What Next, If Manufacturing Proves Not To Be A Creator Of Those Good "factory Jobs" Of The Past?
Manufacturing is essential to the health of an economy. It both fuels and results from innovation. It is natural in the course of economic activity that "factory jobs" (a perhaps too-commonly used term, not mine) are tradable on international labor markets. They especially follow the migration of manufacturing activity involving jobs requiring lower skills and compensation. Efforts to revive high value-added manufacturing in the US and UK will have to be based on higher productivity, not necessarily more of those good "factory jobs" of the past. They may not have the desired results if the goal is to create more jobs. That's some of the wisdom from respondents to this month's column.
Gary Higgins argues that the right kind of manufacturing drives an economy in ways that other sectors of a developed economy cannot. He says, "jobs that create wealth are the absolute foundation for any economy … this excludes most of the 'non-tradable' (largely personal service) jobs."
While manufacturing jobs are among the most tradable on the international market, as Michael Spence pointed out in his recent book, some are less fungible than others. Germany was cited by Peter Sebregondi as a country that has pursued an enlightened strategy toward manufacturing, through its continued support of an apprentice system that provides the changing mix of skills demanded by today's—not yesterday's—manufacturing. German producers have targeted those customers who require the most exacting, high-performance, costly products. As a result, they have created some of the least tradable manufacturing jobs.
Several readers cited the challenge that a manufacturing revival may not translate into much new employment, given the need for significant productivity improvement necessary to reverse the outflow of manufacturing activity from a developed economy. Peter Hogan reminded us that "manufacturers' share of GDP (in the US) has been stable at just under 15% for the last 30 years, while manufacturing jobs as a share of total non-farm employment have fallen from 20% to 10% over the same time frame."
Worse yet, there is the possibility that the jobs created today and tomorrow may not be as good as the factory jobs of the past. After writing the March column, I attended a board meeting at which the directors toured a newly-created "beauty park" in the US, where companies cooperating to create and manufacture new fashion beauty products are located together in one light industrial park. It is a reflection of colleagues Gary Pisano and Willy Shih's conclusion that manufacturing is part of the innovation process (as Pete Clekurs pointed out). The park is designed to create fast-response product development by linking product designers to manufacturers in a way that minimizes the need to ship liquid ingredients over long distances. It is expected to return at least 1,500 jobs to the area, some of them from other countries, including China. However, most of the jobs, in assembling and packing the components, are of necessity low-wage in nature.
Regardless of the number of jobs it can create, manufacturing activity will be critical to the continued development of the world's leading economies. But will it continue to receive the attention of policymakers once they conclude that it is not the creator of the "factory jobs" of our memory and imagination? What do you think?
In the current presidential campaign, the favored photo op for candidates is on the floor of a manufacturing plant—preferably one with a lot of heavy equipment. It's the backdrop for the message that a turnaround in American manufacturing employment (which is occurring, whatever the reason) is essential to the social as well as economic recovery of the country.
This line of reasoning makes several assumptions: jobs in manufacturing are somehow superior to those in other sectors; jobs in the service sector are somehow less essential to an economic recovery (in spite of the fact that such jobs make up more than 80 percent of the employment in developed countries); and that manufacturing jobs beget service jobs. It's a short step to conclude that the decline of the middle class and loss of social fabric, at least in the US, can be traced to a drop in "factory jobs," (a notion that New York Times columnist David Brooks calls simplistic). Andy Grove, an influential leader of Intel for many years, warns that R&D and product development capabilities will be lost along with the loss of such jobs.
While examining the closing gap between developed and developing economies, Nobel Prize economist Michael Spence has taken a somewhat different look at the jobs picture. In his book The Next Convergence, Spence focuses on what he calls tradable jobs (making things like cars that can be made somewhere else—largely manufacturing jobs) and nontradable jobs (like nurses and auto mechanics, the vast majority of whom provide services that are consumed where they are produced). Between 1990 and 2008, the US economy added 27 million jobs. Ninety-eight percent of them were in nontradable activities. This is another way of saying that most American job growth has come in sectors where US workers don't compete against overseas workers. Tradable jobs would have actually declined if the loss of jobs in manufacturing hadn't been offset by new tradable jobs involved in the creation of ideas (for example, consulting and the development of new information technologies, nearly all service sector jobs).Spence argues in favor of, among other things, public policies regarding infrastructure, technology, and education that seek to bring tradable jobs ("work for middle-income people") back to US shores. One model that he cites is Germany between 2000 and 2005, during which it sought to become more competitive by lowering real wages and putting limits on wage and salary growth in both the public and private sectors while continuing to support an apprentice system.
Service sector research indicates that all developing economies are experiencing increases in the proportion of service sector jobs, while jobs that "make things" shrink toward some small, but probably irreducible, proportion such as 10 percent. Further, in terms of job quality, those employed in factory jobs generally are less safe, use more energy, and pollute more than those in services. With the decline in real wages in manufacturing, many service jobs compare quite well on this dimension as well, although some of these are tradable.
This complicated picture raises several questions: How are priorities for government investment—for example, in education, infrastructure, subsidies to specific industries, an apprentice system—influenced by the kind of jobs a country seeks to stimulate? In thinking about priorities, do we devote too much of our concern to the restoration of manufacturing jobs? Or are the priorities roughly the same for all kinds of jobs? Are factory jobs the key to growth and the restoration of a nation's "social fabric?" What do you think?
To Read More:
David Brooks, The Materialist Fallacy, The New York Times, February 14, 2012.
Andy Grove, How America Can Create Jobs, Bloomberg Businessweek, July 1, 2010.
Michael Spence, The Next Convegence: The Future of Economic Growth in a Multispeed World, Farrar, Straus and Giroux, 2011.
Michael Spence, Globalization and Unemployment: The Downside of Integrating Markets, Foreign Affairs, July/August, 2011.