Posted by on June 20, 2016

BloombergView has recently run an article that touches upon something that has been puzzling me for a while.  The article is entitled “Who Needs Factories Anyway?” and it claims that the “obsession with factories threatens to undermine sound economic policy.”

The article covers some familiar ground.  The decline in manufacturing jobs is small beer in the context of the overall economy: 5.3 million jobs have been lost in manufacturing over the last 30 years, just 3.5% of the 151 million Americans who are currently employed.  During this same period, the service sector has added 43 million jobs.

Moreover, although manufacturing jobs have been in decline, manufacturing has not.  On a relative basis it has fallen, but this appears to be the way of all economies and should be no more disturbing than the earlier fall in agriculture.  Manufacturing’s share of US GDP peaked at 28.1% in 1953, a figure that has now fallen to 12.1% of GDP.  At the same time, however, the total value added in manufacturing grew, in real terms, from $110 billion in 1953 to a record $2.1 trillion in 2015.  As a recent Cato Institute report puts it:

By all relevant metrics — output, value-added, revenues, exports, imports, investment, R&D expenditures — U.S. manufacturing remains a global ‘powerhouse.’  With respect to most of those measures, year after year the sector sets new records. U.S. manufacturing attracts more foreign direct investment (FDI) than any other country’s manufacturing sector. In 2014 the stock of FDI in U.S. manufacturing surpassed $1 trillion, more than double the value of FDI in China’s manufacturing sector (and eight times the value in per capita terms).

These figures make clear that the decline in manufacturing jobs has been more the result of productivity improvements than shrinkage in the sector.  This also points out one of the fallacies of the trade policies of a Trump or Sanders: even if they succeed in choking off imports from places like China and Mexico, at best this will mean a return of manufacturing, but probably not a material return of manufacturing jobs.[1]

So, why all the fuss about manufacturing jobs?  The real reason is that a manufacturing job has become synonymous with a high-paying, full-benefits, and secure position, particularly one that can be performed by someone with a limited education.  When people lament the passing of manufacturing jobs, they are nostalgic for the days when a high-school graduate could walk onto a Ford assembly line and earn enough for the American Dream.  Instead, the storyline of today is the former manufacturing worker who, after trying for months to secure something similar, is now flipping burgers for the minimum wage.

And this is the part that perplexes me, because a labor market is not supposed to work this way.  Let me explain.

Labor is mobile.  Therefore, if jobs in manufacturing offer a much more attractive package of compensation than jobs in services, then assuming that similar skills are required, workers will flock to the former.  This will drive down wages in manufacturing and drive up wages in services.  The end result will be approximate parity between the two sectors.  In a normally functioning labor market, losing a manufacturing job should not be the equivalent of stepping off an economic cliff.

What could cause this?

One classical explanation is that a manufacturing worker starts out at the same place as the service worker, but over time he develops skills and habits that make him much more productive, and therefore more highly paid, in his current function.  In the jargon, he develops job-specific human capital.  When he loses his job, the value of this human capital disappears and he is left to compete against other providers of undifferentiated, low-cost labor.

I don’t find this explanation to be very compelling.  Part of the reason is that it is hard to believe that these skills can be that specific; there should be functions that are similar enough to preserve much of the value of this human capital.  More importantly, this narrative of job-specific skills is tough to square with the fact of offshoring of manufacturing jobs.  These are often greenfield operations in countries without long manufacturing histories or particularly well-educated work forces.  If job-specific human capital is so important, then it should not be this easy to start anew.

Another explanation is that the good-quality jobs are out there, it’s just that we are doing a bad job of matching workers, with the right skills and locations, with the openings.  Certainly, there is plenty of survey and anecdotal evidence for a shortage of skilled labor.  Combine this with the evidence that approximately half of college graduates are doing jobs that do not require college degrees, and it certainly suggests that we are doing some serious miss-educating in America.  Needless to say, this points to huge mistakes in our education system, something which is not likely to be fixed by throwing more money at the schools, as proposed by Clinton and Sanders .

There is also evidence that labor is becoming less mobile.  Internal migration in America has been on a downward path since the 1980s, a tendency that has accelerated lately.  This decline is all the more striking given the improvements in information dissemination, such as on-line recruiting, which should make it easier to match employees with jobs.

I think that government policies play detrimental roles here, too.  As I have commented before, overly restrictive land-use policies inflate house prices and make it difficult to move into many areas of strong labor demand.  The system of company-provided health insurance in America, itself a creature of distorting tax and other policies, is a further constraint on labor mobility; we probably all know of someone who passed up a lucrative new post out of fear of losing healthcare coverage.  Finally, the growth of the welfare state, including in the disguised form of something like disability claims, reduces labor mobility.  Why go to the trouble of moving when the government will pay you to stay where you are?

There is another possible explanation, but this one is deeply disturbing.  Perhaps the gap between high-paying manufacturing jobs and low-paying service jobs is just the residue of a system that globalization has now torn apart.  The components of the system were strong unions that restricted the supply of labor into high-paying manufacturing sectors and domestic producers that were shielded from international competition.  Certainly the world when manufacturing peaked in 1953 looked very different from the way it looks now.  Europe and Japan were still recovering from World War II, South Korea was agrarian, and much of the rest of the world was behind an Iron Curtain.  However, this way of looking at the gap between manufacturing and services jobs leads to the deeply depressing conclusion that the working-class American Dream was an illusion born of a particular set of circumstances that cannot be reproduced, as much as the populism of a Trump or Sanders would like to try.

I don’t have good answers to these questions, which are clearly wrapped up with the general economic malaise affecting the country and, particularly, the middle class.  As this election cycle has made abundantly clear, this is probably the greatest issue our country faces and figuring out the causes, and the solutions, should be our highest priority.

