FacebookTwitterGoogle+RedditEmail

The Path to Full-Employment

by

Despite the latest jobs report showing that the economy added 175,000 jobs in February, economists agree that job growth and recovery are not as robust as they should be. The goal of full employment, where nearly all persons willing and able to work have the chance to do so, remains elusive.

Yet, few economists see a significant role for manufacturing, which historically has powered job growth during recovery periods. Although the manufacturing sector has shed 30 percent of its jobs since 2000, output growth at the nation’s factories during this period exceeded growth in the economy overall, except during recessions. These facts have led many economists to conclude that American manufacturing is strong and steep job losses in the sector are largely due to labor-saving technology. Such conventional wisdom also has kept economists from pursuing policies to boost manufacturing jobs.

This view, however, reflects a fundamental misunderstanding about what manufacturing statistics measure and what they mean. For arcane technical reasons, virtually all of the sector’s real output growth results from the way domestically manufactured computers and semiconductors are counted in U.S. statistics. Output growth in most manufacturing industries — those that account for the large majority of the sector’s value-added and employment — has been weak or negative since 2000. And although automation undoubtedly has displaced some workers in manufacturing, a growing body of research suggests that trade and the decline of the United States as a location for production have accounted for much of the sector’s job loss.

In addition, the employment effects of manufacturing production extend well beyond that sector. The breakup of vertically integrated firms and the growth of complex supply chains mean that a large share of workers needed to produce manufactured goods — now about half — works outside the manufacturing sector. Recognizing that the United States has lost competitiveness as a location for production and that globalization and international trade are largely responsible for the steep loss of manufacturing jobs is an essential first step for fashioning appropriate policy responses.

Addressing the trade deficit is an important starting point. The current (2013) level of $500 billion (3 percent of gross domestic product) means that a large amount of demand is directed outside of the United States rather than at home, where it could create employment.

Boosting exports or reducing imports enough to bring trade into balance would generate 4.2 million jobs directly and another 2.1 million jobs indirectly. The 4.2 million jobs directly created would be disproportionately manufacturing jobs, which continue to be a source of relatively high-wage employment for the 70 percent of the workforce that lacks a college degree.

The trade deficit gets remarkably little attention in today’s discussion about economic recovery, even among those who recognize its size. Many assume that the United States has a long history of running large trade deficits, but that’s not the case. The trade deficit actually had been relatively small through most of the 1990s. This changed following the East Asian financial crisis. Countries throughout the developing world deliberately depressed their currencies against the dollar to accumulate foreign reserves causing our trade deficit to soar.

The value of the dollar relative to foreign currencies is a major factor influencing the trade deficit. The challenge to returning the trade balance to its pre-1997 level in line with the dollar is that losses in some of the industries might not be recovered when the dollar falls back to its earlier level. Manufacturing operations have become more sophisticated and critical supply networks have developed in emerging economies. In many cases, the dollar would have to fall well below its original value in order for manufacturers to find it profitable to bring back or expand production in the United States, a fact that shows the permanent cost of enduring a prolonged period in which the dollar is overvalued. Taking immediate steps to lower the value of the dollar is essential to making the United States a competitive location for producers and bringing the trade deficit down.

The most likely way that the value of the dollar will fall is by negotiating agreements with the countries that have deliberately propped up the dollar against their own currencies. But, while a lower-valued dollar is important to workers and many domestic businesses, it’s not going to be popular with certain powerful interest groups that benefit, directly or indirectly, from an overvalued dollar. In other words, a major obstacle to lowering the value of the dollar is political.

It’s time that policy makers and political leaders consider the long-term benefits of reducing our trade deficit and creating a resurgence of manufacturing jobs – a move that will not only help return the country to full employment and close the gap in income inequality but also promote the global competitiveness of American workers.

Susan Houseman is Senior Economist at the W.E. Upjohn Institute for Employment Research.

