24 January 2012

Understanding American Manufacturing

Writing in the current issue of The Atlantic, Adam Davidson has an absolutely brilliant article on the state of American manufacturing. It is a lengthy article that you should read in full. The article clearly explains why it is that manufacturing jobs are going away, even as the manufacturing sector strengthens. It also explores the challenges facing so-called unskilled workers in a big, rich 21st century economy. The article does this by looking at real people in a real factory.

Here is an excerpt from the piece:
Is there a crisis in manufacturing in America? Looking just at the dollar value of manufacturing output, the answer seems to be an emphatic no. Domestic manufacturers make and sell more goods than ever before. Their success has been grounded in incredible increases in productivity, which is a positive way of saying that factories produce more with fewer workers.

Productivity, in and of itself, is a remarkably good thing. Only through productivity growth can the average quality of human life improve. Because of higher agricultural productivity, we don’t all have to work in the fields to make enough food to eat. Because of higher industrial productivity, few of us need to work in factories to make the products we use. In theory, productivity growth should help nearly everyone in a society. When one person can grow as much food or make as many car parts as 100 used to, prices should fall, which gives everyone in that society more purchasing power; we all become a little richer. In the economic models, the benefits of productivity growth should not go just to the rich owners of capital. As workers become more productive, they should be able to demand higher salaries.

Throughout much of the 20th century, simultaneous technological improvements in both agriculture and industry happened to create conditions that were favorable for people with less skill. The development of mass production allowed low-skilled farmers to move to the city, get a job in a factory, and produce remarkably high output. Typically, these workers made more money than they ever had on the farm, and eventually, some of their children were able to get enough education to find less-dreary work. In that period of dramatic change, it was the highly skilled craftsperson who was more likely to suffer a permanent loss of wealth. Economists speak of the middle part of the 20th century as the “Great Compression,” the time when the income of the unskilled came closest to the income of the skilled.

The double shock we’re experiencing now—globalization and computer-aided industrial productivity—happens to have the opposite impact: income inequality is growing, as the rewards for being skilled grow and the opportunities for unskilled Americans diminish.
Looking for significant job growth in a sector that is in the midst of experiencing a revolution in productivity gains is just bad math.

Edward Alden, writing at the new CFR blog, Renewing America, points to business services where future job growth has significant prospects:
[E]ven as the manufacturing sector will continue to grow, the United States will need to look to other industries for robust, higher-wage job growth. My bet is on the business services sector, in fields such as engineering services, movie and software production, and telecommunications where demand for U.S. services is growing rapidly, especially in the emerging markets. Brad Jensen of Georgetown University and the Peterson Institute has laid out the case in his excellent new book. These sectors already employ twice as many people at higher average wages than in manufacturing, and job growth has been strong over the past decade. The United States runs a steadily rising trade surplus in services, compared with a deep, chronic deficit in manufacturing trade. These are sectors in which the United States, along with Europe, has a strong comparative advantage and the potential to sell much more to the world.

No one sector is going to dig the United States out of the jobs hole we currently find ourselves. But manufacturing is a particularly poor candidate.
With an estimated 40 million unskilled workers (according to Davidson in The Atlantic) the US has a big challenge ahead.


  1. The elephant in the room is this: can the US's unskilled workers be trained to do anything economically useful enough to pay them a middle class income in a market economy? Heck, can our skilled workers be trained enough?

    It's an odd position for an educator to take, I know, but having fielded a question this morning from a senior level student in a hard science major who displays a basic misunderstanding of pre-calculus, I seriously question what fraction of the US population can be trained to do useful things in telecom, engineering services, etc. I don't even think the scientists and engineers we're training right now are particularly qualified. We're taking students that come out of high school knowing way less than was the case even 20 years ago, giving them higher grades, and graduating them willy-nilly. Retention is the current favorite mantra of our administrators. In my highly unpopular opinion, our retention rates are way too high.

    We could do a lot to increase standards in K12 and college education, but not without slaughtering some sacred cows, like the idea that somehow people are blank slates with essentially equivalent abilities. Still, what fraction of people could actually play an active role in an knowledge- and innovation-based economy? I think it's a scary low number.

