Is the U.S. manufacturing sector, which has struggled for many decades, posed for a renaissance? The Wall Street Journal has a front-page story this morning on the return of manufacturing jobs, although the regional distribution is quite skewed. And the Boston Consulting Group predicts that manufacturing jobs are ready to return to American soil after decades of offshoring, but the jobs that return will not pay as well as manufacturing jobs in the past. There are certainly signs of a bounce back, but the decline in manufacturing jobs was severe.
So what was the cause of this large decline in manufacturing employment?
Technology is often a suspect. Larry Summers points out that the decline in manufacturing employment isn’t contained to the United States or other rich economies. Chinese manufacturing employment has also gone down in recent years. In their book “The Second Machine Age,” economists Erik Brynjofsson and Andrew McAfee argue that advances in technology are making it easier to replace workers with machines. Manufacturing is just the canary in the coal mine, they contend.
Another potential root of this decline is the opening of the U.S. market to greater international competition. One key moment was in 2000 when the United States granted permanent “most favored nation status” to China, which secured their broad access to the US market. The next decade of trade had significant effects on the U.S. labor market. A series of papers by economists David Autor, David Dorn, and Gordon Hanson, along with several other coauthors, documents how increased manufacturing imports from low-income countries, specifically from China following this policy change, led to the rapid decline in U.S. manufacturing employment.
In the “China Syndrome,” these economists show how in the years following the granting of most favored nation status, local labor markets most exposed to Chinese imports had higher levels of unemployment, lower wages, and lower labor force participation. Autor, Dorn and Hanson estimate that increased imports can explain about one-fourth of the decline in manufacturing employment.
In another paper Jae Song shows how the costs of trade have been borne by individual workers. Workers employed in industries that were more exposed to increased imports had lower cumulative earnings, were more likely to drop out of the labor force and more likely to use public benefits. The consequences of the increased imports ended up following these workers for years.
What we learn from this body of research is that policy decisions have consequences. Manufacturing is a critical industry— some economists estimate that most innovation is actually tied either directly or indirectly to manufacturing —and thinking through how policy choices affect the viability of the manufacturing sector is important.
