Manufacturing Myths

I’ve already blogged how a college degree is the twenty-first century equivalent of a mid-twentieth century high school degree. With high unemployment, those who are hiring for all but the most menial blue collar tasks want full graduates of the relevant trade schools or colleges for just about everything else. Even as tuition soars above the cost of living, student loans’ having tripled in the last eight years and bankruptcy rules for student loan almost removing that option from all but the most bitterly impoverished, the bar for getting most jobs has risen significantly of late. And the pay levels for those lesser jobs, even with a college degree, haven’t produced higher effective (inflation-adjusted) wages and earnings. In many cases, the relative buying power of the resulting job is actually less than what it was for a high school grad a decade or two ago.

So when we pick up the paper (er… make that… read the story online) and see the promise of new manufacturing jobs returning to the United States, so many of see the twinkle of assembly line employment, perhaps adding new skill from a modern era, on the horizon. But American labor, regardless the level of skills, is still much more expensive than the major international manufacturing competitors or requires skills (as in the German manufacturing machine) that simply don’t have enough experts in the workforce. Even as we see stories of new stores of domestic energy opening up, creating a new engine for local manufacturing growth, the promise of massive new employment opportunities remains an elusive goal.

Even where we have retained manufacturing capacity, and even where factory output may have increased, this is hardly the harbinger of new jobs that one might think. With increasing computer-controlled manufacturing and cutting-edge robotics, it is indeed possible to increase productivity and output while cutting back the workforce.

“‘Even though the U.S. is more competitive globally, manufacturing doesn’t give you the kind of direct job creation it did in years past,’ said Joseph G. Carson, director of global economic research at AllianceBernstein, a Wall Street investment firm. ‘At the end of the day you still want a strong manufacturing base, but there aren’t as many people on the factory floor.’ 

“Indeed, while the sector has added 500,000 jobs since the recession ended and the value of what the nation’s factories churn out is close to a high, there are nonetheless two million fewer manufacturing workers today than in 2007. Ever since the early 1960s, the share of jobs in manufacturing has been on a nearly uninterrupted downward slope, now accounting for less than 9 percent of all employment in the United States.” New York Times, April 1^st.

The power of unions to stem this tide of robotic replacements has declined to almost a 100-year membership low. With less than 7% of private sector jobs unionized; most of remaining union strength is in the public sector: “TheBureau of Labor Statistics said the total number of union members fell by 400,000 last year, to 14.3 million, even though the nation’s overall employment rose by 2.4 million. The percentage of workers in unions fell to 11.3 percent, down from 11.8 percent in 2011, the bureau found in its annual report on union membership. That brought unionization to its lowest level since 1916, when it was 11.2 percent, according to a study by two Rutgers economists, Leo Troy and Neil Sheflin.” New York Times, January 23^rd.

The hidden message in all of this appears to be another example of the polarization epidemic that has gripped the United States in recent times. The money that used to be paid to manufacturing workers has now shifted substantially to the owners of the automated equipment that has replaced them. Tax and regulatory policies provide huge tax benefits (e.g., capital gains) for investors in capital equipment at the expense of earnings from old fashioned labor. In short, that “1% of America’s population controls 42% of America’s wealth” theme has been accelerated by this shift from labor to equipment.

By sapping the budgets from our public schools, colleges and universities, increasing tuition to a multiple of the cost of living increases and requiring students and their families to shoulder the costs through very large and very long term student loans, we are rendering the net value of labor (after costs) much lower and enhancing the value of automated equipment requiring much less investment per unit of manufacture. In short, our policies are strangling most of us and destroying futures of so many of our coming generations.

I’m Peter Dekom, and while it is trendy to blame government regulation and taxes for stalling the economy, simple statistically-based common sense shows that trend toward favoring capital over labor that such popular theories embrace has produced precisely the opposite result.