The problem with the return of manufacturing

By Felix Salmon
November 30, 2012
Charles Fishman has an upbeat cover story in the new Atlantic, talking about how manufacturing is making its way back from China to America.

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Charles Fishman has an upbeat cover story in the new Atlantic, talking about how manufacturing is making its way back from China to America. As the world demands an ever-more nimble manufacturing sector, able to produce smaller quantities of goods more quickly, it makes sense to make those goods here rather than be forced to spend a month shipping them over from China, especially with shipping costs rising. On top of that, Chinese manufacturing costs are rising too: inputs from labor to natural gas are getting much more expensive. (Natural gas costs four times as much in China as in the U.S., while James Fallows reports that a typical Foxconn salary is now $400 a month, three times what it was six years ago.)

Fishman’s enthusiasm for bringing the designers closer to the means of production — it really does make for much more efficient assembly lines — means that he papers over the reality of what America’s new manufacturing-sector workers are being paid:

Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.

There’s a huge difference between $13.50 per hour and $21 per hour: the latter is something you can actually live on, something you can consider to be a career. The former is not. And that’s a problem, as Adam Davidson explains: the reason that people aren’t going to college to learn the skills needed on a modern manufacturing assembly line is simply that those skills aren’t valued highly enough. Even McDonald’s, where there were noisy strikes today, looks attractive in comparison:

Isbister doesn’t abide by strict work rules and $30-an-hour salaries. At GenMet, the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour.

What we’re seeing here is the same thing that Seth Ackerman saw at Hostess: wages that are so low, the workers prefer to give up the work entirely, and take a better-paying job elsewhere.

In a piece for Salon, Jake Blumgart quoted a bakery worker who had been at the company for 14 years. “In 2005, before concessions I made $48,000, last year I made $34,000…. I would make $25,000 in five years if I took their offer. It will be hard to replace the job I had, but it will be easy to replace the job they were trying to give me.”

What we have here is a situation where a company offered a wage in the marketplace and couldn’t get any workers to accept it. Consequently, it went out of business. The word “competitive” gets thrown around a lot, often with the murkiest of meanings, but in this case there can be no doubt at all that a company, Hostess, was unable to pay a competitive wage. Ninety-two percent of its workers voted to walk out on their jobs rather than accept its wage, and they stayed out even after they were told it was the company’s final offer.

All of which means that there are two enormous problems with the story that manufacturing is returning to the US. That might be true, but (a) it’s not creating many jobs, and (b) the jobs it is creating are not the good jobs which people want to have for many years. Instead, they pay $15ish per hour, which is what teenage babysitters make in New York.

Once upon a time, in the halcyon 1950s and 1960s, a man could have a blue-collar factory job and make enough money to support a whole family. Those days are over now, but they echo still in the dreams of manufacturing returning to the U.S. The idea is that were that to happen, good jobs would magically be created. Where the reality is that manufacturing jobs are not good jobs any more: you’re better off working in retail, whether you’re in the US or in China. And you don’t need to spend unpaid years in college learning technical skills to get a retail job.

So while I’m as excited about the Internet of Things as the next guy, and I love any economy where ideas can become products with unprecedented ease, I don’t think that this is a particularly good solution to the unemployment problem. It’s better than nothing, of course. But I do get worried when The Atlantic splashes the word “COMEBACK” all over its cover: that makes this phenomenon seem much happier than in truth it is.

 

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Comments
24 comments so far

Felix do you think the theme of this post squares with the theme of your new favorite quote. “Soon we will stop discriminating based on place of birth”?

Am I being naive if I think Americans are lucky to be earning $13.50/hour while Foxconn workers have tripped their pay to $400/month. While you site 13.50 as an unlivable wage it looks like between 5 and 6 times what our brothers (who we don’t want to discriminate against) make. A man with your education knows how this plays out… the Yuan rises against the dollar the Foxconn wages continue to rise even in local terms… and so the value of a global commodity, one hour of a mans time, converges…

… so tell us honestly… how do we fat rich lazy westerners fair in that world?

I think we need to get our heads around the idea that $13.50 is to be celebrated… especially if it comes with any level of benefits and a chance for advancement. Dare I suggest that we promote the idea of two adults working together to raise a family? Perhaps you could get past the traditional nature of that ideology by just focusing on the math 13.50/hour X 40 hours X 50 weeks X 2 earners = $54,000… while I bet a number like that would be pretty close to median household income in the richest large nation on earth. Check my digits and let me know what you find!