  2. I've been saying this for quite a while now.

    The problem with services is that many can be (and are) automated and those that can't are uniquely constrained by the human population (cleaning services, home repair, retail, etc).

    Gerard - That is indeed the elephant in the room, but no one wants to believe it and most try very hard not to (I've tried getting this point across numerous times with mixed results).

  3. The middle class lifestyle in America is grossly overpriced. This is due to a massive and progressive distortion of our economy, principally by government (especially through leverage, which currently exceeds 10% annually at the federal level), but also through the sponsored corruption of the private sector (especially financial). Unfortunately, this distortion was mandated by a large minority of American citizens, as they have deemed it fit to vote for instant gratification through redistributive and retributive change. This has been justified in people's minds by groups including unions (e.g. public), civil rights advocates, environmentalists, and other lobbyists.

    The price of instant gratification would have been paid sooner, and correction realized at that time, if not for three mitigating factors: outsourcing, immigration, and leverage (i.e. debt, both personal and government). However, while those outlets worked in the short-term, they are inevitable loss leaders.

    The first because it undermines both domestic businesses (e.g. regulatory, labor standard discrepancies) and employment which is not strictly intranational.

    The second because it transfers human resources from one nation to another, therefore causing a population dearth in one and displacement in another, leaving large tracts of land underdeveloped and unproductive. It also serves to overlook the problems (e.g. corruption, culture) in the originating nation while shifting it to the destination, thereby exacerbating the problem it purportedly claimed to solve.

    The third has obvious consequences, and their realization has only been delayed by our ability to redistribute our debt to domestic and global investors (both private and sovereign). Even then, the inflation, and therefore higher cost-of-living has been embedded, and not readily noticeable. To combat this outcome, the government, federal reserve, and any other body which establishes monetary policy, must appreciate that it is in their best interest to "to promote effectively the goals of maxi-
    mum employment, stable prices, and moderate long-term interest rates." They cannot receive compensation (e.g. COLA) to overcome their losses. Somewhere along the line they implicitly or explicitly added another objective: instant gratification, which has justified the distortion of our economy and shifting costs to other actors or deferring them to the future.

    As for education, there was a recent survey of graduate and postgraduate students in America, which indicated that our universities were, in the majority, producing technicians and not engineers or scientists. People have come to accept the authoritative or consensus position as a given, and have prematurely closed their minds to possibilities outside that narrow and preferred perception of reality. Apparently, they are seeking mainstream acceptance and the material and ego return it tends to offer.

    Our contemporary culture has developed to reward mediocrity and punish risk acceptance, other than in the most base and unproductive enterprises. Our nation, and civilization, has reached a stable state where people have grown complacent and prefer comfort over positive progress. They are willing to enjoy, for as long as it lasts, the fruit of yesteryear's labor. This is not an effective model for us to survive, let alone compete, with around 7 billion other people.

  4. We must recognize, as per The Declaration of Independence, and our intuition, the existence of individual dignity and its ramifications. While we may enjoy equal rights, we do not have equal ambitions or equal talents. There will always be people who choose to fail (and not just criminals). There is a carrying capacity of an area induced through both natural and human limitations, which precludes policies that promote converged migration and immigration, especially when it is unmeasured (i.e. illegal). We cannot normalize the pursuit of average in order to accommodate everyone. That is an inherently failed prescription, which not only denies individual dignity, but also reality.

    People need to forsake their dreams of physical, material and ego instant gratification. These dreams are almost always satisfied at other's expense and they inevitable promote corruption of both individuals and society.

  5. Roger:

    Davidson says:

    "When one person can grow as much food or make as many car parts as 100 used to, prices should fall, which gives everyone in that society more purchasing power; we all become a little richer. In the economic models, the benefits of productivity growth should not go just to the rich owners of capital. As workers become more productive, they should be able to demand higher salaries." and:

    "The double shock we’re experiencing now—globalization and computer-aided industrial productivity—happens to have the opposite impact: income inequality is growing, as the rewards for being skilled grow and the opportunities for unskilled Americans diminish."

    There are other consequences to consider:

    The relatively past low cost of increasing productivity has largely been possible because of the free ride provided by ignoring degradation of the global commons.

