March 20, 2012
Readers of the front page WAPO piece on manufacturing productivity will assume that neither the Post nor any of the economic experts it consults have heard of arithmetic. The piece points to research showing that manufacturing productivity has been overstated. While it is good to see that the Post has finally noticed research that many of us have talked about for years, the Post grossly misrepresents the issues concerning manufacturing productivity and employment.
The Post presents the question as being one of whether higher productivity or increased imports are responsible for job loss in manufacturing. Those familiar with arithmetic know that the answer is that both are responsible.
Arithmetic tells us this because we know that our net imports of manufactured goods are equal to almost one-third of the manufactured goods we consume. If we produced these goods in the United States then manufacturing employment would rise by close to 40 percent.
On the other hand, the increase in the efficiency of manufacturing production has also affected the demand for labor in the sector. If productivity had not improved then more people would be employed producing the same amount of manufactured goods. While we would have lost some output due to import competition if productivity had not improved, there are sectors of manufacturing that are still subject to limited import competition. In these sectors higher productivity translates fairly directly into fewer jobs.
Insofar as productivity growth has been exaggerated due to a failure to accurately measure imports, as the research cited in this piece shows, it means that a larger portion of job loss has been due to imports and a smaller portion is attributable to productivity growth. However, it doesn’t change the fact that manufacturing productivity growth has still been strong and that both have been important factors explaining job loss.
Remarkably, this piece never once mentions the value of the dollar. The dollar directly affects the competitiveness of U.S. manufactured goods. A 10 percent fall in the real value of the dollar relative to the currencies of our trading partners has the same impact on competitiveness as a sudden surge of 10 percent in labor productivity.
As a historical matter, the United States went from adding jobs in manufacturing to losing jobs when the dollar surged following the East Asian financial crisis in 1997. The decline accelerated as the dollar continued to rise through the end of the 90s.
It is bizarre that a major piece on manufacturing employment would never mention the value of the dollar. This would be like reporting on patterns of gasoline consumption without ever talking about the price.
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