More SJW Madness from Obama

The Departments of Education and Health and Human Services recently came out with a new policy statement the thrust of which is that public schools have to do a better job of accommodating the needs of students for whom English is not the first language spoken at home.

As always, the policy statement is filled with social justice warrior (SJW) nostrums and Orwellian Doublespeak, but short on details or practical solutions.  The administration warns that “not recognizing children’s cultures and languages as assets” may be hurting their education.  Public schools therefore need to “support children’s home language development” by, among other things, hiring more teachers who “speak the language and/or share the cultural background of children who are DLLs [dual language learners] in the community.”  The administration says that this is all good news because “[t]he growing diversity of our nation’s children requires that we shift the status quo…[to] build a future workforce that is rich in diversity, heritage, cultural tradition, and language.”  The administration points out that, after all, “[o]ver half the world’s population is estimated to be bilingual or multilingual.”  (Of course, the policy neglects to mention that in many of these bilingual or multilingual places, language differences are a continuous source of strife, including in advanced countries such as Canada, Spain and Belgium.)

Nobody denies that being bi-lingual or multilingual is an advantage.  But these are languages in addition to, not instead of, of the national tongue.  By facilitating learning in a “home language,” instead of forcing it in the national one, the administration is undercutting one of the strongest and most effective motivations for learning English.  Obviously, children pick up languages much more readily than adults.  It is therefore imperative that they are instructed in English, especially when the home language is different.

It used to be that immigrants were expected to adopt themselves to the culture of their country of welcome, not that the country of welcome was expected to accommodate the cultures of the immigrants.  Thanks to the idiocy of the SJWs, this is no longer the case.  One of the consequences is a backlash against immigration in general.  The Left always achieves the opposite of its objectives.

Another consequence may be even worse.  The Heritage Foundation is out with an article entitled “The Real Reason the Islamic State Successfully Recruits Fighters” discussing a recent research report by the National Bureau of Economic Research.  The research looks at ISIS recruiting success across countries and observes that it has been globally highest (as measured by the percentage of the Muslim population recruited) in Finland, Belgium, Ireland and Sweden, four countries that score high in GDP per capita, the Human Development Index (a measure of welfare) and the Political Rights Index (a measure of freedom and democratic rights).  The research concludes that “economic conditions are not the root causes of the global development of ISIS foreign fighters.”  (This is contrary to the musings of, among others, French economist Thomas Piketty, who claimed that inequality was behind the rise of ISIS.  To a Marxist with a hammer, everything is a nail.)

Conversely, the NBER researchers found that an index of “ethnic, linguistic and religious fractionalization” developed by some Harvard researchers was a significant explanatory factor in the success of recruiting.  As one of the authors concluded:

There is growing awareness, at least anecdotally, of the lack of assimilation as an important cause in terror recruiting. However, it is yet to be determined whether income inequality promotes or degrades assimilation. Some European countries may be more generous than the U.S in providing social benefits, but it is unclear whether this social safety net increases the likelihood of assimilation.

While the U.S. is infamous for its high degree of income inequality, its ‘melting pot’ culture that promotes assimilation may be one of the best deterrents against radicalizing people to join ISIS — and may explain why the United States ranks a distant 36 in the number of ISIS foreign fighters compared to its Muslim population.

Although this type of research must always be treated with a grain of salt (particularly if it relies on an index developed in Cambridge, Massachusetts), it is also not surprising to hear that people who live outside the general culture of a country are more likely to turn against it.

 Some Film Trivia and a Recommendation

First, the trivia.  This is perhaps well known to everyone but me, but I have recently read that Bill Murray ad-libbed virtually his entire performance in the classic goofball comedy Caddy Shack.  Murray played a gopher-obsessed groundskeeper, alongside a wealthy, golf-loving vulgarian – remind you of anyone? – played by Rodney Dangerfield and a zen-master golfer played by Chevy Chase.

The film was shot shortly after the death of Jean-Paul Sartre, the French existentialist philosopher and world-class poseur.   Hence, in one of Murray’s many attempts to kill the gopher, he ad-libbed: “In the immortal words of Jean-Paul Sartre: ‘Au revoir, gopher.’”  Given the movie’s target market, one wonders by how many miles this cleared the heads of its audiences.

Now, for the recommendation.  This is a documentary called Palio.  The superficial subject is the famous horse race in Siena, but the real subject is Italy, in all of its inspired and dysfunctional, but somehow also brilliant, craziness.  As I always say, Italy is a country of genius, but not competence.  It is all on display here: the talent, the passionate dedication, the corruption, the history and the sheer wackiness of the place.  This being Italy, there are also some seriously large and misshapen noses.  A strong recommendation for a film that I am not the only one to love: it scored a 94% on Rotten Tomatoes.

Roger Barris

Weybridge, United Kingdom

I Wish That I Had Said That (And Sometimes Not)…

“A university is not a ‘safe space.’  If you need a safe space, leave, go home, hug your teddy & suck your thumb until ready for university,” by Richard Dawkins in a tweet, showing once again why the evolutionary biologist (and author of The Selfish Gene, which should be on everyone’s must-read list) and evangelical atheist (and author of The God Delusion) is one of my heroes

“Obsessed with the idea of instant and total integration, we failed to notice that the citizens of Europe do not share our Euro-enthusiasm,” by Donald Tusk, the former Prime Minister of Poland and the current President of the European Council, showing once again that common sense has not completely died among EU politicians (although it is very, very sick)

 

[1] For example, The Wall Street Journal reports that Adidas, the athletic sportswear company, is building its first new factory in Germany in 30 years.  They are doing this because they think that this will improve quality, simplify and reduce the cost of logistics, and will improve the speed with which they can introduce new products.  The factory will be highly automated and will produce 500,000 shoes with a total of 160 employees.

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