Productivity and jobs: facts and figures

Factories prosper as jobs vanish: Rising productivity the key factor
Atlanta Journal-Constitution | Dec 21, 2003 | Marilyn Geewax
WASHINGTON — With so many textile mills closing and blast furnaces falling cold, Americans could be forgiven for thinking U.S. manufacturing is in broad decline.

Indeed, both Democrats and Republicans have been promising to help shore up manufacturing, which has seen its ranks thin by about 2.8 million jobs over 40 straight months.

But U.S. factories are not dying. Indeed, they have more than doubled their output in the past 30 years, and after three rough years, most are starting to hum again.

Last week the Federal Reserve said industrial production rose at the lively pace of 0.9 percent in November, the biggest monthly jump in four years.

“We’re still the No. 1 manufacturer in the world and the largest exporter,” said Joseph Carson, an economist for Alliance Capital Management LP, the New York-based investment firm that recently conducted a major study of manufacturing employment trends.

With the economy perking up, “the outlook for manufacturing is quite good,” Carson said. “But will we recover the jobs lost? No.”

Economists say both sides of this split-screen picture are illustrating the same phenomenon: rising productivity.

During the 1990s, manufacturing productivity growth averaged 3.8 percent annually, nearly double the pace of the overall economy, according to the National Association of Manufacturers, a trade group. It shot up even faster, more than 5 percent, in both 2002 and 2003.

In other words, with the help of better equipment and more efficient manufacturing techniques, U.S. factories are coming back. But factory jobs aren’t.

That adds up to a heartache for unemployed workers, and a headache for political candidates eager to assure voters they will save manufacturing jobs. During a Labor Day trip to northeast Ohio, President Bush promised “to make sure our manufacturing job base is strong and vibrant.”

The eagerness to save blue-collar jobs is understandable: Such positions are visible and high-paying. The average annual wage for full-time manufacturing workers was $45,580 in 2001, compared with $38,837 for the rest of the work force, according to NAM.

At the same time, given tough global competition, Americans cannot afford to fall behind in the ability to produce goods quickly and cheaply.

Economists argue that rising productivity will result in stronger profits and lower inflation, twin benefits that give rise to other types of jobs. If, for example, a plant in Michigan could boost its productivity enough to drop the cost of a car from $25,000 to $23,000, then the customer would be able to afford to drive it to Florida for a $2,000 vacation.

But while rising factory productivity may spread benefits throughout the economy, it does nothing in the short term to help someone holding a pink slip.

Economists compare today’s labor force turmoil to the transformation that took place when tractors started boosting farm output. In 1910, one out of every three U.S. workers was a farmer. By 2000, it was fewer than one in 33.

Now, a similar process is transforming the factory floor. At the end of World War II, nearly four in 10 workers were employed in manufacturing. Today, NAM puts the number at just over one in 10.

The steel industry provides a vivid example of what happens when manufacturing technology improves.

Between 1997 and 2002, U.S. steel mills slashed jobs from 163,000 to 124,000, a plunge of 24 percent. But during the same period, steel production slipped just 6.3 percent, from 108.6 million to 101.7 million net tons, according to the American Iron and Steel Institute.

While foreign workers often get blamed for wiping out U.S. jobs, statistics suggest low-paid workers in other countries are losing their jobs to machines as well.

Alliance Capital’s study of 20 large economies found that from 1995 to 2002, their production jumped more than 30 percent but employment declined 11 percent, for a loss of 22 million factory jobs. Among the worst-hit countries were China, where factory employment fell 15 percent, and Brazil, where it dropped nearly 20 percent.

Wages play minor role

Many entrepreneurs agree that wages are not particularly important in the overall decision of where to locate factories. When they move plants overseas, business owners typically are seeking a lower cost structure that results from a weak currency, low taxes, reduced litigation, cheap land, easier access to growing markets, lax environmental laws and inexpensive energy.

At a House hearing in October, Larry Galbraith, chief executive of Denim North America LLC, a fabric maker in Columbus, noted that Georgia had lost 25,000 textile jobs over the past five years. But China’s labor force had little to do with the job losses, he said, because “wages are only 12 percent of total cost.”

Labor will play an even smaller role in decisions about where to locate plants as companies increasingly move toward a new operating model known as “lights-out” manufacturing.

In factories throughout the world, owners are installing computer-controlled machines that can work on their own, typically at night when energy costs may be lower.

The “lights-out” systems are catching on quickly. For example, Air Products and Chemicals Inc., a maker of industrial gases based in Allentown, Pa., makes extensive use of new equipment that allows some plants to virtually run themselves. The machines can send a signal to alert employees at remote locations when a part or machine fails, and automatic safety systems shut down operations if the problem poses a danger.

“We have seen double-digit productivity gains thanks to these advanced controlled technologies,” said Howard Kuritzky, electronics specialty materials manufacturing manager for Air Products. “We still have people on-site to monitor, but what the technology does is squeeze more efficiency from the process.”

No job boom in sight

With new technologies replacing workers, candidates face difficult political calculus: How do they praise rising productivity while promising more factory jobs?

In general, Republican candidates say that tax cuts will boost manufacturing jobs by lowering costs enough to help employers do more hiring. In contrast, many Democrats have been calling for protectionism, supporting steel tariffs and textile “safeguards” to reduce imports.

But both liberal and conservative economists say that any promises to significantly increase factory employment could never be fulfilled.

No matter whether a Democrat or a Republican has been in the White House, “you still have not been able to hold back inexorable technological change,” said Claude Barfield, an economist with the American Enterprise Institute, a conservative research group.

Barry Bosworth, an economist with the Brookings Institution, a left-leaning research group, agreed.

“Trying to stop the clock isn’t going to work,” he said. “Manufacturing jobs have been declining for 100 years, and it’s going to keep happening.”

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