Download Security Scenarios And The Global Economy

NS3040
Fall Term 2014
Return of Manufacturing?
Return of Manufacturing? I
• Steven Rattner, “The Myth of Industrial Rebound”, New
York Times, January 25, 2014
• Many feel that the United States will be going through a
new industrial revolution and a manufacturing resonance.
• There is some evidence of this:
• some companies reshoring from their Asian operations
• new start-ups in high tech sectors
• However a closer look suggests that we shouldn’t be
overly optimistic
• Only a trickle of new jobs created in the sector
• Often dependent on huge public subsidies
• In order to compete with China and other low wage
countries, jobs offer less in
• Health care, pensions, and
• Benefits than industrial workers historically received
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Return of Manufacturing? II
Examples
• 2012 GE opened its first assembly line in 55 years in
Louisville, Ky.
• Jobs started at just over $13.50 an hour, or
•
less than $30,000 a year – much less than usually
associated with manufacturing
• When Volkswagen opened plant in Chattanooga, Tenn. in
2011
• company hailed for bringing 2,000 fresh auto jobs to
America
• However beginning wage for assembly line workers
$14.50 per hour about half of what traditional unionized
workers at GM and Ford received
• With benefits – jobs cost Volkswagen $27 per hour
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Return of Manufacturing? III
• In Germany the average auto worker earns $67 per hr.
• In effect Volkswagen has moved production from a high wage
country (Germany) to a low wage country (US).
• All told wages for blue collar automotive industry
workers have dropped by 10 percent after adjusting for
inflation since recession ended in June 2009
• By comparison wages across manufacturing dropped by 2.4%
during the same period while
• Earnings for Americans in equivalent private sector jobs fell by
only 0.5 percent
• Poor wage trends a central reason for the slow economic
recovery – without sustained income growth consumers
can’t spend
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Return of Manufacturing? IV
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Return of Manufacturing? V
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Return of Manufacturing? VI
• Low wages not only price America pays for retaining
manufacturing jobs
• Hefty subsidies from federal, state local government
agencies often required
• Tennessee provided around $577 million for Volkswagen -$288,500 per position
• To get 1,000 Airbus jobs, Alabama provided a benefits package
of $158 million
• Now Boing has used threat of moving to non-union, low wage
state to win a record subsidy package of $8.7 billion from
Washington State – and labor concessions
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Return of Manufacturing? VII
• In actuality the U.S. has gained just 568,000
manufacturing positions since January 2010
• Small fraction of the nearly six million lost between 2000
and 2009
• A slower rate of recovery than for nonmanufacturing
employment
• Challenges to American manufacturing have grown as
less developed economies have become more adept
• Mexico each auto worker earned $7.80 hour in 2012
• Productivity as high as in the U.S. where total
compensation costs were $45.34 per hour
• No surprise in 2013 Mexican automobile production 50
percenthigher than several years earlier
• Output in U.S. at same as 2006 level
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Return of Manufacturing? VIII
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Return of Manufacturing? IX
• Hope is that the US energy boom will provide an
incentive for manufacturers to locate here
• However only one-tenth of American manufacturing incurs
significant energy costs
• Still, we do need to maintain an industrial presence, but
not for many of the obvious reasons
• Companies often locate research and development facilities –
with high paying jobs near their manufacturing facilities
• In addition to jobs R&D yields high-value intellectual property
that spills over into still more innovation and employment
• Every manufacturing position requires an additional 4.6 service
and supplier positions to support it.
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Return of Manufacturing? X
• Challenge for the U.S. particularly acute because:
• Manufacturing accounts for just 12% of our economy down from
a peak of 28 percent in 1953
• On a par with France and Britain as the least industrialized of
major economies
• Keeping that share should be a priority
• Need to avoid raising false hopes such as
• the President’s pledge of creating a million manufacturing jobs
by end of his second term or
• Ill conceived policies – special subsidies for manufacturing
• On other hand President’s strategy over last several
years appears sound
• more training focused on skills needed by employers, and
• increased spending on research and development
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Return of Manufacturing? XII
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Return of Manufacturing? XIII
• U.S. Workforce is simultaneously over qualified:
• 15% taxi drivers are college graduates and
• Underqualified (US ranks in bottom half of many comparisons
with developing countries
• When Volkswagen arrived in Chattanooga found not enough
applicants had technical skills so established a German style
apprenticeship at the factory
• As for research and development, fiscal tightening by
federal government has prevented more investment in
this critical area
• Exact opposite of what is required
• As for public policy toward the private sector:
• Need to be careful with subsidies
• Need to stop meddling in private activity and particularly idea of
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picking winners – Solyndra and Fisker
Return of Manufacturing? XIV
• Manufacturing would benefit from same reforms that
would help broader economy
• Restructuring of corporate tax code
• New policies to bring in skilled immigrants
• Added spending on infrastructure and
• More trade agreements to encourage direct foreign investment
• Those who see a brighter picture for the U.S.
• Argue that wages are rising more rapidly elsewhere not just in
China Brazil but also Japan, Germany and France
• Flip side, wages rising faster elsewhere means they are rising
more slowly here
• Essence of our challenge – in a globalized world there
will always be another China
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