Dean Baker is Co-Founder of the Center for Economic and Policy Research. Both are participating in the Center on Budget and Policy Priorities national dialogue on full employment, to take place April 2 at the National Press Club in Washington, D.C.

May 30, 2016
Ron Jacobs
The State of the Left: Many Movements, Too Many Goals?
James Abourezk
The Intricacies of Language
Porfirio Quintano
Hillary, Honduras, and My Late Friend Berta
Patrick Cockburn
Airstrikes on ISIS are Reducing Their Cities to Ruins
Uri Avnery
The Center Doesn’t Hold
Rodrigue Tremblay
Barack Obama’s Legacy: What happened?
Matt Peppe
Just the Facts: The Speech Obama Should Have Given at Hiroshima
Deborah James
Trade Pacts and Deregulation: Latest Leaks Reveal Core Problem with TISA
Michael Donnelly
Still Wavy after All These Years: Flower Geezer Turns 80
Ralph Nader
The Funny Business of Farm Credit
Paul Craig Roberts
Memorial Day and the Glorification of Past Wars
Colin Todhunter
From Albrecht to Monsanto: A System Not Run for the Public Good Can Never Serve the Public Good
Rivera Sun
White Rose Begins Leaflet Campaigns June 1942
Tom H. Hastings
Field Report from the Dick Cheney Hunting Instruction Manual
Weekend Edition
May 27, 2016
Friday - Sunday
John Pilger
Silencing America as It Prepares for War
Rob Urie
By the Numbers: Hillary Clinton and Donald Trump are Fringe Candidates
Paul Street
Feel the Hate
Daniel Raventós - Julie Wark
Basic Income Gathers Steam Across Europe
Andrew Levine
Hillary’s Gun Gambit
Jeffrey St. Clair
Hand Jobs: Heidegger, Hitler and Trump
S. Brian Willson
Remembering All the Deaths From All of Our Wars
Dave Lindorff
With Clinton’s Nixonian Email Scandal Deepening, Sanders Must Demand Answers
Pete Dolack
Millions for the Boss, Cuts for You!
Gunnar Westberg
Close Calls: We Were Much Closer to Nuclear Annihilation Than We Ever Knew
Peter Lee
To Hell and Back: Hiroshima and Nagasaki
Karl Grossman
Long Island as a Nuclear Park
Binoy Kampmark
Sweden’s Assange Problem: The District Court Ruling
Robert Fisk
Why the US Dropped Its Demand That Assad Must Go
Martha Rosenberg – Ronnie Cummins
Bayer and Monsanto: a Marriage Made in Hell
Brian Cloughley
Pivoting to War
Stavros Mavroudeas
Blatant Hypocrisy: the Latest Late-Night Bailout of Greece
Arun Gupta
A War of All Against All
Dan Kovalik
NPR, Yemen & the Downplaying of U.S. War Crimes
Randy Blazak
Thugs, Bullies, and Donald J. Trump: The Perils of Wounded Masculinity
Murray Dobbin
Are We Witnessing the Beginning of the End of Globalization?
Daniel Falcone
Urban Injustice: How Ghettos Happen, an Interview with David Hilfiker
Gloria Jimenez
In Honduras, USAID Was in Bed with Berta Cáceres’ Accused Killers
Kent Paterson
The Old Braceros Fight On
Lawrence Reichard
The Seemingly Endless Indignities of Air Travel: Report from the Losing Side of Class Warfare
Peter Berllios
Bernie and Utopia
Stan Cox – Paul Cox
Indonesia’s Unnatural Mud Disaster Turns Ten
Linda Pentz Gunter
Obama in Hiroshima: Time to Say “Sorry” and “Ban the Bomb”
George Souvlis
How the West Came to Rule: an Interview with Alexander Anievas
Julian Vigo
The Government and Your i-Phone: the Latest Threat to Privacy
Stratos Ramoglou
Why the Greek Economic Crisis Won’t be Ending Anytime Soon
FacebookTwitterGoogle+RedditEmail