20 May 2012

Manufacturing Jobs

It turns out that they’re actually good for workers:

On average, hourly wages and salaries for manufacturing jobs were $29.75 an hour in 2010 compared to $27.47 an hour for non-manufacturing jobs.  Total hourly compensation, which includes employer-provided benefits, was $38.27 for workers in manufacturing jobs and $32.84 for workers in non-manufacturing jobs, a 17 percent premium.

I’ve noted before that the resurgence of manufacturing jobs is a contra-indicator that indicates that the US is entering a period of economic decline.  This is because the recent flirtation with trade had, for a while, encouraged manufacturers to relocate their manufacturing bases overseas. This opened up the manufacturing job market to global competition, driving down domestic wages.  Of course, the only reason why manufacturers relocate their bases back in the US is because wages are now relatively low, which means that the price of foreign labor has relatively increased while US labor has either remained stagnant, decreased, or increased less quickly than its foreign competitors.  To put it another way, free trade has driven US wages down.

Thus, it should be clear that free trade is a bad idea, it has sent people from working in manufacturing to working in service provision.  Unfortunately, services tend to be more marginal than tangible goods (to put it another way, scissors enjoy more market primacy than haircuts), which means that services are more likely to get cut during recessions.  This is clearly seen in this recession since current wages are now higher for manufacturing workers than service workers.*  This suggests that, if nothing else, demand for services have declined more than demand for manufactured goods.  Therefore, the cumulative effects of free trade have been to drive domestic labor from manufacturing into the more economically precarious position of service provision, thus driving down wages.

Second, this indicates that the college bubble is going to pop as people realize that college is less profitable than before.  To put it simply, one is more likely to need a degree for acquiring a service job than a manufacturing job. Now that it is more profitable to work in manufacturing than service, it seems likely that future market participants will be more likely to skip college and go straight to work instead.  And also avoid debt in the meantime.

* As is hopefully clear by its usage, service jobs are defined as all non-manufacturing jobs.

3 comments:

  1. it should be clear that free trade is a bad idea, it has sent people from working in manufacturing to working in service provision.

    Personally, I'm in favour of free trade (with provisos) but only if the cumulative balance of payments is neutral. It's not free trade so much as it is the ability to run massive negative balance of payments that is the real problem. The old Gold Standard put a limit into how far a country could go into hock. Thereby limiting how far competitor countries could penetrate into the industrial base of a trading partner. When a country ran out of gold it could not trade and had local industry developed a capacity to import substitute. A country had to have some form of productive base if it wanted to play in the game.

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  2. @SP- Bear in mind that when I write of free trade, I'm writing about it as it is in practice and not a it is in theory. I'm not philosophically opposed to free trade, but I would not pursue such policies during a time of fiat domestic currency or during a time of excessive domestic regulation and/or taxation. It just seems cruel to hamstring domestic producers then allow their foreign competitors (relatively) free entry in the domestic market.

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  3. It just seems cruel to hamstring domestic producers then allow their foreign competitors (relatively) free entry in the domestic market.

    Agreed.

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