Steve Rattner, a former private equity mogul and an adviser to the Obama administration, in a Sunday New York Times op-ed piece, warns against the “gauzy” and “breathless” claims of a manufacturing renaissance in the United States, since growth in new manufacturing jobs is considerably slower than in new service jobs, and that the pay is far less “than industrial workers historically received.”
Near the end of the piece, however, Rattner concedes that manufacturing jobs have the highest multiplier effects: that is, they stimulate the creation of more new jobs in service and other sectors than other employment sectors do.
Whether the growth in manufacturing jobs has been slow or not depends on where you start from.
Source: BLS, seasonally adjusted.
American manufacturing employment had been in a nonstop slide since 1998, and far more manufacturing jobs were lost in the pre-crash 2000s than after the crash. The growth in manufacturing since 2009 has been lower than for service jobs, to be sure, but it’s faster now than it was in the boom-time 1990s.
There is good reason to believe the growth will continue for the foreseeable future. As Rattner notes, America’s energy revolution is a big driver of U.S. job growth. The major impact, however, has so far come from servicing the energy industry itself.
Each shale well, for example, requires up to one hundred tons of high-quality steel pipe; fleets of specially adapted trucks and trailers; a small hangar of earthmoving, drilling, and other equipment; specialty chemicals, sands, and ceramics; and some very high-end seismic and other underground imaging gear.
Many of these products are now U.S. specialties. According to the annual Oil & Gas Journal survey, American oil and gas industry investments is expected to be tallied at $348 billion in 2013, equivalent to about 2 percent of GDP, with much of it funded by overseas investors.
The Business of Creating Jobs
The second round of job creation will come from new energy-intensive industries opening in America. The bill for hydrocarbons accounts for about half the cost of producing organic chemicals, so cheap American natural gas has drawn dozens and dozens of new chemical plants to the United States.
But it typically takes four or five years to build a major chemical plant, and it’s hardly been that long since the world woke up to America’s energy advantage. Plant openings should start to impact the job data this year, and will continue to push growth for some years to come.
Recent research also suggests that manufacturing jobs have been artificially repressed by cautious employers coping with the recent economic downturn. During the 1930s, employers’ typical first resort when business collapsed was “job sharing”—reducing hours rather than reducing employees.
From the 1950s to the 1980s, the response shifted to laying off workers proportionately to the lost business, while maintaining average work hours for the retained.
During the recent crash, employers laid off in anticipation of a downturn, preferring to pay overtime in order to downsize the force. Data on hours worked, supported by many anecdotal reports, suggests that, as business has improved, employers are stretching current employees to the limit before increasing their workforces.
Rattner also complains that big-company, entry-level manufacturing jobs pay only about $30,000 a year, a far cry from the old unionized days. But for a high school graduate in today’s America, a $30,000 a year manufacturing job with decent benefits is quite a respectable start, and far better than the no-benefit, split shift, minimum wage service industry jobs that have been plaguing our recovery statistics.
It’s true that as late as the early 1980s, Bethlehem Steel cafeteria workers were paid $20 an hour because they were part of the Steel Workers contract. That was because, from roughly 1913 to the early 1970s, the United States had virtually no manufacturing competition, as its likely competitors regularly blew each other up—with the armaments that we sold them.
Closing the Competitive Gap
American companies and unions grew fat and lazy, and were sitting ducks when Japanese and German companies started competing from overseas in the 1970s. It was a seismic shock, paired with skyrocketing energy costs, and it took decades to recover.
U.S. manufacturing made up a lot of ground in the 1990s—until the country was hit with the all-out, no-holds-barred onslaught from China. Despite these setbacks, American industry is now seeing the steepest job growth in nearly a quarter century.
Even Rattner concedes that no other sector multiplies spinoff jobs like manufacturing. Highly paid service work, like accounting, creates very little supply chain employment. Rattner’s long-time specialty—private equity investing—may have even had a negative job multiplier, since private equity-owned companies were typically in the forefront of outsourcing (read: layoffs).
The Energy Advantage
Each new manufacturing job typically creates 4.6 additional new jobs in supply chain and other related sectors. Chemical industry economists have calculated that within the next four or five years, America’s energy advantage will create 200,000 new manufacturing jobs in energy-intensive industries such as chemicals, steel fertilizer, paper, and aluminum, while generating up to a million additional supply chain and other jobs.
Special circumstances may even increase that impact in the immediate future, because the manufacturing recovery will put extreme pressure on American’s dilapidated infrastructure—airports, inland waterways, harbors, road systems.
We have been investing on average about half the share of GDP to maintain critical infrastructure that European countries do. Industrial companies complaining about decaying infrastructure may make more impact on congressional appropriators than policy wonks have been able to. And those will be expenditures not counted by the standard “multiplier” figures.
America may never go back to the manufacturing mecca it was in the 1950s and 1960s, when we were alone at the top of world industry.
But continued job growth at the same rate as we’ve seen over the past few years, counting multiplier and infrastructure effects, can generate the several million new jobs needed to reconnect high school graduates and disaffected workers of all ages with the high-productivity economy of the future.