Factories prosper as jobs vanish: Rising productivity the key factor

Atl Journal-Constitution ^ | Dec 21, 2003 | Marilyn Geewax

[RobFromGa]

Factories prosper as jobs vanish
Rising productivity the key factor

By MARILYN GEEWAX
The Atlanta Journal-Constitution

WASHINGTON -- With so many textile mills closing and blast furnaces falling cold, Americans could be forgiven for thinking U.S. manufacturing is in broad decline.

Indeed, both Democrats and Republicans have been promising to help shore up manufacturing, which has seen its ranks thin by about 2.8 million jobs over 40 straight months.

But U.S. factories are not dying. Indeed, they have more than doubled their output in the past 30 years, and after three rough years, most are starting to hum again.

Last week the Federal Reserve said industrial production rose at the lively pace of 0.9 percent in November, the biggest monthly jump in four years.

"We're still the No. 1 manufacturer in the world and the largest exporter," said Joseph Carson, an economist for Alliance Capital Management LP, the New York-based investment firm that recently conducted a major study of manufacturing employment trends.

With the economy perking up, "the outlook for manufacturing is quite good," Carson said. "But will we recover the jobs lost? No."

Economists say both sides of this split-screen picture are illustrating the same phenomenon: rising productivity.

During the 1990s, manufacturing productivity growth averaged 3.8 percent annually, nearly double the pace of the overall economy, according to the National Association of Manufacturers, a trade group. It shot up even faster, more than 5 percent, in both 2002 and 2003.

In other words, with the help of better equipment and more efficient manufacturing techniques, U.S. factories are coming back. But factory jobs aren't.

That adds up to a heartache for unemployed workers, and a headache for political candidates eager to assure voters they will save manufacturing jobs. During a Labor Day trip to northeast Ohio, President Bush promised "to make sure our manufacturing job base is strong and vibrant."

The eagerness to save blue-collar jobs is understandable: Such positions are visible and high-paying. The average annual wage for full-time manufacturing workers was $45,580 in 2001, compared with $38,837 for the rest of the work force, according to NAM.

At the same time, given tough global competition, Americans cannot afford to fall behind in the ability to produce goods quickly and cheaply.

Economists argue that rising productivity will result in stronger profits and lower inflation, twin benefits that give rise to other types of jobs. If, for example, a plant in Michigan could boost its productivity enough to drop the cost of a car from $25,000 to $23,000, then the customer would be able to afford to drive it to Florida for a $2,000 vacation.

But while rising factory productivity may spread benefits throughout the economy, it does nothing in the short term to help someone holding a pink slip.

Economists compare today's labor force turmoil to the transformation that took place when tractors started boosting farm output. In 1910, one out of every three U.S. workers was a farmer. By 2000, it was fewer than one in 33.

Now, a similar process is transforming the factory floor. At the end of World War II, nearly four in 10 workers were employed in manufacturing. Today, NAM puts the number at just over one in 10.

The steel industry provides a vivid example of what happens when manufacturing technology improves.

Between 1997 and 2002, U.S. steel mills slashed jobs from 163,000 to 124,000, a plunge of 24 percent. But during the same period, steel production slipped just 6.3 percent, from 108.6 million to 101.7 million net tons, according to the American Iron and Steel Institute.

While foreign workers often get blamed for wiping out U.S. jobs, statistics suggest low-paid workers in other countries are losing their jobs to machines as well.

Alliance Capital's study of 20 large economies found that from 1995 to 2002, their production jumped more than 30 percent but employment declined 11 percent, for a loss of 22 million factory jobs. Among the worst-hit countries were China, where factory employment fell 15 percent, and Brazil, where it dropped nearly 20 percent.

Wages play minor role

Many entrepreneurs agree that wages are not particularly important in the overall decision of where to locate factories. When they move plants overseas, business owners typically are seeking a lower cost structure that results from a weak currency, low taxes, reduced litigation, cheap land, easier access to growing markets, lax environmental laws and inexpensive energy.

At a House hearing in October, Larry Galbraith, chief executive of Denim North America LLC, a fabric maker in Columbus, noted that Georgia had lost 25,000 textile jobs over the past five years. But China's labor force had little to do with the job losses, he said, because "wages are only 12 percent of total cost."

Labor will play an even smaller role in decisions about where to locate plants as companies increasingly move toward a new operating model known as "lights-out" manufacturing.

In factories throughout the world, owners are installing computer-controlled machines that can work on their own, typically at night when energy costs may be lower.

