Posts Tagged ‘manufacturing’

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It’s true (as I have argued many times on this blog), the number of U.S. manufacturing jobs has been declining for decades now—and they’re not coming back. Instead, they’ve been replaced (as is clear in the chart above) by service-sector jobs.

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And, not surprisingly, most new jobs (during the past year, as in recent decades) have appeared in urban centers.

But the idea that service-sector job growth in some urban centers—or “brain hubs,” as The Geography of Jobs Enrico Moretti likes to call them—is going to solve the problem of the growing gap between haves and have-nots is simply wrong.

Moretti (and, with him, Noah Smith) would have us believe that everyone in the one America that is “healthy, rich and growing” (as against the other America, which is “increasingly being left behind”) stands to benefit. And they don’t need manufacturing jobs to do so.

But looking at the wages of those workers in the local service jobs celebrated by Moretti and Smith tells a very different story. Here they are, from the Bureau of Labor Statistics:

OCCUPATION MEDIAN HOURLY WAGE
Teachers $22.70
Registered Nurses $32.45
Licensed Practical Nurses $20.76
Carpenters $20.24
Taxi Drivers $11.30

 

So, no, the growth of local service jobs in so-called brain hubs is not going to solve the problem of inequality that plagues the United States.

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Nor for that matter is Trump’s promise to return manufacturing jobs to the United States.

Neither the old nor the new geography of jobs is going to solve the problem of the growing divergence between a tiny group at the top and everyone else. The cause lies elsewhere—in the same old story of a growing surplus that is captured by large corporations and wealthy individuals.

That’s the real problem that needs to be solved.

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During the recent presidential campaign, Donald Trump promised to revitalize American manufacturing—and bring back “good” manufacturing jobs. So did Hillary Clinton.

What neither candidate was willing to acknowledge is that, while manufacturing output was already on the rebound after the Great Recession, the jobs weren’t going to come back.

As is clear from the chart above, manufacturing output has grown (by about 21 percent) since the end of the recession and is now nearing pre-recession levels (although still down from its pre-crash level by about 5 percent). But employment in the manufacturing sector is only up a small amount (8 percent) since its post-crash low and is still lower, by about 1.5 million jobs (or 11 percent), than in December 2007.

So, even if manufacturing production continues to grow, manufacturing jobs won’t (at least at the same rate). That’s because productivity in manufacturing continues to increase—as employers decide to change work rules, reorganize the factories, and introduce robotics and other forms of automation. Manufacturing workers, in other words, are being forced to produce more with less.

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That trend—of employment not matching the growth in output—just represents a longer term tendency in American manufacturing. If we start back in 1990 (as in the chart above, indexed to January 1990), output has increased 75 percent while employment has actually fallen by more than 30 percent.

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And, of course, employers have made that situation work for themselves, especially in recent years. Since the crash, corporate profits in manufacturing have rebounded spectacularly.

As long as workers have no say in how production is organized—including the technologies that are used and the surplus that is created—we can expect both manufacturing production and profits to increase while leaving workers and their jobs behind.

No matter who the president is.

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Alec Monopoly, “Flying Monopoly” (2015)

In the second installment of this series on “class before Trumponomics,” I argued that, in recent decades, while American workers have created enormous wealth, most of the increase in that wealth has been captured by their employers and a tiny group at the top—as workers have been forced to compete with one another for new kinds of jobs, with fewer protections, at lower wages, and with less security than they once expected. And the period of recovery from the Second Great Depression has done nothing to change that fundamental dynamic.

In this post, I want to focus on a more detailed analysis of the other side of the class relationship—capital.

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It should come as no surprise that one of the major changes in U.S. capital over the past few decades is the growing importance of financial activities. Since 1980, FIRE (finance, insurance, and real estate) has almost doubled, expanding from roughly 12 percent of the gross output of private industries to over 20 percent.

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And the rise in the share of corporate profits from financial activities was even more spectacular—from 10.8 percent in 1984 to a whopping 37.4 percent in 2002—and then falling during the crash, but still at a historically high 26.6 percent in 2015.

By any measure, U.S. capital became increasingly oriented toward finance beginning in the early 1980s—as traditional banks (deposit-gathering commercial banks), non-bank financial entities (especially shadow banking, such as investment banks, hedge funds, insurers and other non-bank financial institutions), and even the financial arm of industrial corporations (such as the General Motors Acceptance Corporation, now Ally Financial) absorbed and then profited by creating new claims on the surplus.

This process of “financialization” was the flip side of the decreasing labor share in the U.S. economy: On one hand, stagnant wages meant both an increasing surplus, which could be recycled via the financial sector, and a growing market for loans, as workers sought to maintain their customary level of consumption via increasing indebtedness. On the other hand, the production of commodities (both goods and services) became less important than capturing a portion of the surplus from around the world, and utilizing it via issuing loans and selling derivatives to receive even more.

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Not only did finance become increasingly internationalized, so did the U.S. economy as a whole. As a result of employers’ decisions to outsource the production of commodities that had previously been manufactured in the United States and to find external markets for the sale of other commodities (especially services), and with the assistance of the lowering of tariffs and the signing of new trade agreements, the U.S. economy was increasingly opened up from the early-1970s onward. One indicator of this globalization is the increase in the weight of international trade (the sum of exports and imports) in relation to U.S. GDP—more than tripling between 1970 (9.33 percent) to 2014 (29.1 percent).

