Missing the Point of Manufacturing’s Decline

Manufacturing output per American worker is 70% of what it was in 1973

American manufacturing has a peculiar status in American political discourse, in how we’re going to be making great stuff again and the Chinese are screwing us and the unions are dead. It’s a conduit through which a lot of hopes and fears are projected, because it hearkens back to some halcyon time when blue collar workers without college degrees could have a steady job, good pay, a home, and a retirement. It turns out that’s not really the case (if you were manufacturing in the 70s, you’re retiring now, and that means if you’re an average American retiree you’re a lot more dependent on your Social Security check than you thought you’d be in your thirties), but so it goes with myths.

Anyhow, the latest version of manufacturing-as-America comes in The Atlantic in a piece that’s ostensibly about Trump having bad ideas about the economy but is really about how manufacturing is never coming back big in America. That may be, but there’s nothing so fatalistic about it as presented, and let me show you why I think that’s the case:

fredgraph

This graph presents two lines: in blue is the industrial production of the American manufacturing sector, per worker. We’re adjusting the scale so that this equals 1. So, 1 worker in American manufacturing in 1973 produces 1 unit of worth. Today, that 1 worker creates around 0.71 units of worth. Note that we’re adjusting for inflation here; in nominal terms that worker is creating a lot more dollars, but those dollars are worth less than they were in 1973.

In red, we have manufacturing capacity. That is, how much could we actually produce? Again, this is scaled so that our capacity in 1973 is 1. Today it’s around 0.85, or 15% less than what it was in 1973.

The story here is that the American manufacturing sector is more idle than it was in 1973, and making less real output per worker. Even if capacity was operating at its 1973 levels, we’d still be manufacturing less in terms of real output. We’re simply less competitive.

I don’t have the capacity to go into the why, here, but I will say that manufacturing is America is not beaten down from some unseen hand. It’s simply less efficient than it once was and holds a less imposing presence in the world than it once did. Bringing back high-paying manufacturing jobs isn’t going to do anything, and is sort of nonsensical on its face for Presidents to be talking about unless they’re considering subsidizing manufacturing wages. In the real world, somehow the American manufacturing sector must get more productive and efficient relative to the rest of the world in order to bring back American manufacturing, and that’s an issue that’s much bigger than the sector requiring greater base skill and education in order to be hired. It’s the existing sector itself which needs help and in a deep, structural way, not simply more labor.