Despite job losses, ‘made in USA’ a growing category

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Despite job losses, ‘made in USA’ a growing category

It is clear that since 2000 the number of jobs in the manufacturing sector has decreased sharply. It is true for Cincinnati—an 18% loss; and it is true for the nation as a whole—a 20% loss. These large decreases raise concerns that our manufacturing sector is deteriorating. Collective fingers are pointed at the flood of imported goods from China and the off-shoring of services to India—both stemming from the availability of cheap labor.

Yet, what may come as a surprise to some, the data indicate that, both locally and nationally, our manufacturing sector is enjoying robust health and steady growth in output. Since 2000, in spite of sharp declines in employment, there was an increase in manufacturing output of about 20%. Recently output reached an all-time high as did revenues, operating profits and manufacturing exports. In truth, the U.S. remains the world’s most prolific manufacturer, accounting for more than 20 percent of world manufacturing and producing 2.5 times more manufactured output than China.

It is important to look at the big picture. Even though the U.S. continues to be the manufacturing giant – and U.S. growth in manufacturing output has increased – its piece of the global manufacturing production pie is diminishing. This is because rapid development in countries emerging from third world status has stimulated their manufacturing production to grow at an even faster rate. As an example, in the period 2004-2006, U.S. output actually grew at a higher rate (when its share of manufacturing GDP declined) than it did from 1998-2000 (when its share of manufacturing GDP increased). The lesson here is that the U.S. manufacturing sector has not deteriorated. Rather, worldwide manufacturing is increasing at a rapid rate. If our production is increasing, why is our employment decreasing? What or who is taking our jobs? People usually identify two suspects. The first is technology. Manufacturing continues to take advantage of faster, more efficient means of production which reduces the total number of workers needed. The second is overseas outsourcing. Jobs in the U.S. are lost to cheaper hires in other countries.

Most economists agree that both of these are factors in U.S. job losses. They also agree that increased productivity has the stronger influence. However, depending on one’s perspective, the proposed magnitude of the two causes differs rather dramatically. The American Institute of Economic Research (usually associated with a strong commitment to free enterprise and free markets) argues that productivity is the main reason that jobs have been lost. They estimate that only about 11 percent of manufacturing job loss is due to foreign competition. The Economic Policy Institute (often viewed as politically left of center with a close association with organized labor) agrees that productivity increases account for a major percentage of job loss in manufacturing, but estimates that nearly 40 percent of job loss is due to competition from abroad.

While the estimates of these two very different groups are far apart, both confirm that there is much more to the story than competition from cheap labor. It is essential to understand the reason for job loss. Policy that focuses on the wrong cause will most likely create a greater problem.