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Sunday, August 10, 2014

'The US Manufacturing Base is Surprisingly Strong'

According to this research, "the preponderance of net job loss in the US manufacturing sector comes within companies that stay at home and do not invest abroad":

The US manufacturing base is surprisingly strong, by Theodore H. Moran and Lindsay Oldenski, Vox EU: Introduction Recently, a number of studies, descriptive employment statistics, and statements by US politicians have raised concerns about the strength of US manufacturing. For example, in a January 2014 Journal of Economic Perspectives article, Martin Baily and Barry Bosworth expressed concern about the recent absolute decline in US manufacturing employment, as well as the long-recognised decreasing share of manufacturing within overall US employment. They also argued that productivity growth in manufacturing can be attributed solely to the unusual performance of computer production rather than to the accomplishments of the manufacturing sector more broadly. US Senator Bernie Sanders of Vermont states on his website that “The manufacturing sector in Vermont and throughout the United States has eroded significantly in recent years and must be rebuilt to expand the middle class”. President Barack Obama has based his corporate tax reform proposals on the view that US manufacturing firms must be discouraged from “shipping jobs overseas” (State of the Union 2013).

To be sure, the evidence is indisputable that manufacturing employment has been steadily declining as a share of total US employment, and the absolute number of US manufacturing jobs has plummeted by almost 30% just since 2000. But the perennial focus on employment masks important signs of the growing strength of the US manufacturing base. In a recent Peterson Institute for International Economics (PIIE) policy brief (Moran and Oldenski 2014), we analyse the most detailed and up-to-date data on the state of US manufacturing.

  • Our research shows that the overall size of the US industrial base – real value-added in manufacturing – has been growing rapidly for more than four decades, and is on track to surpass the all-time 2006-7 high before the end of 2014.
  • In contrast to other researchers, we show that US manufacturing growth is broad-based and includes subsectors such as transportation equipment, medical equipment, machinery, semiconductors, communications equipment, and motor vehicles, as well as computers and electronics.
  • Moreover, contrary to widespread hand-wringing about weakening competitive performance on the part of US firms and workers, productivity in the manufacturing sector has been growing, both absolutely and relative to other sectors of the US economy.

At the same time, the most recent data show that the productivity growth in US manufacturing is also strong in comparison to other countries.

  • Finally, our research shows clearly that increased offshoring of manufacturing operations by US multinationals is associated with increases in the size and strength of their manufacturing activities in the US.

Indeed, the preponderance of net job loss in the US manufacturing sector comes within companies that stay at home and do not invest abroad. Of particular note is the large feedback to US R&D and other high-skilled services from outward investment on the part of US manufacturing multinationals. ...

Conclusions A careful look at the most recent and detailed data shows that despite falling employment, the US manufacturing base is growing larger, more productive, and more competitive. The results of our empirical analysis show that the expansion of operations abroad by US manufacturing multinationals leads to particularly strong increases in economic activity – including creation of greater numbers of high-paying manufacturing jobs – by those same firms in the US domestic economy. The policy implications are clear – any measures that the US might take to hinder or dis-incentivise outward expansion by US firms would lead to less robust economic activity – and fewer good US jobs at home, not more.

    Posted by on Sunday, August 10, 2014 at 08:55 AM in Economics, International Trade | Permalink  Comments (59)



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