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ITIF Report Details Decline in Output and Jobs; Exposes Flaws in Productivity Assumptions

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ITIF Report Details Decline in Output and Jobs; Exposes Flaws in Productivity Assumptions

Contact:
Steve Norton snorton@itif.org (202) 626-5758

WASHINGTON (March 20, 2012) – The erosion of American manufacturing in the last decade has been far more severe than commonly recognized, with sharp declines not only in employment but also in output, according to a report released today by the Information Technology and Innovation Foundation.

“Worse Than the Great Depression: What the Experts Are Missing about American Manufacturing Decline,” debunks widely held myths about productivity gains, restructuring, and a manufacturing renaissance and reveals the stark reality of a historic decline in U.S. competitiveness and unprecedented deindustrialization. The report explains what the United States is experiencing is not merely another boom and bust cycle but a structural decline more akin to what Britain experienced in the 1960s and 1970s when it lost its industrial leadership.

“What we discovered flies in the face of nearly all the reporting and commentary on manufacturing and reveals a disturbing truth,” said ITIF President Robert D. Atkinson, the report’s chief author. “U.S. manufacturing jobs have been lost not simply because the sector is more productive. It is producing less. And unlike some high-wage nations, America is not replacing low-value-added manufacturing with high-valued-added manufacturing or opening new plants to replace closed ones. There is difference between restructuring and decline. American manufacturing is in decline.”

From January 2000 to January 2010, the U.S. lost one-third of its manufacturing jobs, almost 5.5 million jobs. This is likely the highest rate of manufacturing job loss in American history, exceeding even the rate of loss in the Great Depression. In addition, economy-wide job losses in the last decade were far more concentrated in manufacturing than during the Great Depression. But unlike the period after the Depression or in the recoveries from recessions after World War II, the recent rebound in manufacturing has been far weaker than portrayed by recent news reports and comes off the steepest decline of any post-war recession.

In the face of these unprecedented losses, expert opinion has been remarkably blasé, attributing the massive job loss to manufacturing’s superior productivity performance. That view is based almost entirely on one number – change in real manufacturing value added as a share of GDP. But the report finds that U.S. government data significantly overstates this macro number, in part by vastly overstating value-added growth in the computer and electronic products sector and by miscalculating the price of imports of intermediate manufacturing inputs. According to the U.S. Bureau of Economic Analysis, growth of output in the computer and electronics sector accounted for more than all the output growth in U.S. manufacturing. In other words, collectively the other 18 U.S. manufacturing sectors produce less today than they did in 2000. In fact, when measured accurately, real manufacturing output declined by 11 percent in the last decade, at a time when the overall economy grew by more than 11 percent. Compare that to prior decades when manufacturing output grew by upwards of 35 percent. Something went seriously wrong in the 2000s.

The report also refutes the commonly expressed view that other industrialized high-skill nations are also failing behind in manufacturing. There’s nothing normal or preordained about rich countries losing manufacturing. While nations such as Austria, German, Korea, the Netherlands and Sweden have seen increased or stable manufacturing output growth, only the United States and a handful of other nations (e.g. Canada, Spain, Italy and the UK) that have seen outright losses.

The report shows these losses have not been due to declining demand for manufactured goods. Demand has stayed robust. What has declined is U.S. production of those goods as the manufacturing trade deficit has soared.
Despite the sobering findings, the report also emphasizes that manufacturing is still critical to America’s economic future. Manufacturing still adds $1.6 trillion to GDP, employs nearly over 12 million people and is a traded sector, which means when we lose a manufacturing job due to foreign competition it is not automatically replaced by the market.

ITIF emphasizes that policy changes like a more competitive corporate tax code, increases in funding for manufacturing-focused R&D and programs to train manufacturing workers, and increased efforts to fight unfair or illegal trade practices can stem the tide and help restore the U.S. manufacturing base.

“America needs to wake up to the fact that a series of grave policy errors have left us a production foundation that is too weak to support the kind of economy we need to build. We will need new policies to build a new manufacturing foundation,” said Atkinson. “This is a central economic task for America for this decade.”

Among the findings in the report are the following:

  • Productivity: Between 2000-2010 government data overestimated manufacturing labor productivity by a remarkable 122 percent.
  • Output: Rather than rising by 16% as the government data indicated, manufacturing output during that period actually fell by 11 percent. If manufacturing output had grown at the same rate as the rest of the business sector, the United States would currently have 13.3 million more jobs.
  • Job Losses: Today, more Americans are unemployed – a total of 12.8 million – than there are Americans who work in manufacturing, 12 million. On average, every day for the last 12 years, the United States lost 3,643 jobs – 1,243 net manufacturing jobs plus approximately 2,400 additional jobs because of manufacturing’s multiplier effect.
  • Manufacturing Capital Stock: While the amount of capital (e.g. machines, factories, computers) grew by between 20 and 40 percent per decade prior to 2000, in this last decade it grew by less than 2 percent.
  • Plant Closings: Since 2000, a net 60,300 manufacturing plants closed, or 15 each day.
  • Recovery: While the economy has been adding manufacturing jobs during the current recovery, for every six jobs lost in the 2000-2010 period, only one was restored as of January 2011.
  • Decline in the States: Only two U.S. states experienced less than double-digit declines in manufacturing employment in the 2000s.

