Can Manufacturing Jobs Come Back?

The leading presidential candidates of both parties have pledged to bring manufacturing jobs back to America. It’s unclear exactly how this will be done or even whether it can be done. However, the sentiment has hit a nerve with many voters. The more important problem will be to figure out where the economy is headed over the long term and how to prepare the workforce for the future.

In the 1950s, nearly one out of every three jobs was a factory job. Over the decades, manufacturing has accounted for a smaller share of the overall economy and factory jobs now make up just 8.6% of U.S. employment. Yet, while manufacturing employment is down, factory output is more than five and a half times higher what it was in the 1950s.

Manufacturing payrolls were generally flat from 1970 to 2000, but the factory sector, like other parts of the economy, is in a constant state of flux. In the 1980s, the rule of thumb was that one out of ten manufacturing jobs would be lost each year, but that lost job would be replaced with a new manufacturing job.

Something happened in the 2001 recession. Manufacturing jobs did not rebound as they had following previous downturns. Increased trade with China was a likely factor. Substantially larger container ships and large-scale capacity expansions at West Coast ports facilitated a greater flow of merchandise imports. Manufacturing employment took another leg down in the Great Recession, but has been slow to recover.

Trade agreements have been blamed for the loss of manufacturing jobs in the U.S. Economists (from the left and from the right) have generally been supportive of free trade, largely due to the concept of comparative advantage (individuals, firms, and nations should produce what they are relatively good at producing). It’s not a zero-sum game. There are net benefits to trade. However, with any trade agreement (such as NAFTA or the Trans-Pacific Partnership), there are winners and losers. In fact, those agreements essentially determine the winners and losers. Economists have generally come to the realization that they have been too cavalier about free trade. Displaced workers can be trained to do something else, but it’s difficult to say exactly what – and lost jobs can have enormous consequences for families and communities.

Tearing up trade agreements is not really an option. Imposing tariffs and quotas would merely invite retaliatory moves abroad. If there are net benefits to foreign trade, there are net costs to turning inward. More importantly, most of the growth in the economy has been in services, not in the consumption of goods.

The BLS estimates that, barring an increase in immigration, demographic changes will reduce labor force growth to about 0.5% per year over the next 10 years. We should see more jobs in health care and assisted living, education, construction, and business & professional services, many of which will require college degrees. Manufacturing jobs are expected to fall over the next decade, but more moderately, likely with a bigger impact from robotics and automation than from foreign trade.

© Raymond James

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