The "lights-out" systems are catching on quickly. For example, Air Products and Chemicals Inc., a maker of industrial gases based in Allentown, Pa., makes extensive use of new equipment that allows some plants to virtually run themselves. The machines can send a signal to alert employees at remote locations when a part or machine fails, and automatic safety systems shut down operations if the problem poses a danger.

"We have seen double-digit productivity gains thanks to these advanced controlled technologies," said Howard Kuritzky, electronics specialty materials manufacturing manager for Air Products. "We still have people on-site to monitor, but what the technology does is squeeze more efficiency from the process."

No job boom in sight

With new technologies replacing workers, candidates face difficult political calculus: How do they praise rising productivity while promising more factory jobs?

In general, Republican candidates say that tax cuts will boost manufacturing jobs by lowering costs enough to help employers do more hiring. In contrast, many Democrats have been calling for protectionism, supporting steel tariffs and textile "safeguards" to reduce imports.

But both liberal and conservative economists say that any promises to significantly increase factory employment could never be fulfilled.

No matter whether a Democrat or a Republican has been in the White House, "you still have not been able to hold back inexorable technological change," said Claude Barfield, an economist with the American Enterprise Institute, a conservative research group.

Barry Bosworth, an economist with the Brookings Institution, a left-leaning research group, agreed.

"Trying to stop the clock isn't going to work," he said. "Manufacturing jobs have been declining for 100 years, and it's going to keep happening."

 

[RobFromGa]

Notice the manufacturing job losses in China, etc. That's because machines are taking over many manufacturing jobs. Machines work cheap, don't take vacations, don't have bad days and don't talk back.

Moral of the Story: If you have a job that a machine can do, you need to get a new job.

[sinkspur]

Many entrepreneurs agree that wages are not particularly important in the overall decision of where to locate factories. When they move plants overseas, business owners typically are seeking a lower cost structure that results from a weak currency, low taxes, reduced litigation, cheap land, easier access to growing markets, lax environmental laws and inexpensive energy.

That about sums it up.

And, isn't it interesting that China is losing more manufacturing jobs than the US?

[RobFromGa]

"Trying to stop the clock isn't going to work," he said. "Manufacturing jobs have been declining for 100 years, and it's going to keep happening."

[templar]

Moral of the Story: If you have a job that a machine can do, you need to get a new job.

I seriously doubt that there are many jobs a machine can't do. Plumber, electrician, etc. maybe, not much else that can't be replaced by compters and robots.

Oh, yeah, almost forgot to add Marxist revolutionary to the non replacable list.

[delapaz]

I fix machines. (tech support) Does that count?

[somemoreequalthanothers]

Well said. I feel fortunate to have a career in commercial/industrial construction. Somebody will always have to build the buildings. My area has a substantial factory workforce, and alot of these people don't see the writing on the wall, I'm afraid.

[RobFromGa]

I sell machines, and that and fixing them count...

[RLK]

Notice the manufacturing job losses in China, etc. That's because machines are taking over many manufacturing jobs.

-----------------------

Careful of what you are saying and how you read these graphs. When you see lables such as manufacturing as a proportion of non farm employment it can mean many things. It may mean more technical positions have developed leading to a change in proportion, but not an actual manufacturing jobs loss. I suspect that is what is happening in China. I doubt there has been real net job loss.

[Libertarianize the GOP]

bump

[ReagansShinyHair]

If you have a job that a machine can do, you need to get a new job.

You'd think union grocery store checkers would have noticed that many stores now have those "checker-free" checkout stations where the customer scans the bar codes themselves...

[RobFromGa]

This is a good explanation in layman's terms of where the manufacturing jobs have gone (many not to return).

[RobFromGa]

but not an actual manufacturing jobs loss. I suspect that is what is happening in China. I doubt there has been real net job loss.

Commentary: Who is stealing China's manufacturing jobs?

Caroline Baum Bloomberg News
Tuesday, October 14, 2003

 

You know all those U.S. manufacturing jobs that have been supposedly high-tailing it to China? Well, it seems that China is doing a lousy job of holding on to them.

China lost 16 million manufacturing jobs, a decline of 15 percent, between 1995 and 2002, according to a recent study of manufacturing jobs in the 20 largest economies by Joe Carson, director of economic research at Alliance Capital Management. In that same time, U.S. factory employment shrank by 2 million, or 11 percent.

In fact, in the seven years that ended in 2002, the number of Chinese manufacturing jobs fell at more than double the rate - 15 percent versus 7 percent - of the other countries in the study.

