by Michael Hicks, PhD.
One benefit of the political debate about trade is that it led to an overdue discussion of manufacturing. But after more than a year of politicking, I’m afraid there’s still a great deal of confusion about the industry and its future. To help clear things up I’ll begin with a parlor trick. Pick the year you think manufacturing production peaked in the US or Indiana. Some of you will say; 1928, 1945, 1975 and sometimes even 1999. The correct answer, of course, is 2015. Yes, inflation-adjusted manufacturing production peaked both in the US and Indiana in 2015, replacing 2014 as the record year. Prospects for 2016 looks pretty good as well.
The plain and readily knowable fact is that manufacturing in the US has never been stronger. Nevertheless, public policy changes could significantly increase manufacturing production in the United States. A better tax system, lower corporate tax rates and regulatory reform would benefit manufacturing production. However, none of these things, nor any public policy, will bring back manufacturing employment.
Manufacturing employment in the US peaked in 1977, and in Indiana in 1973. In most Midwestern manufacturing cities, the peak was in the 1960s. The recovery brought from the Great Recession wasn’t really a spike in manufacturing employment. Rather, the years since 2009 simply got us back to our long term trend of slowly declining employment.
Nationally, and here in Indiana, manufacturing employment is down over the past year. It’s helpful to understand the rate of this job loss. From peak employment to today, the US has lost almost 600 jobs each day. In Indiana, we’ve lost almost 600 per month since 1973.
The long-term trend suggests we should expect almost 7,000 fewer manufacturing jobs in Indiana next year, and more than 200,000 fewer nationwide. The majority of these job losses are due to productivity gains; automation, digitization and other technological advances on the shop floor. The trade deficit may account for 10 percent-25 percent of these losses, but it is likely most of these jobs would be destroyed by automation if production couldn’t occur outside the US. Either way, it is certain there will be far fewer manufacturing jobs in America in 2020 and 2040 than there are today.
Ironically, this does not mean companies won’t be hiring manufacturing workers. Job turnover and retirements alone will keep businesses hungry for new workers. But, these people will have to be different from the manufacturing workers of even a generation ago, with better skills and more education.
I suspect many readers will react to this column in disbelief. After all, we’ve heard that manufacturing left because of trade, and that better trade policies will bring jobs back. Locally, our economic developers and their consultants are still fervently chasing smokestacks, promising a prosperity that has eluded their efforts for a half century. Moreover, you can drive around any Midwestern city and see millions of square feet of abandoned industrial property. Don’t let your heart, eyes and ears deceive you.
The undeniably clear data are cunningly hidden in public libraries, public databases and on the internet. The share of manufacturing employment has been in decline for 60 years, and the number of manufacturing workers nationally in decline for 40 years. It will continue even as manufacturing production continues to rack up record year, after record year.
It’s not enough to wish ourselves into a future that cannot be. Manufacturing remains important, and there will always be job opportunities making goods. But, for American communities, manufacturing jobs matter less and less. Understanding that is paramount in thinking about our future.
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University