    The energy sector has been free to discharge 'pollutants' (e.g., CO2, soot, etc.) at near zero cost. And that same sector has been unsustainably using up vast non-renewable fossil fuel deposits.

    The projected costs of global warming and the concomitant increasing cost of energy are much larger than any proposed economic gains from so far imagined compensating innovations.

    So employment AND purchasing power will both diminish – and especially with population growth.

    As I have insisted on a number of your recent threads on this subject (and which you have failed to address), 'replacing' the motivation for economic growth with growth of quality of life – including an ultimate goal of zero population growth, MAY provide the only solution.

    As the average work-week would shrink, and interpersonal services would expand, economies would be transformed into strange 'utopias' – more like welfare states than capitalist regimes.

    There may be other more attractive alternatives, but continuance of the status quo seems not to be a viable option!

  6. The US has long had a comparatively poor education system compared to other developed countries excluding the top tiers of the University system that are excellent.

    Manufacturing and before it agriculture have long been shedding jobs due to productivity improvements.

    Another way to look at the question is how did the US manage to perform the task of changing what people did from agriculture and manufacturing to services while maintaining about 6% unemployment for so long? Why has this hit a bump now?

    It's also worth noting that the US probably did it better than other developed countries because on average the US has had lower unemployment than most other developed countries.

  7. -6- sien,

    That's easy! Construction! Especially residential. At least that's not going to subject to revolutionary innovation to displace semi-skilled labor!


  8. The president is also jumping on the manufacturing band wagon. It will be emphasized in his state of the union tonight according to Bloomberg. http://www.bloomberg.com/news/2012-01-24/obama-s-state-of-union-to-embrace-manufacturing-rebirth-for-job-creation.html

  9. The double shock we’re experiencing now—globalization and computer-aided industrial productivity

    This isn't really a double shock, they're caused by the same technologies. Globalization is occurring precisely because of computer aided productivity - coordinating manufacturing and distribution efficiently on a global scale was not possible before the advent of powerful computers.

    That both would happen nearly simultaneously was inevitable. We're in a technology shock and it's only the beginning.

  10. I agree that manufacturing is unlikely to be the engine of jobs growth or the driver of reduced inequality. That said, there are many things that need to be done which unskilled or semi-skilled workers can do.

    Some of those things can also make manufacturing relatively more attractive; first-class transportation, communications, and utility infrastructure, for example.

    Cheap, high-quality healthcare is a threefer (at least); employers are relieved of the crushing burden of the cost, employees gain greater mobility when they don't have to worry about losing their insurance, and a healthier population is more productive.

    Millions of people work in the service sector in semi-skilled jobs which are not going anywhere and have potential to grow in number -- who wouldn't like to have a personal assistant, or eating out more, or have a trainer, or our own decorator or personal shopper.

    The problem with those jobs is a) no healthcare (see above); b) no job security, and c) very little money. Expansion of service workers' unions could address these concerns, and make jobs in the services sector more like the family-wage jobs we have lost.

    Unfortunately most if not all of these things are abhorrent to the conservative movement in America. For the moment, they aren't politically feasible. But politics change -- sometimes very dramatically and very quickly.

  11. Semi skilled workers can't provide healthcare, except in the nurses-aide/lift-the-patient-out-of-the-wheelchair sense. In fact, the need for increasing numbers of highly skilled health care providers is another problem. You can't just build more medical schools and hope they will come.

    As transportation gets smarter, the semi-skilled jobs will end. There are already unmanned subway trains on some systems. There may be some jobs erecting cellphone towers and digging conduits for fiber, but not a hell of a lot.

    And do I want a semi-skilled decorator, trainer, or personal assistant? Not so much. I rather like the Bertie Wooster/Jeeves model, actually. :-)

    But seriously, there is a whole category of skilled service jobs made obsolete by technology: travel agents, secretaries, etc.. My department, 20 years ago, had 1 typist per floor. Now we all type up our own stuff. Scheduling is done by computer, as are room reservations, etc. etc.. What we really need are IT professionals, but they don't work for the wages we can afford.

    In fact, while I suppose there will be jobs for chambermaids for the foreseeable future, it's likely the service sector will see some of the same trends as the manufacturing sector; increased automation, and increased skills required by the remaining humans.

