Manufacturing Job Loss: It's Not Due to Productivity

March 28, 2012
Study charges that flaws in manufacturing output data mask decline in production.

The sluggish recovery in manufacturing jobs is not due to productivity gains but rather to a decline in output, according to a new study.

When measured properly, the study by the Information Technology & Innovation Foundation, a Washington think tank, argues, "U.S. manufacturing output actually fell 11% over the last decade while GDP increased 17%, something that has not happened before, at least since WWII."

"Higher productivity should go along with higher profitability," Rob Atkinson, ITIF's president and co-author of the report, commented at the 2nd annual Conference on the Renaissance of American Manufacturing, held March 27 in Washington, D.C.

"Instead, we see the lowest levels of profitability in manufacturing since we began keeping track of it after World War II. ... The reality is we have lost manufacturing output for the first time in U.S. history."

ITIF said most economists have looked only at the change in real manufacturing value-added relative to real GDP, and that this fails to identify declines in many industry sectors.

"In 2010, 13 of the 19 U.S. manufacturing sectors (employing 55% of manufacturing workers) were producing less than in 2000," according to the report.

The report also said U.S. government statistics overstate the change in U.S. manufacturing output and consequently productivity, "in part because of massive overestimation of output growth in the computer and electronics sector and because of problems with how manufacturing imports are measured."

ITIF said manufacturing productivity grew by 32%, not the 72% indicated by Bureau of Economic Analysis data. Warring with the higher number, the study says, is the fact that U.S. manufacturers invested relatively little in machinery and factories during the past decade. ITIF said U.S. manufacturing capital stock increased only 2% over the last decade, not the historic rates of 20% to 50% per decade.

If manufacturing output had increased at the same rate as the rest of the business sector, the ITIF report found, the United States would have 3.8 million more manufacturing jobs and the multiplier effect would have added another 4 to 6 million jobs.

ITIF said the U.S. manufacturing sector lost jobs because it lost output, and it lost output because "its ability to compete in global markets -- some manipulated by egregious foreign mercantilist policies, other supported by better national competitiveness policies, including much lower corporate tax rates -- declined significantly."

The study authors said the current gains in manufacturing jobs look only as good as they do "because the prior loss was so steep." At the rate of job gain in 2011, they noted, it would take until 2020 to restore manufacturing employment to where it was at the end of 2007.

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