Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
One of my most popular posts at the old haunt was a piece I wrote in 2007 titled: Do the Bottom 80% of Americans Stand a Chance? While it was somewhat focused more on what was about to hit in 2008+, it also confronted the long term issues – indeed Occupy Wall Street could have read it, and had some nice talking points 4 years in advance. 
Much of it touched on the reality of growing income inequality and what I have called “global labor wage arbitrage”. That is, essentially, in a world of multinationals and borders meaning less and less – the middle classes of the world shall be pitted against each other. Those who reside in high cost, high wage countries shall see their wages erode over time – those who reside in low cost, low wage countries shall see their wages rise. They won’t reach equilibrium because at some point productivity and shipping costs (for hard goods rather than services) matter too. And one could argue this is a great success story for human kind as a whole as it lifts the prospects for hundreds of millions across the globe. But it will cause stresses in the West – where most of those developed countries sit.
Aside from this labor arbitrage, those in developed countries are also dealing with the role of technology and automation… i.e. the battle of (w0)man vs machine. And it’s not just going to be an issue in the developed West… as China tries to remain competitive on costs (with wages jumping), I’d expect automation to begin to become a huge factor in the next half decade.
One such area of focus – and probably the leading area where all these forces conspired to hit Americans – is manufacturing. I’ve already written a piece on Montage recently on the topic [Dec 31, 2011: Manufacturing Jobs Coming Back, but Workers Face a New Era of Lower Wages] What is little discussed is… even as labor participation in the sector has dropped significantly over the decades, actual output has increased. America has less manufacturing jobs today than before the war…. World War II. Again, there is your productivity and automation.
I’d like to point readers to an excellent expose in The Atlantic, titled Making it in America which views these changes from the ground level at Standard Motor Products in South Carolina. It discusses fairly the realities and challenges of what is happening in the globalized world. There are no easy answers – not everyone in this country has the aptitude or ability to reach for those white collar, college educated jobs … so throwing out ideas like “more education!” really is a simplistic view. (Indeed from an economic point of view introducing another 20M college graduates into the U.S. economy would crush wages for the white collar class, as supply and demand dynamics took over) I’ve often wondered what we are going “to do” in the long run with these tens of millions of once employable in this new world order.
IN THE PAST DECADE, THE FLOW OF GOODS EMERGING FROM U.S. FACTORIES HAS RISEN BY ABOUT A THIRD. FACTORY EMPLOYMENT HAS FALLEN BY ROUGHLY THE SAME FRACTION. THE STORY OF STANDARD MOTOR PRODUCTS, A 92-YEAR-OLD, FAMILY-RUN MANUFACTURER BASED IN QUEENS, SHEDS LIGHT ON BOTH PHENOMENA. IT’S A STORY OF HUSTLE, INGENUITY, COMPETITIVE SUCCESS, AND PROMISE FOR AMERICA’S ECONOMY. IT ALSO ILLUMINATES WHY THE JOBS CRISIS WILL BE SO DIFFICULT TO SOLVE.
Some snippets:
- I had come to Greenville to better understand what, exactly, is happening to manufacturing in the United States, and what the future holds for people like Maddie—people who still make physical things for a living and, more broadly, people (as many as 40 million adults in the U.S.) who lack higher education, but are striving for a middle-class life. We do still make things here, even though many people don’t believe me when I tell them that. Depending on which stats you believe, the United States is either the No. 1 or No. 2 manufacturer in the world (China may have surpassed us in the past year or two). Whatever the country’s current rank, its manufacturing output continues to grow strongly; in the past decade alone, output from American factories, adjusted for inflation, has risen by a third.
- Yet the success of American manufacturers has come at a cost. Factories have replaced millions of workers with machines. Even if you know the rough outline of this story, looking at the Bureau of Labor Statistics data is still shocking. A historical chart of U.S. manufacturing employment shows steady growth from the end of the Depression until the early 1980s, when the number of jobs drops a little. Then things stay largely flat until about 1999. After that, the numbers simply collapse. In the 10 years ending in 2009, factories shed workers so fast that they erased almost all the gains of the previous 70 years; roughly one out of every three manufacturing jobs—about 6 million in total—disappeared. About as many people work in manufacturing now as did at the end of the Depression, even though the American population is more than twice as large today.
- I came here to find answers to questions that arise from the data. How, exactly, have some American manufacturers continued to survive, and even thrive, as global competition has intensified? What, if anything, should be done to halt the collapse of manufacturing employment? And what does the disappearance of factory work mean for the rest of us?
- “What worries people in factories is electronics, robots,” she tells me. “If you don’t know jack about computers and electronics, then you don’t have anything in this life anymore. One day, they’re not going to need people; the machines will take over. People like me, we’re not going to be around forever.”
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