    We need smarter humans. Unfortunately, that's not a need anyone has figured out how to fill.

  12. "And do I want a semi-skilled decorator, trainer, or personal assistant? Not so much."

    "Semi-skilled" is a term that encompasses a large variety of highly skilled jobs that do not require years of training.

    "We need smarter humans."

    Call me an optimist, but I think we still need people like you, too.

  13. All right, that was snippy. Sorry. A couple more substantive points:

    -- Some, but not all of the points outlined involve semi-skilled labor. Some are simply stuff that we would benefit from in creating jobs, like healthcare.

    "But seriously, there is a whole category of skilled service jobs made obsolete by technology."

    -- There's job losses due to technology, which in theory should be countered by our insatiable hunger for more consumption. And then there's jobs exported, which is where you see the greatest difference between the two sectors.

    I'm not saying the American service sector is immune to job losses. But it has been, to date, less prone to that than manufacturing, for very understandable reasons; manufacturing still employs a huge number of people, but mostly cheaper people, overseas. It's hard to ship a job waiting tables to rural Cambodia.

    "We need smarter humans."

    That's actually pretty easy. We know what goes into that:

    1. Good prenatal healthcare, nutrition, habits (light if any drinking and no smoking.)

    2. Limited stress in early life (food, shelter, and healthcare available and not tenuous).

    3. A simulating environment, preferably both at home and at school. Head Start. Limited TV, none before two.

    4. Continuing support with good food, exercise, stable home.

    5. Aggressive, high-standards education with vocational tracks for those that want them.

    There's good science behind everything on the list. People that get those things get smarter. They also live longer, healthier lives, because the brain is just another organ and requires, for the most part, the same set of conditions to flourish as any other aspect of health.

  14. Ah, so "semi skilled" means "highly skilled".

    And this person is snarking at my intelligence.

  15. In reply to comment number 13, unfortunately, it just ain't so. A major part of intelligence is heredity. We can certainly make sure that people live up to their potential, but the potential itself is circumscribed by their genomes.

    And it is true that the brain is just another organ, but the principal determinant of good health and long life is also heredity.

  16. - 15 - Gerard

    "A major part of intelligence is heredity."

    To the extent that is true, it can be considered as a fixed variable. But in that approach, you are missing important considerations.

    The question is what can be done w/r/t what isn't fixed. There is much evidence that "intelligence" (to the extent that it is typically measured, and I believe very poorly measured) is affected by an individual's experiences. At the very least, the potential may be, to some extent, circumscribed by genetic inheritance, but the realization of that potential is influenced by a number of variables. Further, there is also feedback from environmental factors that cause different genes to be switched on or switched off - epigenesis. And so the potential can be altered, certainly by pre-natal influences let alone early childhood experiences.

    If the point is to examine policy alternatives, it is ill-advised and counter-productive to just say that intelligence is hereditary and walk away.

  17. The failure to note that Apple's employment is nearly 60% retail is a huge flaw in the argument presented above.

    Frankly to compare a $10/hour retail job vs a $20/hour manufacturing job is dishonest.

    Lastly the focus on China as poster child for Apple's value creation chain is equally ideologically loaded. The parts which are assembled by Chinese workers aren't made in the US either.

    If Andy Grove - a notable figure in the tech world - notes the failure of the American tech sector to create jobs, it is unclear why a journalist in the Atlantic would somehow know better.

  18. #1 Gerard Harbison,

    Still, what fraction of people could actually play an active role in an knowledge- and innovation-based economy? I think it's a scary low number.

    Table A-13 Employment Statistics by sector(Page 27)

    52.8 million currently employed in management/professional occupations.

    8.4 million in production(manufacturing) occupations.

    The labor force participation rates in Table A-4 tells a frightening story.

    Only 46% of the people over the age of 25 with less then a high school diploma are considered to be 'participating' in the labor force while 76% of people with bachelors degrees are 'participating'.


  19. -17-c1ue

    Your assertions on salary of Apple vs. production line employees remains unsupported and I think incorrect. See:


    Please support your assertions with evidence. Thanks!

  20. .

