Got Manufacturing?

The New York Times has produced a short, insightful video into the problem today where in the USA , the economy is not producing higher wage jobs in large numbers.  One reason why there is so much difficulty for the current economy to create jobs is because the Manufacturing of goods (outside of the defense industries, airplanes and some automobiles) is just not done in the USA any longer.   This video from the NYT describes the primary reason as to why manufacturing is so important to every nations economy – and that reason is the job multiplier effect that manufacturing jobs create, more so than service sector jobs.  I would also add that the number two benefit of manufacturing jobs is that these jobs pay far higher wages and benefits to workers than service sectors jobs.

 

 

Below is a graphic that compares  the larger employers in the USA in 1960 and 2010.    The graphic illustrates the shift from an economy that once generated large numbers of high paying manufacturing jobs to an economy that creates many low paying service sector jobs.

 

 

 

Here is a chart I prepared that shows the number of USA Manufacturing Jobs from 1940 through 2010.  The grey area on the chart are recessions.  Note how the number of manufacturing jobs in the USA peaked in 1980 at a little under 20 million.  For the next two decades, the number of manufacturing jobs trended sideways in a slight downward manner.  Then in the year 2000 we see a collapse in the number of USA manufacturing jobs.  The Red Arrow shows that the number of manufacturing jobs in the USA in 2010 is under 12 million – this is the same number as in 1942!

 

So this is why ladies and gentlemen the unemployment situation is so challenging today.  The nation has lost it’s manufacturing base of jobs over the past 30 years and their job multiplier effects.  Today’s labor market as described in the video above is a national economic model that produces a small number of high skilled and good paying jobs (software engineer at Google) and a large number of low paying service sector jobs (McDonalds,  Walmart and Temporary Agencies).

The question naturally arises as to how does the USA re-invent itself as a manufacturing economy?  Here are a few ideas.

  1. Tax policy that rewards companies that invest in production and assembly operations.  This would include low tax rates, tax credits etc. for investment in production equipment and in training cost for the people hired to operate the equipment.
  2. Super low tax rates for business that set up operations in economically challenged areas of the country.   These would be areas where unemployment is very high.  If it takes a corporate tax rate as low as 5% to get businesses to invest in areas of 25% unemployment then that what should be done.  The economic and societal benefits of placing idle people to work will far outweigh the loss of tax revenue from a 5% corporate tax rate.
  3. Better coordination and acknowledgement from the education system (high schools, collages and trade schools)  to equip people with the right skills for what businesses in the modern economy needs.  An example is that today 35% of all college graduates are working in jobs that do not require a college degree such as retail, restaurants and phone centers.  This large number of college graduates working these low skill jobs clearly demonstrates  that there is an oversupply of people with certain college acquired knowledge that is not needed in today’s workforce.  At this same time, there is an under-supply of skilled trade workers.   Employment in high skilled manufacturing has increased 37% since 1980.  Right now there is a 25% shortage of skilled workers for the North Dakota Oil fields.  Other industry executives estimate there is at least a 10% shortage of skilled machinist nationwide.

What is troubling now is there is no national program or plan to re-invent the United States as a manufacturing economy.  With the stakes for it’s citizens so high it is imperative that the government and business work together in creating a plan.  The return of the USA to a manufacturing economy would take years to accomplish once it has begun, therefore policy makers should have already been acting in earnest.  They have not.  With 2012 being an election year, it is a near certainty that a national program will not be started this year either.

 

 

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