Wednesday, July 25, 2012

U.S. Manufacturing Jobs and a WTO-China Connection?

I saw a graphic today (Graph 1 below) being shared by a number of my Facebook friends. It seems pretty dramatic, and the timing appears more than coincidental, implying that the acceptance of China into the WTO caused a dramatic decline in U.S. manufacturing jobs. However, I am not sure it represents the best understanding of the relationships involved. Last year I wrote several essays about how the economy has been changing since WWII, namely, the switch from a manufacturing to a finance/information economy--in one post, I included a graph displaying the change in GDP from the various sectors of the economy (How has the Economy Changed since 1947?).

Graph 1

The China-WTO-US Jobs seems dubious. First, total private sector employment (Graph 2) started leveling off in 2000, the year before China joined the WTO, and China joined at the very end of 2001 (mid-November), not enough time to have such an impact on manufacturing jobs.  Moreover, the unemployment hit was all over, not just manufacturing. One could argue that the manufacturing hit is what the total job loss is showing, especially when including the supply-chain jobs subsequently lost by the manufacturing outsourcing. However, there simply is not enough time for that kind of ripple effect, plus, the total jobs rebounded, while manufacturing jobs did not. Second, as a percent of the total U.S. job market, manufacturing jobs have been declining steadily since the post-WWII period, in almost perfect tandem with manufacturing as a percent of GDP (Graph 3, scaled on the left). There is a slightly steeper decline in 2000-2002, but the change is barely significant in comparison to the 60-year pattern.

Graph 2:

Interestingly, manufacturing production has been steadily increasing (Graph 3, scaled on the right). The standard explanation for this apparently paradoxical situation is that the job loss is caused by automation and other increasing efficiencies in production. While this may be a boon to the factories who are able to lay off employees in droves and thereby scale back hiring costs, as we have seen, it has a devastating effect on the broader economy, contributing to mass unemployment. Is there a China-WTO connection to the loss in manufacturing jobs? Perhaps, but if so, the impact seems dwarfed by the larger changes in the U.S. economy.

Graph 3:

1 comment:

  1. Very nice post, thanks for sharing the information. Keep up the good work.

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