Wednesday, February 09, 2011

US Manufacturing: The Backbone Of Our Economy Has Been Broken

For many decades, manufacturing was the backbone of the US economy. Manufacturing allowed people with only high school degrees to become part of the middle class, to buy a home, to buy a new car every five to 10 years, and to even put their children through college.

But over the past three decades, US manufacturing jobs have been steadily outsourced to workers overseas. Millions of good, blue-collar jobs — the kind that grew the middle class in America — have vanished, taking a serious toll on our economy.

In fact, largely due to outsourcing, the number of workers in manufacturing dropped by one-third over the past decade.

The absence of a solid manufacturing base doesn't just mean fewer good jobs for Americans; it also means we have to import more goods and have fewer of them to export. That combination results in billions of dollars leaving the US each and every month.

Manufacturing has declined from 14.2% of GDP in 2000 to just 11% of total output today. According to the Bureau of Economic Analysis, in 2009 US GDP was $14.2 trillion. Manufacturing contributed just $1.5 trillion to the total.

As a result of our shrunken manufacturing base, it's no surprise that the US has led the world in imports for decades or that exports now represent just 12% of our economy. It's a bad combination. The US now has a massive trade deficit and is the world's biggest debtor nation.

A wider trade deficit creates a drag on economic growth because more of the nation's consumption is coming from overseas rather than from domestic production.

So, why have US corporations slashed so many American jobs, only to hire workers in foreign nations instead? It's simple; money.

The average wage in developed economies is about 10 times the average level in emerging economies. That's the inherent flaw in "free trade". Simply put, due to higher wages, it costs a lot more to produce goods in the US than it does in developing countries.

Due to the impact this is having on their economies, last August, the National Conference of State Legislatures called for major reform of US trade pact model. It's now clear that free trade isn't all it was touted to be.

Here's a rather simple formula: No jobs = no spending = no growth = lower tax revenue = higher deficits = higher debt = higher tax rates & interest rates = no growth.

But it's not just manufacturing jobs that have been lost. Millions of workers — like file clerks, ticket agents and autoworkers — have been displaced by technological advances and international trade. Millions of other jobs, such as clerical and administrative positions, printing machine operators and travel agents have all been eliminated.

Most of these occupations will never come back, regardless of what happens to the US economy. The skills of these workers are now largely irrelevant. Even if the recession hadn't occurred, employers still would have eliminated many of these jobs through attrition or buyouts. The recession only accelerated the process.

Though the federal Trade Act allows workers who've lost jobs to get retraining for higher-skilled jobs, a 2006 federal study found that most workers who do take retraining benefits get lower pay in their new jobs.

That's a truly sad state of affairs. Such a trend will only hasten the shrinking of what remains of the American middle class.

In a 2007 paper, Princeton economist Alan Blinder estimated that 22% to 29% of US jobs are vulnerable to being "off-shored" in the next 10 to 20 years. What may come as a surprise is that many jobs requiring a college education are the most vulnerable.

As the old saying goes, constant change is here to stay. From now on, workers will have to be nimble, adaptable and quick to adjust to employment trends.

The days of going straight from high school to a lifetime job at the factory, followed by a decent pension upon retirement, are long gone. Most workers will have numerous jobs, and perhaps even multiple careers.

The oft-repeated claim that the average American worker will have seven different careers in his or her lifetime is unfounded. The U.S. Bureau of Labor Statistics, the Labor Department's data arm, doesn't track lifetime careers. In fact, the BLS website notes that "no consensus has emerged on what constitutes a career change."

However, BLS economist Chuck Pierret has been conducting a study to better assess U.S. workers' job stability over time, interviewing 10,000 individuals, first surveyed in 1979, when group members were between 14 and 22 years old. So far, members of the group have held 10.8 jobs, on average, between ages 18 and 42, using the latest data available.

According to the U.S. Census Bureau's Current Population Survey, the typical American worker's tenure with his or her current employer was 3.8 years from 1996 to 2008, the latest available data. Given that a person may work for 45 years, or so, it's easy to assume that he or she may have 10 or more jobs in their lifetime.

It's one thing if this is the result of personal choices. However, in many cases it isn't. Regardless, is not the hallmark of worker stability.

Free trade has been a double-edged sword for the US. Though it has brought American consumers lower prices, it has also cost many of them their jobs. Being an import-driven, consumption-based economy is not working. It has led to a massive trade deficit, massive debt, and millions upon millions of outsourced American jobs.

If Americans are willing to pay more for American-made goods, US manufacturing could begin again in earnest. We could consume what we produce and recirculate our money back into our own economy, instead of sending it overseas. Such a transition would shrink the trade deficit, though much of it is driven by oil imports.

Clearly, the status quo isn't working. At present, we are on the road to nowhere, or perhaps even worse.

If this situation doesn't change soon, the US will be facing multiple and uncorrectable crises of rampant and unyielding unemployment, greater poverty and income disparity (already the highest in the developed world), plus the eventual and inevitable bankruptcy of our nation.

After all, given its relatively low export base, where will the US continue getting all that money for all those imports?

As Stein's Law famously concludes, "If something cannot go on forever, it will stop."

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