22 March 2012

Manufacturing Employment Wiggles and Trends

Above is a graph from the St. Louis Fed's excellent data portal which shows manufacturing employment in the US (blue), Germany (black) and Japan (red) from 1990 to 2010 (2011 for the US, note 100 = the series average over 1990 to 2010). The data clearly show that each of these three big manufacturing powerhouses have seen about the same proportional decline in manufacturing employment. Claims that Japan or Germany have not seen the same declines in manufacturing employment as the US are watching wiggles not trends.

The wiggles are important as they can represent the effects of policies aimed at reducing the impacts of recessions. But the trend is important as well, and seeing the same trend in manufacturing employment across three of the world's largest economies is pretty strong evidence that there is a single over-whelming dynamic at play - productivity growth in manufacturing.

8 comments:

  1. And / or outsourcing manufacturing to China on the basis of that one graph, you'd need manufacturing output and consumption of manufactured goods otherwise?

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  2. -1-Roddy

    Thanks ... I'll elaborate in a near-future post, but outsourcing can be at the same time a productivity gain, see my discussion of the Star Trek transporter here:

    http://rogerpielkejr.blogspot.com/2012/01/problem-with-anti-globalization-as.html

    Thanks

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  3. @ Roddy

    "China lost 16 million manufacturing jobs, a decline of 15 percent, between 1995 and 2002, according to a study of manufacturing jobs in the 20 largest economies by Joe Carson, director of economic research at Alliance Capital Management."

    China is losing manufacturing jobs as well.

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRI4bAft7Xw4

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  4. Abdul that's an accidental cherry-pick ......
    'While the United States was losing 1.4 million manufacturing jobs from 2002 to 2006, China was substantially increasing the number of workers in its manufacturing sector, according to a new report on Chinese manufacturing employment and compensation costs from the Bureau of Labor Statistics. Manufacturing employment in China during those five years increased by 10 percent to 112 million, about 100 million more than the number of manufacturing workers in the United States.

    Manufacturing employment in China bottomed out in 2002 at 100.7 million, down from a high of 126 million in 1996.'

    http://www.manufacturingnews.com/news/09/0529/chinesewages.html

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  5. ..... Abdul - and they've had productivity gains also, which is different phenomenon from the net shifting of manufacturing from one geography to another?

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  6. Mark Perry's blog has been showing similar themes too. Manufacturing globally is declining, in fact, as % of GDP.

    http://mjperry.blogspot.com/2012/03/manufacturings-declining-share-of-gdp.html

    He has also been showing that manufacturing is increasing in the US. This is just one of his postings on that subject.

    http://mjperry.blogspot.com/2012/03/midwest-manufacturing-is-booming.html

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  7. This is OT, but have you seen this withdrawn paper by Jones
    http://junksciencecom.files.wordpress.com/2012/03/cornesjonesphil12-march22-stormactivity-neatl-1851-2003-paperwithdrawn2010jd014865-pip.pdf

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  8. Mark Perry’s Carpe Diem entry refers to Innovation Technology’s conclusions that “manufacturing’s share of output is declining everywhere as a result of market forces ... even in China....Innovation Technology then say (t)he loss of U.S. manufacturing is not due to some inexorable shift to a post-industrial economy; it is due to a failure of U.S. policies (e.g., underinvestment in manufacturing technology support policies and a corporate tax rate that is increasingly uncompetitive) and the expansion of other nations’ mercantilist policies.”

    Mark correctly comments that: “(a)ctually, that's not really accurate... note that the decline in manufacturing’s share of U.S. GDP over the last forty years (from 24% to 13%) is ‘nearly identical’ to the decline in world manufacturing...(t)herefore, declining share of manufacturing’s contribution to GDP is not unique to America, but reflects a global trend as the world moves from a traditional manufacturing-intensive Machine Age economy to more a services-intensive Information Age economy.” This means “...that we really are experiencing an inevitable shift to a post-industrial, Information Age economy where manufacturing’s importance to output and jobs is declining, similar to the trend in agriculture over the last century.

    I agree with Mark in general but would say it is a combined effect of continuing transition to services, in addition to increased emphasis on Information Age technology. It’s a universal maxim that services increase over time as economies develop and deepen which is reflected in both the share of economic activity (GDP) and share of employment. Manufactured goods have fixed limits on material and labor costs COGS and are in competitive industries in which competitive advantage is more difficult to come by. On the other hand, services tend to have higher retail margins and value added, which varies considerably across industries as shown in the figure below but most certainly ITC is at the higher end of the scale. ITC offers benefits of higher margins coming from competitive advantage, take, e.g., Apple.

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