|Some Lost Jobs May Never Come Back
Improved Productivity Allowed Manufacturers to Reduce Payrolls Permanently
By John M. Berry
Washington Post Staff Writer
Saturday, November 29, 2003
NEARLY A QUARTER OF a century ago, when the number of manufacturing jobs
in the United States peaked at just shy of 20 million, General Motors
Corp. provided 454,000 of them, more than any other company in America. It
took that much labor for GM assembly lines to turn out about 5 million
cars and trucks a year.
Today GM makes roughly the same number of cars and trucks, but employs
just 118,000 people as a result of a drive to become more efficient and
cut costs to survive against ferocious global competition. In the past
five years alone, GM has cut the amount of labor required to assemble a
vehicle by 30 percent, to just 24.44 hours, according to the Harbour
Report, which tracks such data for the industry.
GM's experience illustrates what has happened throughout U.S.
manufacturing over the past two decades. From 1979 to 2000, U.S. factory
output nearly doubled while the number of manufacturing jobs fell by 2.3
million. Since early 2001, through the recession and slow recovery, 2.8
million more factory jobs were cut.
Some of those jobs disappeared because of rising imports, the movement of
jobs overseas and other factors. But most by far were eliminated because
companies used new technologies, management techniques and other methods
to achieve huge gains in productivity -- the amount of goods and services
produced per hour worked.
The job losses have had devastating effects on many workers and their
communities, recently raising the pressure on President Bush and Congress
to help manufacturers, particularly before next year's national elections.
But economists agree that most of the decline in manufacturing employment
was the unavoidable result of companies' need to become ever more
efficient -- with all the pressures on them intensified in recent years by
a weak U.S. economy. And the jobs lost to productivity gains will not come
back, regardless of what policymakers do in Washington.
Meanwhile, rising productivity gains have directly benefited consumers
overall in many ways, particularly in recent years.
In the auto industry, for example, competition has been so strong that
both domestic and foreign automakers have been forced to pass on much of
their cost savings to buyers in the form of lower prices. The "foreign"
competition has been particularly fierce because automakers with overseas
headquarters will build about 7 million cars and trucks this year in
highly efficient U.S. plants.
Because of competition and the lower costs, the price of new motor
vehicles in the United States, adjusted for quality changes, is no higher
today than it was in 1994.
Companies also can pass on some of the cost savings to their employees in
the form of higher wages, while maintaining their profits, which benefit
shareholders. Overall, productivity gains allow the nation's standard of
living to rise.
Economists emphasize the many reasons for manufacturing-job losses. "It's
a combination of things," said White House economist N. Gregory Mankiw. "A
long-term trend and a short-term business cycle."
Many manufacturing jobs vanished because consumers and companies found
less-expensive imports. And while many of those goods are made by foreign
companies, many others are manufactured by U.S. companies that shifted
operations overseas in search of lower labor and regulatory costs. More
than one-fourth of manufactured goods consumed in the United States are
made abroad -- about twice the share in the early 1980s.
Other jobs -- such as many in food service, and accounting and other
administrative activities -- were once included in the national tally of
manufacturing jobs because they were performed in-house by manufacturing
companies. But they are no longer counted as such because the
manufacturers hired outside firms to do the work.
The 2001 recession accelerated all those long-term trends at the same time
it sharply reduced demand for most manufactured products. The
business-investment boom of the late 1990s reversed with a vengeance, as
companies reduced purchases of computers, airplanes, telecommunications
equipment and heavy trucks, among other things.
Moreover, even during the slump and the hesitant recovery that followed,
manufacturing productivity continued to climb. In October, factory
production was 5 percent below its pre-recession peak. But the number of
manufacturing jobs had plunged over the past three years by almost 2.8
million, a decline of more than 17 percent.
In sharp contrast, employment last month outside of manufacturing was
virtually the same as before the recession. In other words, while many
non-manufacturing jobs were eliminated since early 2001, about as many
others were created. Recently, job growth outside of manufacturing has
been strong enough to more than offset the continuing loss in factory
jobs, the number of which fell in October for the 39th month in a row.
In 1999 and 2000, when unemployment was 4 percent and many employers
struggled to find qualified workers, there were some complaints about the
long-term loss of factory jobs. But the complaints were largely drowned
out by the booming economy.
