Manufacturing and Automation

It's not really about trade

Justin Lahart over at the Wall Street Journal recent wrote a rather frustrating piece on manufacturing entitled “How the U.S. Lost Its Place as the World’s Manufacturing Powerhouse.” He correctly noted that the US manufacturing is not as strong as it once was, but his analysis was all wrong. I am not sure how he could miss the number one most important reason that manufacturing jobs as a percentage of total private sector jobs has been declining for decades. And that is automation/technology, not trade. The WSJ has been reporting this for years, which makes me wonder if he even reads his own paper.

In the post WWII boom, manufacturing used to be a dominant sector, accounting for at least a quarter of private sector jobs. But by the 1980s, with the rapid rise of automation and the beginning of globalization, that percentage began to decline. In the last 25 years, manufacturing jobs fell to less than 10% of all private sector employment.

Globalization gets vilified as “other countries taking our jobs,” but the move of some jobs overseas where labor is cheaper allowed the cost of goods to come down. Yet globalization isn’t the only reason for manufacturing’s decline. Automation is an even greater factor, where machines and technology simply replaced many factory jobs. It’s that simple. And along those lines, the economy itself shifted to become more of a service-based economy, which can be seen in sectors such as healthcare, education, tech, and finance. Finally, with productivity gains, fewer workers overall are needed to produce more goods.

Manufacturing is still an important part of the economy, especially in terms of exports and innovation. But the real statistic -- the manufacturing as a share of the private sector employment -- has been in decline since its peak in the mid 20th century. This fact pretty much makes his whole article worthless. He owes his readers a re-write.