Tuesday, July 20, 2010

What happened to those missing manufacturing jobs

When we look at the manufacturing sector we can see where the job losses came from. We can project job growth as some function of the rate of GDP growth over time. We can then calculate a manufacturing job deficit.

But why did those jobs disappear. Well the obvious answer is because they could. Underneath our economy is a political system that believes in free-trade and free-markets. The US has one of the most open markets in the world. The government plays a very small part in the markets and provides only the regulation to support functioning markets. Import tariffs are low. There are few cultural and non-business barriers. Few limits on foreign ownership.

The assumption is that higher competition gives the consumer a better value at a lower price. Free trade will also generate more jobs and higher incomes as countries specialize in different areas.

The second answer is global competition and productivity

The US lost to both China (items with a high labor content) at the low end and Korea, Germany and Japan at the high end (automobiles).

The third answer is productivity

The other sectors such as food, energy, construction materials which are not as import sensitive appear untouched but have trended downward because of productivity gains.

Services are relatively insensitive to productivity improvement, so the labor component has remained high.

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