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Wednesday, October 15, 2003

Where are All the Manufacturing Jobs Going?

Well the answere seems to be 'nowhere', and fast, if you accept the arguments Caroline Baum advances in this article. And I'm sure in one sense she's right. Global employment in manufacturing is probably on the way down. There is more: one point she doesn't note about the China syndrome, is that as areas like Guandong grow, wages rise, and the really labour intensive, low, low wage stuff migrates, either to other regions, or out to Vietnam, Cambodia etc. This process is now evident here in Spain, one of the countries mentioned as having gained jobs via the EU. Most of the talk in the business community now is about the displacement of this manufactuing work out to the new EU candidate countries. On the other hand, don't miss her 'optimistic' conclusion: "one day human beings will be redundant in manufacturing production. (Hey, that will free up more of them to man customer and technical support hotlines)". Obviously she hasn't noticed what must now be obvious to Bonobo Land readers: these jobs are migrating to. The bottom line here is that no-one knows what is going to happen. We haven't been here before, and all historical analogies can only have limited value. I really can't get all this straight yet. But cheer up, at least it's going to be an exciting ride!

You know all those U.S. manufacturing jobs that have been high-tailing it to China? China sure is doing a lousy job of holding on to them. 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. In that same time, U.S. factory employment shrank by 2 million, or 11 percent. In fact, in the seven years ended 2002, the number of China's manufacturing jobs fell at more than double the rate --15 percent versus 7 percent -- of the other countries in the study. (Two of the top 20 economies, Mexico and Brazil, report manufacturing employment in index form, not as actual headcount, and weren't incorporated into Carson's analysis. The payroll changes in that time period weren't large enough to alter the conclusions.) Despite China's addition of nearly 2 million factory jobs in 2002, ``the level of factory jobs (last year) was below 1998's and far below 1995's,'' Carson says.

So who's stealing China's manufacturing jobs? It seems that China's advantage as a low-cost producer hasn't halted the insatiable drive worldwide to replace even dirt- cheap labor with productivity-enhancing equipment. Some 22 million manufacturing jobs were lost globally between 1995 and 2002 as industrial output soared 30 percent, Carson says. It seems that devilish productivity is wreaking havoc with jobs both at home and abroad. Carson's investigation found that only five of the 20 countries increased manufacturing jobs between 1995 and 2002. Three of the five -- Canada, Mexico and Spain -- ``seem to have benefited from regional trade pacts or currency agreements,'' he says. The other two, Taiwan and the Philippines, showed a net 300,000 seven-year gain, large for those economies but small on a global scale. Put in a global evolutionary context, the loss of 2.6 million manufacturing jobs in the U.S. since the start of 2001 looks far less ominous -- at least to folks not seeking elective office. Facts about the extent of the decline in global manufacturing jobs would demolish the economic (not the political) argument for protectionist measures. Both houses of Congress have proposed legislation that would impose stiff tariffs on Chinese imports.

Facts about human capital's decreasing relevance in the manufacturing process would expose the silliness of appointing a manufacturing czar, an initiative announced recently by President George W. Bush. They would upend the misplaced notion that China's undervalued currency -- the yuan has been pegged at 8.3 to the dollar for almost a decade -- is giving the country's manufacturers' a competitive edge and ballooning its trade surplus with the U.S. to $103 billion in 2002. No reasonable degree of yuan appreciation could offset the labor-cost differential between the two countries. U.S. manufacturing workers make about 25 times what an average Chinese factory worker earns, according to statistical agencies in the U.S. and China.

The fact that China is losing factory jobs at a faster rate than the countries from which it is supposedly stealing them just might put to rest the notion of China, job thievery nation. The angst over the fate of U.S. production workers, whose numbers peaked in 1979, is not unlike the epitaph for farm workers in the early 20th century, says Steve Wieting, senior economist at Citigroup Inc. "Real manufacturing output has risen 77 percent even though the number of manufacturing workers has fallen 22 percent since the 1979 peak," Wieting says. Similarly, real farm output rose 96 percent since 1979 with 31 percent fewer agricultural workers. Because output equals income, "something was earned with the gains in manufacturing and farm output during the last 25 years of falling employment in these industries,'' Wieting says. A rising supply of food and consumer goods caused prices to rise more slowly than per-capita income, giving consumers more income to spend on other things -- on services that didn't previously exist. "While manufacturing and farm employment has fallen by 22 percent and 33 percent, respectively, since 1979, total U.S. employment still managed to grow 41 percent,'' Wieting says.

Perhaps one day human beings will be redundant in manufacturing production. (Hey, that will free up more of them to man customer and technical support hotlines!) Hard as expendability is on workers themselves, increased productivity is the way progress is made. "Our studies suggest that hunter-gatherer societies offer full employment for all, simply providing the basic necessities of food and shelter,'' Wieting say. Of course, with all of their resources devoted to providing food and shelter, they have little ``income'' left to consume anything else -- made in China or otherwise.
Source: Caroline Baum, Bloomberg

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