What Politicians Get Wrong About U.S. Manufacturing

Politicians critical of trade and globalization often point to the decline in U.S. manufacturing jobs as proof positive of America’s dwindling economic might. Since its peak in 1979 – when the sector employed 19.5 million Americans – manufacturing employment has been dropping steadily. In 2014, according to the Bureau of Labor Statistics, 8.8 percent of Americans held manufacturing jobs, down from 23.5 percent in 1979.

But the story of U.S. manufacturing shouldn’t begin and end with that single statistic. The true state of U.S. manufacturing is far more complicated – but also more hopeful.

The number of manufacturing jobs has grown since 2010

After hitting a low of 11.4 million jobs in 2010, manufacturing employment has since climbed to nearly 12.3 million in May 2016, according to the Bureau of Labor Statistics. The biggest recent hit to manufacturing jobs was the financial crisis and the recession – from 2008 to 2010 alone, manufacturing lost more than two million jobs.

While some of this rebound is due to a broader economic recovery, there’s also evidence that more companies – such as Ford and Caterpillar – are “insourcing” jobs back to the United States from countries such as Japan, China and Mexico. According to a 2012 White House report, the combination of low energy prices, the ability to protect intellectual property and rising production costs in China and other countries is making the United States increasingly attractive for manufacturers.

The United States is the world’s second largest manufacturer

Despite what’s happened with manufacturing employment, the United States ranks number two globally in the total value of manufacturing output. As recently as 2009, America was number one. The following chart from the World Bank shows the relative positions of the United States, China, Japan and Germany in value-added manufacturing output.

U.S. manufacturing output, which also dropped during the recession, has been growing since 2010. But manufacturers are also continuing to show gains in productivity as robots and more efficient production processes take over human brute labor. As this chart from the St. Louis Federal Reserve shows, real output per person has more than doubled in the manufacturing sector from 1988 to 2016. In fact, total real output reached an all-time high in 2015.

The rise of automation, along with other gains in productivity, is a major reason why the sheer number of U.S. manufacturing jobs is unlikely to regain its post-World War II heyday, even if actual output continues to grow.

For example, NPR recently reported on booming demand in China for American-made New Balance sneakers, which are mostly manufactured in Maine. The two factories in Maine that produce more than one million sneakers a year employ a total of 650 workers (only a portion of whom work on the actual assembly line).

Manufacturing jobs have shifted from low-skilled to high-skilled

The increasing use of advanced technology in manufacturing also means that the manufacturing jobs of today are vastly different from those of the 1950s and 1960s. Manufacturing workers today are far less likely to be standing on an assembly line turning bolts and far more likely to be operating complex machinery. American assembly lines are also far less likely to be churning out mass-produced consumer goods, such as T-shirts or sneakers, and more likely to be producing high-tech industrial goods. The Chicago-based manufacturer Cummins Allison, for example, is one of the world’s leading manufacturers of ATMs and the cash counting machines used by banks and casinos.

According to the industry-linked Manufacturing Institute, the share of the manufacturing workforce with a bachelor’s degree has grown from 16.3 percent in 2000 to 19.9 percent in 2012, while the share of workers with less than a high school diploma has declined. It’s increasingly less possible to go straight from high school graduation to a factory floor.

Better-educated workers also mean better wages. In 2013, manufacturing workers’ pay averaged $33.93 per hour, according to industry data (although this figure also includes the salaries of management and administrative workers as well).

The industry argues, in fact, that it faces a serious shortage of workers – potentially as many as two million unfilled positions – because of an inadequate supply of workers with the right skills and interest in pursuing manufacturing as a career. In part due to dismal portrayals of U.S. manufacturing as sector that’s dirty, dangerous and dying, public polls find that many young people (and their parents) have no interest in manufacturing jobs for themselves – even though they support manufacturing as an important part of the U.S. economy.

Services, not manufacturing, drive the American economy today

One particularly negative consequence of politicians’ over-emphasis on manufacturing as a proxy for the economy at large is that this perspective overlooks four-fifths of the modern U.S. economy. The vast majority of U.S. economic output is services – including knowledge-based sectors such as information technology, financial services, logistics and distribution, education, marketing, legal and a host of other high-end professional services where America has no equal.

The U.S. International Trade Commission (ITC) reports that the United States is far and way the global leader in services exports and in fact enjoys a trade surplus when it comes to exports. In 2013, America accounted for 14 percent of total global services exports, compared to four percent for China.

As nations grow wealthier and more advanced, their economies progress from being agriculture or resource-driven, to manufacturing, and then to services. China, in fact, is also shifting to a service-driven economy as its middle class grows, its population becomes more educated, and low-skilled manufacturing leaves for even lower-cost destinations like Malaysia.

This is not to say that the decline in manufacturing hasn’t taken a serious toll on American workers, especially those who are less educated and less equipped to succeed in a rapidly changing economy. These shifts have been particularly difficult for workers without at least some college education, especially men. In real terms, men with only a high school diploma are earning less today than they did in 1973.

But the right approach is not to turn back the clock, as some policymakers argue, and attempt to revive a 1950s-style economy. This task is not only impossible but undesirable. Rather, the right solution is to help all workers invest in the skills and education they need to compete in the changing economy.