The Future of Manufacturing

Posted by: Michael Mandel on December 05

The BLS has just come out with its latest 10 year employment projections, running from 2006 to 2016. The projections call for a 10.6% drop in the number of manufacturing jobs over that ten year stretch, or about 1.5 million workers.

It’s worth noting that these projections are significantly more pessimistic about manufacturing jobs than the previous set of projections, published in November 2005 for the years 2004-2014. In that future, manufacturing jobs only dropped by 5.4%

It’s also worth noting that the BLS projections done a decade ago completely missed the decline in manufacturing employment. In November 1997, the BLS projected that manufacturing jobs would decline by a miniscule 1.9% decline from 1996 to 2006.

In fact, the actual damage was a whopping 17.6% drop in manufacturing jobs over the same stretch. Now that’s a big miss.


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Reader Comments

david foster

December 5, 2007 04:13 PM

Does the BLS ever publish an analysis of its former predictions vs what really happened?

I think I remember reading that they came out with something about 15 years ago predicting a precipitous decline in the # of air traffic controllers required--due to "automation." Didn't really work out that way...

Brandon W

December 5, 2007 10:51 PM

Economists making gigantic projection mistakes? Shocking! Shocking, I tell you!

Matt Lykken

December 15, 2007 02:08 PM

How to Succeed in a Global Economy

For decades the United States was economy was overwhelmingly dominant. We had such a tremendous advantage in wealth, manufacturing power and technology that we could afford to toss away resources, whether it be on rebuilding Europe and Japan, on engaging in the expensive arms race that broke the Soviet economy, or on misguided policies that encouraged U.S. firms to locate their activities abroad. That time is gone. We now owe more than $9,000,000,000,000 to foreign countries because we no longer sell enough things that other countries want to be able to pay for the goods that we import. Our manufacturing operations have largely relocated to other countries – we became a net importer of high technology goods for the first time in 2002, and our deficit has increased each year since then. America’s dominance of technical publications and college degrees is fading quickly and surely.

Globalization was supposed to help our country by opening up foreign markets for our products, but that presupposes that the United States produces things that other people want to buy. As foreign nations with low wage rates have improved their infrastructure, though, companies have naturally moved their manufacturing operations to locations where the wage rates are a fraction of what they are in America. The economists tell us that fact should not worry us, because of the theory of “comparative advantage”. Low value, labor intensive production will move to developing nations with low wage rates, but it will be replaced by the production of high value, high technology goods here in the U.S., which will benefit everyone.

If the U.S. had sensible tax policies, that might be true. But we don’t. In our system, a corporation that earns a dollar from manufacturing high technology goods in certain countries will keep the full dollar. If they manufacture the same goods in the United States, they will keep only about 60 cents after federal and state taxes. In other words, simply by locating their high value activities abroad, a company can earn more than 50% more than if they performed the same activities in the U.S. Corporate managers are not stupid. They respond to these incentives, and the rapidly increasing number of well educated foreign workers enables corporations to shift activities to the most tax efficient location. Our “comparative advantage” thus dissolves. In direct consequence, the market power of middle class American workers has been fading, leading to nearly 30 years of stagnant real income growth for the bottom 99% of our population.

The responses proposed by Congress and the I.R.S. so far have just made matters worse. The I.R.S. has been attacking U.S. research operations in a way that just encourages corporations to move their R&D to other countries. Chairman Rangel has recently proposed a measure that would encourage multinationals to fire their U.S. administrative personnel and move those activities abroad. Some in Congress have proposed subjecting U.S. multinationals to current world-wide taxation of all of their income, a move that would decrease the value of many companies by 25% or more and cause them to be acquired by foreigners with large reserves of cash in strong currencies. We cannot afford such policies any more.

There is a simple solution. The Shared Economic Growth proposal, explained in detail at www.sharedeconomicgrowth.org , would instead provide a strong incentive for corporations to move their valuable operations back inside the U.S. borders, simply by allowing corporations a deduction for dividends that they pay out. At the same time, it would increase the earnings working people receive on their pension savings by over 50%. The proposal is largely self-funding (no voodoo economics here – the corporate tax savings are directly made up for by taxes on the shareholders receiving the dividends), with the balance of the revenue made up by eliminating a couple of unnecessary and unfair distortions in our tax code, and by an extra 7.5% tax on individual income in excess of $500,000 per year. This is a small price to pay for saving our economy, restoring our economic security, giving market power back to the middle class, and boosting pension savings. The problem with the proposal is that it does not fit neatly into either party’s usual set of canned speaking points. Enacting it would require politicians to care more about policy than about politics. Does anyone out there care enough about America’s future to stop bickering and do something useful for a change?

Stephen Griffith

December 30, 2007 10:42 PM

I agree with much of what Mr. Lykken said but would add an additional perspective. A colleague and I have just completed and published research on the level of offshore sourcing activity and reasons for the activity on the part of North American industrial goods distributors. In addition, respondents attitudes toward the relative competitiveness of domestic vs. foreign vendors were chronicled along with opinions regarding the power of brands and the degree of future channel conflict resulting from this offshore sourcing.

As explained more fully at www.disruptioninthechannnel.com, distributors believe the lack of competitiveness on the part of domestic manufacturers also stems from an outdated strategy of bundling services of dubious value along with the products in order to mask noncompetitive prices, excessive overhead, excessive executive compensations and, in general, a reluctance to lean out or Disrupt the value stream in the distribution channel.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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