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The third major change in U.S. capital in recent decades is a rise in the degree of corporate concentration and centralization—to such an extent even the President’s Council of Economic Advisers (pdf) has taken notice. A wave of mergers and acquisitions has made firms larger and has increased the degree of market concentration within a broad range of industries. In finance, for example, the market share of the five largest banks (measured in terms of their assets as a share of total commercial banking assets) more than doubled between 1996 and 2014—rising from 23.2 percent to 47.9 percent.

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The U.S. airline industry also experienced considerable merger and acquisition activity, especially following deregulation in 1978. The figure above (from a report by the U.S. Government Accountability Office [pdf]) provides a timeline of mergers and acquisitions for the four largest surviving domestic airlines—American, Delta, Southwest, and United—based on the number of passengers served. These four airlines accounted for approximately 85 percent of total passenger traffic in the United States in 2013.

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Another piece of evidence that concentration and centralization have increased within the U.S. economy is (following Jason Furmanthe growing gap between corporate profits and interest-rates. The fact that corporate profits (as a share of national income, the top line in the chart above) have risen while interest-rates (the nominal constant-maturity 1-year rate estimated by the Federal Reserve, less inflation defined by the Consumer Price Index, the bottom line in the chart above) indicates that the portion of profits created by oligopoly rents has grown in recent decades.*

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Together, the three main tendencies I have highlighted—financialization, internationalization, and corporate rents—indicate a fundamental change in U.S. capital since the 1980s, which has continued during the current recovery. One of the effects of those changes is a decline in the importance of manufacturing, especially in relation to FIRE, as can be seen in the chart above. Manufacturing (as measured by value added as a percentage of GDP) has declined from 22.9 percent (in 1970) to 12 percent (in 2015), while FIRE moved in the opposite direction—from 14.2 percent to 20.3 percent. Quantitatively, the two sectors have traded places, which qualitatively signifies a change in how U.S. capital manages to capture the surplus. While it still appropriates surplus from its own workers (although now more in the production and export of services than in manufacturing), it now captures the surplus, from workers inside and outside the United States, via financial activities. On top of that, the largest firms are capturing additional portions of the surplus from other, smaller corporations via oligopoly rents.

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What we’ve witnessed then is a fundamental transformation of U.S. capital and thus the U.S. economy, which begins to explain a whole host of recent trends—from the decrease in rates of economic growth (since capital is engaged less in investment than in other activities, such as stock buybacks, hoarding profits in the form of cash, and mergers and acquisitions) to the rise in corporate executive pay in relation to average worker pay (which has ballooned, from 29.9 in 1978 to 275.6 in 2015).

What is clear is that the decisions of U.S. capital as it changed over the course of recent decades created the conditions for the crash of 2007-08 and the unevenness of the subsequent recovery, which culminated in the victory of Donald Trump in November 2016.

 

*Another way to get at these oligopoly rents is to distinguish between the capital share and the profit share. According to Simcha Barkai (pdf), the decline in the labor share over the last 30 years was not offset by an increase in the capital share, which actually declined. But it was accompanied by an increase in the profit share, due to a rise in mark-ups.

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Both Hillary Clinton and Donald Trump argue on the campaign trail that manufacturing is a source of good-paying jobs and the United States needs to do all it can to strengthen that sector.*

What both candidates ignored is the fact that the manufacturing now pays (and has since 2006 paid) lower wages than the average for the private sector as a whole (as readers can see in the chart above). In September, the average hourly wage for a nonsupervisory worker in manufacturing was $20.59, more than a dollar an hour less than for other workers in the private sector.

Employers may complain about a “talent shortage,” about not being able to find enough skilled workers to fill jobs, but they’re not willing to pay higher wages to attract those workers. The problem is, most factory jobs have been redefined as lower-level work.

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According to a recent report from the University of California-Berkeley Center for Labor Research and Education (pdf), a large number (34 percent) of the families of frontline manufacturing production workers are enrolled in one or more public safety net programs.

The high utilization of public safety net programs by frontline manufacturing production workers is primarily a result of low wages, rather than inadequate work hours. e families of 32 percent of all manufacturing production workers and 46 percent of those employed through staffing agencies who worked at least 35 hours a week and 45 weeks during the year were enrolled in one or more public safety net program.

Thus, between 2009 and 2013, the federal government and the states spent more than $10.2 billion per year on public safety-net programs for workers (and their families) who hold frontline manufacturing production jobs. (This includes workers directly hired by manufacturers and those hired through staffing agencies.)

As I have explained before, I hold no particular nostalgia for industry in the hinterlands of the U.S. economy.

Nor do American workers. They may be angry about their current plight but neither the current presidential candidates nor employers are willing to do what is necessary to create decent, well-paying jobs for the millions of people who have been laid off or who are currently forced to sell their ability to work to obtain precarious jobs at substandard wages.

Calls to restore the manufacturing sector to its former glory may do something for employers but they offer little in the way of real solutions to American workers.

 

*And Trump (but not Clinton) is criticized for ignoring the fact that the “nation’s manufacturing sector is actually booming.”

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