The other day, I ran across an article in a prominent business publication [Bloomberg Businessweek] that made the point that bringing back manufacturing jobs to the United States – as President Trump promised – might not be the great thing that Trump and his backers seem to think.
As Bloomberg pointed out, manufacturing has declined to twelve percent of gross domestic product from twenty-six percent some fifty years ago, but total U.S. manufacturing output is actually higher, and the U.S. still accounts for nineteen percent of total global manufacturing, more than Germany’s and Japan’s shares combined, if somewhat behind China’s twenty-five percent. More important, in Bloomberg’s calculus is the point that profit margins of companies actually engaged in physical manufacturing is far lower than in companies such as Apple (with profit margins of 21% on revenues), and which manufactures nothing, but subcontracts out all manufacturing and parts to largely off-shore companies that only make profit margins in the middle single digits [and most of the U.S. suppliers offshore part or all of their contribution]. Yet Apple employs some 80,000 people.
Bloomberg also makes the point that the only way to increase manufacturing jobs in the U.S. is to, in one way or another, raise the price of imported manufactured goods, and that raising the price of imports might well decimate the retail industry, which accounts for 25% of all U.S. jobs and which is already struggling. Yet the bulk of the jobs in the retail sector are among the lowest paid positions, along with food service.
The Bloomberg conclusion is that “Trump should press for an even freer global exchange of goods and services so U.S. corporations can best organize their operations to maximize profits.”
Especially in the retail and service sectors, maximizing profits means minimizing wage costs, relying on part-time employees in order to avoid the higher cost of paying benefits.
The problem with this outlook, as I see it, is that the “high profit” model creates an employment structure where a comparatively small percentage of the workforce is well-paid at creative and professional jobs and where an ever-larger percentage of the middle-class, particularly the formerly modestly well-paid semi-skilled workers, must compete for lower-paid service positions in retail, sales, and other service positions.
What often gets overlooked is that in 1955, U.S. Steel had nearly 270,000 employees, as opposed to 43,000 today. General Motors had 570,000, compared to 200,000 today. Today, the largest employer in the U.S., is Walmart, with something like a million and a half employees in the U.S. Now, high-tech firms pay well, but those high-paying jobs are limited. There’s a reason why the labor force participation of men from 25-54 is the lowest ever — there aren’t enough jobs for which they’re qualified that they want to take. According to Labor Department figures, there are currently some four million unfilled jobs, but there are ten million men in the 25-54 age group who aren’t looking for work, for one reason or another.
But when national growth depends on spending, and the profits go to people who spend a smaller percentage of their income, the high-profit model just might not be the best one for the country as a whole, which doesn’t seem to bother all too many of those who are the beneficiaries of that model.