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The Economy & You 29: Why Manufacturing Matters

 In the first ten years of 2000, the U.S. has experienced the largest decline in manufacturing jobs in our nation’s history. Of total employment, manufacturing’s share fell from 13.2 % in January 2000 to 8.9 % in December 2009. Recently a paper published by the Brookings Metropolitan Policy Program argued what many believe to be true: manufacturing is still important to the United States.  The report argues that manufacturing is important for four specific reasons:

• Manufacturing provides high-wage jobs, especially for workers who would otherwise earn much lower wages.

• Manufacturing is the major source of innovation in the commercial and service sectors.

• Manufacturing can be a major factor in reducing our country’s trade deficit.

• Manufacturing makes a large contribution to environmental sustainability.

The report not only identifies why manufacturing matters, but also outlines which kinds of manufacturing jobs have the greatest potential of growth.  The report outlines policy goals it believes will strengthen our manufacturing sector.  I would like to focus on the four important reasons why manufacturing is important;

Manufacturing provides high-wage jobs, especially for workers who would otherwise earn much lower wages.

Workers in manufacturing earn nearly 20% more in weekly earnings than those in non-manufacturing jobs.  While a straight comparison of earnings may not be able to show the difference in earnings for a specific worker, Brookings researchers used regression analysis to identify specific job characteristics to provide a more meaningful comparison.  When this analysis was done, manufacturing workers realized wages that were 8.4 % higher than those of non-manufacturing workers.  In fact, workers at all levels, regardless of race, gender, and education earned more in manufacturing than in other industries with one exception (Hispanics earned 10 cents less in manufacturing than in non-manufacturing). In addition, to higher wages, manufacturing industries are more likely to provide employee benefits like retirement plans, health insurance, paid holiday and vacation. 

Manufacturing is the major source of innovation in the commercial and service sectors.

Businesses that produce goods are more likely to introduce new production or businesses processes as well as new or significantly improved products.  This is a result of considerable research and development that takes place. According to the research, while manufacturing makes up only about 11% of GDP, it is responsible for the overwhelming majority of domestic research and development spending by companies. It is this research and development that is a critical component of innovation.

In addition, engineers are essential in technological innovation and in 2010, the manufacturing sector employed 35.2% of all engineers, compared with only 8.9% of all workers.

Some argue that the increasing the rate of innovation in the U.S. is counterproductive to manufacturing employment. If technology means that fewer workers can produce the same amount of goods, then, that progress will increase productivity. Yet economic theory and evidence, contradict this argument. The evidence suggests just the opposite: that productivity growth has not led to job losses in manufacturing; instead it has led to job gains. Economic theory states that even though a productivity increase means that fewer workers are needed to produce a given quantity of output, the productivity increase also allows product prices to be lower, increasing the size of the product market. The larger market means that firms will need to hire more workers. The additional hiring will offset the short-term job loss. Therefore, the overall impact of an increase in productivity is usually to increase employment rather than reduce it.

Manufacturing can be a major factor in reducing our country’s trade deficit.

The United States has had a trade deficit every year since 1976, and that deficit has been extraordinarily high during the early 21st century. This trade deficit had been increasing steadily since the late 1990s, reaching a record high of 5.6% of GDP before falling during the recession of 2007.

The trade deficit matters because it reduces national income and employment. A large trade deficit makes the still sluggish economic recovery even more so, because imports create fewer jobs in the United States than do goods or services produced in the U.S. The trade deficit also matters because it adds to the nation’s indebtedness to other nations. The United States has long had a trade deficit in manufacturing. There is also a trade deficit in agriculture and natural resources, which is driven largely by oil imports. The nation has a small trade surplus in services. A trade deficit has to be paid for by borrowing from abroad. This is money that could be used to invest in our own domestic economy.

Manufacturing makes a large contribution to environmental sustainability.

Manufacturing provides a large investment in our nation’s “green” economy (those goods or services with an environmental benefit). According to a recent Brookings estimate, this industry sector is nearly three times as manufacturing-dependent as the overall economy.

A number of specific technologies and products that are critical to this new economic sector are highly manufacturing-intensive. At least 90 percent of all jobs in electric vehicle technologies, water-efficient products, green chemical products, energy-efficient appliances, sustainable forestry products, lighting, recycled-content products, and energy-saving consumer products are in manufacturing. Of the green economy’s 2.7 million jobs, 26% are in manufacturing, compared to only 9% of U.S. jobs overall.

In conclusion, the importance of our nation’s manufacturing sector cannot be overstated. Manufacturing provides high wage jobs that are essential to purchase homes and raise families.  Manufacturers are at the forefront of invention and innovation. Manufacturing is a crucial component to address our trade deficit and reviving our economy.  In short, manufacturing is essential to well-being and standard of living as a nation. We must continue find ways to strengthen our manufacturing sector both in Wisconsin and the U.S.


One response

  1. Pingback: The Economy & You #30: WI #2 in Dependence on Manufacturing « wistatetreasury

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