I often get asked about the future of manufacturing in the U.S. and locally. Sometimes this is phrased as “when are we going to produce stuff again?”
I think most people know the manufacturing industry has suffered. But how much, and what are the causes?
First, let’s define the manufacturing sector. The Bureau of Labor Statistics says it is establishments “engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products.”
U.S. manufacturing employment fell from just more than 17 million workers in 2000 to about 11.5 million in 2010. It has since recovered a little to 12.3 million.
In Augusta, about 30,000 workers were employed in manufacturing in 2000 falling to 20,000 in 2010. However, unlike the national economy, manufacturing employment has not recovered, standing at 20,400 in July 2016.
A recent academic paper finds a link between this dramatic decline in manufacturing and the granting of Permanent Normal Trade Relations (PNTR) to China in October 2000 and its implementation in 2002.
PNTR did not reduce import taxes from China, but did remove the requirement of annual renewal of trade relations by Congress. This increased certainty of business conditions encouraged U.S. firms to locate in China and for Chinese firms to enter or expand operations in the U.S.
Some industries, such as textiles, were hit particularly hard. Textile mills in Dalton, Ga., saw employment fall more 50 percent to just 2,200. Textile and clothing manufacturing jobs in South Carolina fell 50,000 in 2004 to just 20,000 by 2010.
However, some high skill-intensive industries actually saw employment gains. Others became more efficient by using machines and technology. In fact, many economists argue technology – not globalization – has had a more detrimental
effect on manufacturing employment.
There also has been an impact from long-term shifts in American consumer behavior. Up until the early 1970s, the U.S. produced more goods than services. Today, our spending on services is almost double what we spend on goods. In economics, the consumer is king: the market will provide what we want, and what we want is more cellphone service, streaming movies and manicured nails and fewer T-shirts and carpets.
All this leads to a separate point, which is this – although manufacturing job loss has had a devastating effect on some people and families, the nation as a whole benefits.
A recent study of the welfare effects of NAFTA found there was an overall benefit to the U.S. and an even bigger benefit to Mexico between 1993 and 2005. This benefit comes from more trade, higher wages, higher export prices and lower import prices.
Interestingly, Mexico may be worried about attracting more manufacturing jobs. Many young Mexicans are dropping out of school because these new jobs pay higher wages than alternative forms of employment. One recent estimate suggests that one student drops out of school for every 25 new export-manufacturing jobs created in Mexico.
Even though these new jobs have higher wages, the long-term earnings potential is lower because the on-the-job training is less valuable than formal schooling.
Perhaps it is industrializing countries, such as Mexico and China, that should be more concerned about the global reallocation of manufacturing? A less educated workforce will hamper long term economic growth in these countries.
SIMON MEDCALFE IS AN ASSOCIATE PROFESSOR OF FINANCE AND CREE WALKER CHAIR IN THE HULL COLLEGE OF BUSINESS AT AUGUSTA UNIVERSITY.