Despite China's addition of nearly 2 million factory jobs in 2002, "the level of factory jobs was below 1998's and far below 1995's," Carson says.

So who is stealing China's manufacturing jobs?

It seems that China's advantage as a low-cost producer has not halted the insatiable, worldwide drive to replace even dirt-cheap labor with productivity-enhancing equipment. Some 22 million manufacturing jobs were lost globally between 1995 and 2002 as industrial output soared 30 percent, Carson says. It seems that devilish productivity is wreaking havoc with jobs both at home and abroad.

Carson's investigation found that only five of the 20 countries increased manufacturing jobs between 1995 and 2002. Three of the five - Canada, Mexico and Spain - "seem to have benefited from regional trade pacts or currency agreements," he says. The other two, Taiwan and the Philippines, showed a net 300,000 seven-year gain, large for those economies but small on a global scale.

Put in a global evolutionary context, the loss of 2.6 million manufacturing jobs in the United States since the start of 2001 looks far less ominous - at least to those who are not seeking elective office. Facts about the extent of the decline would demolish the economic argument for protectionist measures. Both houses of Congress have proposed legislation that would impose stiff tariffs on Chinese imports.

Facts about human capital's decreasing relevance in the manufacturing process would expose the silliness of appointing a U.S. manufacturing czar, an initiative announced recently by President George W. Bush. They would upend the misplaced notion that China's undervalued currency - the yuan has been pegged at around 8.28 to the dollar for almost a decade - is giving the country's manufacturers a competitive edge and inflating its trade surplus with the United States to $103 billion in 2002.

The truth is, no reasonable degree of yuan appreciation could offset the labor-cost differential between the two countries. U.S. manufacturing workers make about 25 times what an average Chinese factory worker earns, according to U.S. and Chinese government statistics.

The angst over the fate of U.S. factory workers is not unlike the epitaphs that were written for farm workers in the early 20th century, says Steve Wieting, senior economist at Citigroup.

"Real manufacturing output has risen 77 percent even though the number of manufacturing workers has fallen 22 percent since the 1979 peak," Wieting says.

Similarly, real farm output rose 96 percent since 1979 with 31 percent fewer agricultural workers. Because output equals income, "something was earned with the gains in manufacturing and farm output during the last 25 years of falling employment in these industries," Wieting says.

A rising supply of food and consumer goods caused prices to rise more slowly than per-capita income, giving consumers more income to spend elsewhere - for example, on services that did not previously exist.

"While manufacturing and farm employment has fallen by 22 percent and 33 percent, respectively, since 1979, total U.S. employment still managed to grow 41 percent," Wieting says.

As hard as expendability is on the workers themselves, increased productivity is the way progress is made. And the alternative is not so appealing.

"Our studies suggest that hunter-gatherer societies offer full employment for all, simply providing the basic necessities of food and shelter," Wieting says.

Of course, with all of their resources devoted to providing food and shelter, hunter-gatherers tend to have little "income" left to consume anything else - made in China or otherwise.

[RobFromGa]

I seriously doubt that there are many jobs a machine can't do.

I seriously doubt if you really believe this.

[rdb3]

Lookie here!

[templar]

I seriously doubt if you really believe this.

Well, how many can you think of (with both current and soon to come technology)?

[RobFromGa]

Look at what?

[Willie Green]

I fix machines. (tech support) Does that count?

No, the "lights-out" factory shills pretend that you're unnecessary.
(Sheeeesh, I thought that asinine buzzword died back in the mid-'80s.
The dang shills were always forgetting that complex automation needed highly skilled tech to operate and maintain the crap.
And it can't be done from some remote, monitoring station except for the simplest of processes.)

"The high wage begins down in the shop. If it is not created there it cannot get into pay envelopes. There will never be a system invented which will do away with the necessity for work."

-- Henry Ford

[rdb3]

My bad, Rob. I meant to ping harpseal, hoping he would ping his list.

Manufacuturing über alles FReepers need to read this. And I know harpseal already understands this.

[RobFromGa]

No, the "lights-out" factory shills pretend that you're unnecessary.

No, Willie, the "lights-out" factory shill which is now called Lean Manufacturing knows that keeping the machines in good working order is Job 1.

[RobFromGa]

Manufacuturing über alles FReepers need to read this.

All Freepers need to understand this, it is called Accurate Thinking and things are different today than they were in 1900, or 1950, or 1970, or 1990, or 2000. In ten more years they won't be like now. Interesting home page! Remind me not to mess with you!