    It is worth noting that besides Honda, Toyota, and Nissan we also have mote recently Daimler (Mercedes), BMW, Hyundai, Mitsubishi, and Kia being produced here in volume. VW is on the way. Some of the German name plate vehicles are produced exclusively in the US and shipped worldwide.

    The idea that the US is a bad place to manufacture does not square with more and more plants being built here by companies that could build anywhere.


  21. "Ah, so "semi skilled" means "highly skilled".

    And this person is snarking at my intelligence."

    Ignoring the broadly used meaning of a term in favor of your own idiosyncratic attempt at literalism is not a mark of intelligence. It's a mark of immaturity and indicates a lack of understanding of what language is and how it works.

    "In reply to comment number 13, unfortunately, it just ain't so. A major part of intelligence is heredity."

    I'm feeling the urge to snark once more. Your assertion (for which you offer no evidence) has nothing at all to do with the point; you asked for smarter humans. If you care for them properly, you will get smarter humans. What does there being a hereditary component to intelligence, major or minor as they case may be, have to do with that? Nothing at all. "Smarter" is what you asked for, not everyone equally smart.

  22. #20 - Abdul Abulbul Amir:

    The transplants (BTW, VW has been manufacturing in the US for a number of years) are here for several reasons, mostly political, but often practical like reducing overall costs.

    The greatest threat has been political, where Congress periodically threatens to retaliate for job losses by imposing quotas and other trade restrictions.

    But BMW and Mercedes have also found that they could reduce overall costs by manufacturing in the US. These two car companies do have to contend with powerful unions at home that extract higher wages than the non-unionized workforce in right-to-work states in the US. They also save a bit on transporting finished products to market.

    Last year’s tsunami has already driven changes in manufacturing practices among the Asian auto manufacturers active in the US. More components, primarily high-value stuff like engines and transmissions, will be manufactured in the US. Inventory costs are growing thanks to a shift from just-in-time delivery to a-bit-earlier-delivery-than- just-in-time so that a destroyed plant will not immediately stop production while another source for its output is developed.

  23. But BMW and Mercedes have also found that they could reduce overall costs by manufacturing in the US.


    BTW, Honda built its first US plants well before any congressional action.

    Your assertion that the greatest threat being political may be true. However, there is scant evidence that number of plant expansions is in response to this asserted threat. Normally the economically irrational response to a political threat is kept to a fig leaf minimum. The behavior of Asian name plate producers does not fit that mold. Like the Germans, the Asian producers find lower cost in the US as well.


  24. The article you referred to states:

    "Wages for those employees, however, range from $9 to $15 per hour for salespeople and can reach $30 per hour for Genius Bar staff.


    Salespeople people outnumber Genius Bar staff at Apple Stores."

    Even should the distribution be exactly 1 maximum page Genius Bar staff (i.e. technical support) for 1 minimum wage retail, you barely reach the $19 figure you quote. The article does, however, say that there are more retail than genius bar, and goes on to say: "Or maybe Apple just knows that it can get lots of people to work at Apple Stores for $9 an hour."

    Actual retail employee pay as reported by: http://osxdaily.com/2010/10/05/apple-store-pay/

    shows a few positions - the Genius technical support - are closer to the $19 PC Magazine reports, but that the actual general retail positions are far less: $11.64

    From my own visits, the ratio of retail to technical support is far greater than 2 to 1.

    No matter how you slice it, the $19 you refer is incorrect. The fact is also that the Apple stores are always in major metropolitan and/or wealthy areas, thus the hourly figure is also skewed up by cost of living in those areas. Certainly it is impossible to raise a family on a $12/hour job in San Francisco or New York.

    As for production line jobs - again you focus on some overall figure which includes production of anything from cans of soup and bottles of beer to automobiles to electronics.

    Wafer fab technicians or electronics assemblers make in the $12 to $14 range, but not only is this pay in far cheaper cost of living areas, it also is the lowest end of the scale. The overall electronics value chain has a far higher hourly pay:

    This is a public example showing wafer operators (i.e. electronics manufacturing) have starting salaries of $40,000

    This is because a significant component of pay for hourly workers is overtime - the semiconductor industry is well known for ebb and flow demand.

