. at the average rate of job loss for the rest of the world.
Other countries lost manufacturing jobs even more rapidly. Brazil shed 20 percent of its factory workforce, and Japan cut 16 percent.
Even China, which benefits from low-paid workers and cheap currency that keeps its exports inexpensive, is not adding jobs while the U.S. is cutting back. China exports $20 billion annually in goods to U.S. multinational corporations, according to a U.S. Department of Commerce report.
But, surprisingly, China is losing manufacturing jobs even faster than the U.S. and the world average. The Alliance Capital Management research shows that between 1995 and 2002, China has slashed its manufacturing workforce by 15 percent, from 98 million to 83 million.
What we’re seeing, then, is not job migration. When a factory is boarded up in Toledo, it isn’t because a new one is opening in Taiwan. Manufacturing jobs are becoming obsolete in every corner of the world because, quite simply, fewer and fewer workers are needed to produce more and more output.
Remarkable advances in technology, and constant increases in competition, are combining to make factories lean and efficient. Joseph Carson, the director of global economic research at Alliance Capital Management, explains that even while companies are cutting jobs, they are actually increasing their productivity, with global industrial output soaring more than 30 percent.
There’s an historical precedent for this trend. In the 20th century, technology revolutionized the agricultural industry, allowing farms to produce more crops with fewer workers. Then as now, the loss in jobs was not exclusive to America. Consider that, from 1910 to 1990, the percentage of agricultural workers in the total U.S. workforce plummeted from 32 percent to a mere 2.5 percent.
Yet, over the same period, in Germany, the percentage of farm workers plunged from 34 percent to 3 percent, and in the U.K, from 11 percent to 2 percent. These statistics were compiled by Douglas Irwin, an economic historian at Dartmouth College in New Hampshire.
Based on this trend, we offer the following four forecasts:
First, we expect that manufacturing jobs will continue to shrink over the rest of the decade, both in the U.S. and around the world. New technologies will continue to squeeze inefficiencies out of factory production. And, as we explained in last month’s issue of Trends, the accelerated adoption of factory robots will displace human workers. North American companies are now using 104,000 robots, which lags behind Japan and Europe. However, North American demand is growing faster than everywhere else, with orders jumping by 35 percent in the first half of the year. Other nations are now starting to invest in the technology, notably developing countries like Brazil, Mexico, and China. Demand is rising because prices of robots are falling, while the machines are becoming more versatile and reliable. From 1990 to 2002, the price of a robot with comparable performance fell by 80 percent. And the biggest application for industrial robots is on assembly lines.
Second, while manufacturing employment will continue to decline worldwide, some countries will experience modest growth in their workforce in this sector. For example, between 1995 and 2002, while both the U.S. and the worldwide average fell by 11 percent, Canada, Spain, and Mexico increased the number of workers in factory jobs. In each of those economies, regional trade pacts and/or currency devaluation made factory production more favorable. Such isolated cases that go against the current trend are likely to occur due to political forces and currency fluctuations.
Third, we predict that the U.S. government will gradually change its policy, from protecting the manufacturing sector, to introducing measures to help out-of-work factory employees find new jobs in the service sector. According to Glenn Hubbard, former chairman of President George W. Bush’s Council of Economic Advisers, such measures might take the form of “re-employment accounts” that provide laid-off workers with money that they can invest in learning new job skills.
Fourth, the net result of the shift from a manufacturing economy to a service economy will be enormously positive. New technologies always cause some people to lose their jobs as business models and processes become outdated, and skills grow obsolete. But new technologies always spawn new business models and processes that create entirely new jobs. As Andrew Cassel of The Philadelphia Inquirer reminds us, this trend parallels what happened only 10 years ago. U.S. manufacturing jobs fell in the early 1990s ? but the decade ended with 20 million more Americans employed, while real incomes surged 17 percent higher. We foresee the same positive results ?- for the individual and for the U.S. economy as a whole ? by the end of this decade.
References List :1. The Asian Wall Street Journal, October 20, 2003, "Decline in Factory Jobs Is Global, Report Shows," by Jon E. Hilsenrath and Rebecca Buckman. ⓒ Copyright 2003 by Dow Jones & Company, Inc. All rights reserved.2. Chicago Tribune, November 14, 2003, "Where Are the Manufacturing Job? Try China," by William O. Lipinski. ⓒ Copyright 2003 by The Tribune Company. All rights reserved.3. The Philadelphia Inquirer, October 22, 2003, "The Economy: Study Undermines Charge China Is Stealing U.S. Factory Jobs," by Andrew Cassel. ⓒ Copyright 2003 by Philadelphia Newspapers. All rights reserved.