Today, with unemployment at 6 percent, the continuing loss of factory jobs
and the notion that trade is the culprit have produced a potent political
issue. Democratic presidential candidates and members of Congress
constantly attack Bush for pursuing economic policies that have produced
few new jobs. Congressional Republicans, particularly those from
industrial regions, are also uneasy about political fallout that could
affect their reelection campaigns next year.
The administration responded by announcing a new position, assistant
secretary of commerce for manufacturing, but no one has been named to the
post, which has not been funded with an appropriation, a department
Bush last week imposed limits on imports of Chinese bras, knit wear and
bathrobes. But the loss of jobs in the textile industry is not new. Over
the past decade, textile employment has fallen from about 850,000 jobs in
1994 to about 300,000 recently.
Meanwhile, members of Congress have proposed a variety of measures to help
manufacturing firms, including tax breaks and relief from a variety of
regulations. Several of them have called for a reduction in China's
skyrocketing trade surplus with the United States and a halt in the
movement of jobs to China and India.
The National Association of Manufacturers called for legislation and
regulatory changes that would reduce business taxes, health care costs,
product liability judgments and the cost of complying with government
regulations. They also want the Bush administration to keep pressure on
China to stop pegging the value of its currency relative to the U.S.
dollar, or at least raise the peg substantially. That would make American
products more competitive in China and raise the cost of Chinese exports
to this country.
Economists note, however, that manufacturing's share of U.S. employment
has been declining for 40 years -- since long before China's recent
emergence as a major influence on the world economy.
Moreover, the same drive for manufacturing efficiency boosted productivity
in other countries, including China, resulting in a similar combination of
falling factory employment and growing output.
Since 1979 both Britain and Sweden shed a larger share of their factory
jobs than the one-quarter lost in this country. Germany lost a fourth of
its manufacturing jobs just since 1991, and Japan lost 16 percent of its
factory jobs since 1995, according the U.S. Labor Department. Brazil's
manufacturing employment fell 20 percent in the past seven years. In most
cases, rapid growth of productivity has been the primary reason for the
And in China, a wave of investment, some financed by U.S. and other
foreign firms, has begun to upgrade and expand China's inefficient
industrial base. That has caused labor productivity to soar, albeit from a
level far below that of the United States. From 1995 to last year, factory
efficiency rose 134 percent, which allowed China virtually to double its
manufacturing output while shedding more than 15 percent of its factory
jobs, a greater percentage decline over the seven-year period than
occurred in this country. However, very strong economic growth more
recently may have erased some of those losses.
The U.S. job losses prompted several members of the House Financial
Services Committee, mostly Republicans, to ask Fed Chairman Alan Greenspan
in July whether the decline in manufacturing employment was a threat to
the American economy. To the apparent surprise of the members, the reply
"Even though manufacturing as we measure it has been going gradually down
relative to the economy as a whole, we have shifted our resources towards
those most effective parts of manufacturing," Greenspan said. "You go into
a textile weaving plant . . . and I know they're producing the same
product, but I can assure you they are producing it very differently, with
far more technology and a wholly different infrastructure of production."
Rep. Paul E. Kanjorski (D-Pa.) pressed Greenspan. "Is it unimportant for
us to have manufacturing jobs to have a successful economy in the future?
. . . Where's the minimum that we can go to in manufacturing without
losing added value in creation of wealth in our system?"
"What is important is that economies create value," Greenspan said.
"Whether value is created by taking raw materials and fabricating them
into something consumers want, or value is created by various different
services which consumers want, presumably should not make any significant
difference so far as standards of living are concerned."
If a nation has the necessary income, and there is no concern about access
to foreign-made goods, "the capability to purchase goods is there. . . .
Then I think you can argue it does not really matter whether or not you
produce them or not."
Jerry Jasinowski, who is an economist and president of the NAM, is
resigned to the fact that many of the factory jobs cut will not reappear.
But he is also proud of the fact that productivity growth in manufacturing
has consistently outstripped that of the rest of the U.S. economy,
yielding great benefits to the nation overall.
In the past two decades, "manufacturing productivity grew at double the
pace of overall productivity growth. . . . This increase in productivity
has enabled the economy to grow faster without inflation and has been
passed through to workers in the form of higher [inflation-adjusted]
wages," says a report published by the Manufacturing Institute, an arm of
Both Mankiw and Jasinowski expect to see manufacturing employment start to
rise again at some point, now that the U.S. economy is expanding at a
faster pace. But the timing will depend on how much the economy grows next
year and how much of the added demand for goods and services can be met
without hiring additional workers. And that, in turn, will depend, as
always, on how fast productivity increases.