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The Information Technology and Innovation Foundation (ITIF) is a Washington, D.C.-based think tank at the cutting edge of designing innovation strategies and technology policies to create economic opportunities and improve quality of life in the United States and around the world. Founded in 2006, ITIF is a 501(c)(3) nonprofit, non-partisan organization that documents the beneficial role technology plays in our lives and provides fact-based analysis and pragmatic ideas for improving technology-driven productivity, boosting competitiveness, and meeting today’s global challenges through innovation. For additional information, visit ITIF at www.itif.org or contact Steve Norton at (202) 626-5758 or snorton@itif.org.

4 Responses to “ITIF Report Details Decline in Output and Jobs; Exposes Flaws in Productivity Assumptions”

  1. Milt Heft says:

    Finally, an excellent summary of our desperate situation. However, the REASONS for our predicament are once again ignored. The article focuses on taxes. R&D, and worker training as the solutions, totally ignoring CPA’s own findings of 40,000 factories outsourced to China, leaving 4 million production workers unemployed. Add the 3:1 ratio of service to production and you have another 12 million. And what is China doing with our dollars that they do not want to use to buy our products? They are buying our real estate and our companies! Your next article on the subject should be an exposee of how China is buying America.

  2. “” However, the REASONS for our predicament are once again ignored. The article focuses on taxes. R&D, and worker training as the solutions, “”

    Right on, Milt!

    No mention of extremely cheap and exploitable labor in China or other countries.

    No mention starvation-level wages and essentially slave-labor conditions.

    This is not a problem caused by unskilled or uneducated American workers. Nor is it a problem caused by allegedly high Corporate taxes.

    It’s a problem caused by substituting cheap slave labor for American labor.

    No amount of education, training, or “investment” in this country will solve that.

    The only thing that will solve it is TARIFFS on imports from countries using essentially slave labor (i.e., China).

    • Bruce Bishop says:

      unlawflcombatnt,

      While I am not opposed to tariffs, I would suggest “balanced trade,” as proposed by Warren Buffett in 2003, as a more efficient way to take back our jobs. You can Google it. There is an excellent book, “Trading Away Our Future,” by Raymond, Howard and Jesse Richman (2008) that explains a couple of ways in which we could implement “balanced trade.” You can find the Richmans, and the book, at http://www.idealtaxes.com.

      Of course, any solution must, necessarily, depend on our government taking action that they have, so far, appeared unwilling to take. Our part must be done first. Our part is to elect a majority of Senators and Representatives who care more about the people and the future of the country than they care about getting reelected.

      So far, Congress has not heard much from us, the people, on this issue. Who they have been hearing from are, as Paul Craig Roberts says, in his excellent book, “How The Economy Was Lost,” are “The ‘free market’ shills on the payroll of the U.S. Chamber, N.A.M., and in economics departments and think tanks that are recipients of grants from transnational corporations are whores aligned with the elites who are destroying the American work force.” (2010) p155.

      To clear up any confusion – on that same page, in that same book – Dr. Roberts says,”The offshoring of American jobs is the ANTITHESES (my emphasis) of free trade.”

  3. RB says:

    The economy has not really improved and won’t really improve until we bring manufacturing back to the United States of America, which will not only give jobs to the US citizens who would be working in those manufacturing facilities, but to the people that would be working in the businesses that would spring up all around them. The “Global Market Place” is not a level playing field! The whole idea of the tariffs is so we can pay our factory workers a decent wage and not be blown out by these other countries we’re they don’t play by the same rules.

    We may have to pay a bit more for products made here in the USA by US citizens, but at least we’ll still have jobs and a future for our children.

    We need to harvest, produce and distribute of our own natural energy here in the USA, rather than paying for fuel from countries where they hate us. The refining and production of these fuels and energy is also another form of manufacturing. This would keep that money and those jobs here in the US.

    The bottom line is that “Our Government” has to protect American industry and the jobs that those industries provide. If they do that, the rest will take care of itself.

    We also need to Stop Illegal immigration! They’re not just doing jobs that Americans don’t want. Do they pay taxes? Don’t get me wrong most of these people work very hard, but are a drain on the system if they don’t pay taxes, have healthcare coverage, learn the language or get paid wages that are in line with their American counterparts. We all know that the health care provided to uninsured illegals here in the states is being averaged into our hospital costs and our insurance premiums, which have proportionately increased along with illegal immigration over the last 20 years? These costs are also being passed along to Medicaid and Medicare, which means that not only are they increasing our insurance premiums, but that we’re paying for them again with our tax dollars. And who’s footing the bill for the education of their children and the infrastructure around them?

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