  25. http://en.wiktionary.org/wiki/semiskilled

    Broadly used, eh? I've never heard semi-skilled used as a synonym for highly-skilled. Perhaps you could cite an instance. And please don't lecture me about usage.

    I'm feeling the urge to snark once more.

    You don't seem to do much else. For substantiation that heredity is the largest component of intelligence, I could give you a dozen sources, but Pinker, in The Blank Slate, has a nice, lengthy discussion. It's a good place to start.

    As far as your 'make humans smarter' project goes, part of it (diet/nutrition) is unlikely to have much effect. Undernourishment serious enough to lead to neurological defects is comparatively rare in our society, and largely a result of social pathologies such as parental drug addiction. Part of it is unfeasible; I don't know how you plan to prevent parents from using TV as a babysitter. And while education with high standards is a worthy goal, it goes against a huge body of entrenched interests in our society, from teachers' unions to a deluded vision of equality that groups students of wildly discordant abilities into the same classrooms.

  26. - 25 - Gerard

    You are just, simply, factually wrong in much of your post. There are all kinds of environmental factors, correlated with SES, that directly affect cognitive development in students in our country.

    Further, as teacher for many yeara, IMO you are completely wrong in your views about "students of wildly discordant abilities into the same classrooms." Your view not only fails to recognize the variety of skill sets that different students bring into the classroom, it further reflects a view of the child as an empty vessel to be filled by the teacher; this is an outdated top-down view of education that goes against what we have learned about how to better educate students.

    Sad, really, that you would embrace such a backwards viewpoint.

  27. No, Joshua, I'm not wrong. And you don't even seem to understand what I wrote. I was arguing a large part of cognitive ability is hereditary. Students are anything but a blank slate.

    You reply is vague and mostly just insults. So let's get specific. I'm teaching biological thermodynamics at the moment. I think I have a fair view of what skill sets students need, and I go to the trouble of measuring, on day one, what skill sets they bring. But do tell me what skill sets you think a student could bring to enrich a course in biological thermodynamics.

  28. - 27 - Gerard

    "I was arguing a large part of cognitive ability is hereditary. Students are anything but a blank slate. "

    I'm glad that you realize that, Gerard; but unfortunately your rhetoric fails to recognize that reality. The hereditary component is real, and what is relevant to questions of debate and educational methodology are the considerations I mentioned.

    As to your questions about teaching students with a diverse set of skills and abilities in the same classroom, I will refer you to this post over at Climate Etc. for you to get a flavor of my perspective.


    I'd be happy to discuss any disagreements you have with what I wrote there, or how you don't see how my comments in disagreement with you here are related to what I wrote there; but the issue is so large that I think that reading what I wrote there would be an expedient way to approach my answers to the questions you pose in comment #27.

    I will say that I have many years' experience teaching in diverse classrooms and in helping teachers to deal, at multiple academic levels and in a wide variety of contexts, deal with the inevitable diversity that exists in their classrooms and the facile thinking that leads to simplistic distinctions between different types of intelligences and cognitive abilities that underlay your description. It requires a lot of re-thinking and additional effort on the part of teachers. I'm not going to engage with you further on this if you assume that I am categorically incorrect in what I've stated. There would be little point. You can take my opinion for what it's worth. If you think I'm categorically wrong, so be it. We'll both survive.

  29. Joshua:

    I asked a very specific question, you send me a link to a set of vague and frankly pretty hackneyed platitudes. I've been listening to them for the last quarter century, and they bear little or no relation to anything that happens in a science classroom.

  30. Gerard -

    Gotcha. Thanks for taking the time to do the reading anyway.

    Anytime you want to discuss the questions in some detail, I'm game. We can discuss the types of things that my brother does when teaching aliasing to his graduate students in electrical engineering. However, I can't just proceed with giving you simple answers to your questions without explaining my views on some of the underlying pedagogy first. Whether you accept those views as valid or hackneyed, a discussion of them is necessarily a prerequisite for further discussion.

    See ya' on another thread. And btw - I'm sorry that my earlier post was insulting, but the point of fact is that I honestly find the kind of things that you wrote on this issue sad - particularly when it comes from teachers. So be it.