Economists and reporters, citing the apparent robust real output and productivity growth in manufacturing, routinely conclude that the US manufacturing sector is healthy and that automation can explain the precipitous decline in manufacturing employment since 2000. The recent Washington Post piece “Manufacturing is doing great – but not for workers” exemplifies this prevailing but erroneous wisdom.
As Upjohn economist Susan Houseman explains in “The Role of Manufacturing in a Jobs Recovery,” few understand that the strong real output growth in official statistics is due to one small industry segment: computers and electronic products manufacturing. Without that industry segment, the amount produced at U.S. factories is barely higher today than in 2000, and labor productivity growth has been modest.
A growing body of research suggests that trade and the decline of the United States as a location for production are primarily responsible for the sector’s job losses. And because about half of the workers needed to produce manufactured goods are employed outside the manufacturing sector, the employment effects of manufacturing extend well beyond the sector.
The decline in the competitiveness of the United States as a location for production has placed a drag on the U.S. economy, and some restoration of manufacturing is needed for a full jobs recovery, according to Houseman. An effective strategy to restore U.S. manufacturing will require an array of trade, exchange rate, tax, investment, and labor-market policies.