Posted by y2kurtus | Report as abusive

Manufacturing is never going to be a big employer again. The percentage of Americans working in the sector has been falling since the early 1900s, and now automation and reconfiguration has squeezed out all but the least skilled jobs, the ones that are so unskilled that it isn’t worth buying a robot for them – at least not yet.

The only argument for bringing back manufacturing is that it does generate a lot of value added into one’s economy as manufactured goods still sell for a fair bit more than the materials that go into them – at least for now.

The big challenge is still creating consumers. The US did pretty well in the 19th century with its Marxist land reform, taking land from its owners to create a nation of fairly well off farmers. In the 20th century, it relied on high taxes and growing government spending, taking money from the rich to create a nation of fairly well of workers. It’s not clear what we’ll have to do in the 21st century, except that it’s not likely to be popular with those whose hide it will be carved from.

Posted by Kaleberg | Report as abusive

“the reason that people aren’t going to college to learn the skills needed on a modern manufacturing assembly line is simply that those skills aren’t valued highly enough”

Nobody needs to go to college to learn the skills needed on a modern manufacturing assembly line If that was the case, China wouldn’t be building so much stuff. Very few college graduates work on assembly lines, other than the people managing them.

“There’s a huge difference between $13.50 per hour and $21 per hour: the latter is something you can actually live on, something you can consider to be a career.The former is not.”

That isn’t true for all of America. If you can buy a home for $100,000 (or less in many parts of the middle of the country), you can live on $27K/yr. Not that it’s much of a career.

It’s not fair to compare Hostess with manufacturing companies that must compete with China; Hostess’s competitors are mostly in the U.S., and their labor costs should be compared with their domestic competition.

” All of which means that there are two enormous problems with the story that manufacturing is returning to the US. That might be true, but (a) it’s not creating many jobs, and (b) the jobs it is creating are not the good jobs which people want to have for many years. Instead, they pay $15ish per hour, which is what teenage babysitters make in New York.”

a) might be true, but the shift is just beginning. Give it more time.

b) the jobs can be good, depending on the type of manufacturing. If it’s electronics assembly, the jobs can be good, as the only way US mfrs can compete is if there is a lot of automation, and then the jobs are mostly semi-skilled. If you want more interesting work, you need more training. There’s not much that unskilled, uneducated people here can do that unskilled, uneducated people in other countries can’t do. The only advantage is proximity to customers and lower shipping costs.

However, even if shifting mfg to the US doesn’t create too many direct mfg jobs, it will keep accounting, engineering, and administration jobs here, and those are worth having. They will require education beyond high school, though.

“Once upon a time, in the halcyon 1950s and 1960s, a man could have a blue-collar factory job and make enough money to support a whole family.”

That’s because the industrial capacity of most of the rest of the world was destroyed in WW2. They rebuilt over 20 years, investing in modern efficient factories, while American companies did not maintain investment, and instead resorted to lobbying Congress for trade protection once those foreign investments yielded competitive products. The computer boom of the 80s and the internet of the 90s gave us temporary reprieves, but since we outsourced much of the manufacturing to developing nations to maximize profits at the expense of jobs, the knowledge to design those products left with the jobs, creating the competition that has transformed many former US manufacturers into just marketing companies.

“Where the reality is that manufacturing jobs are not good jobs any more: you’re better off working in retail, whether you’re in the US or in China. And you don’t need to spend unpaid years in college learning technical skills to get a retail job.”

Those jobs aren’t bad jobs, they just don’t pay great, but neither does retail (and it’s not like retail is a career anymore, you don’t add value by working in a chain for 20 years). You don’t need years in college learning skills to get a manufacturing job. And I don’t know if you’ve been to a big store lately, but most of the workers there look bored and unhappy. And expendable at the first downturn in sales. Very few of them want a career in that industry.

The only way to get more jobs here is to create things that other countries don’t know how to do, and then not outsource the production. Good luck with that, we’ve cut investment in education and R&D, and 47% of the nation seems to be against the government spurring the creation of new industries here.

Posted by KenG_CA | Report as abusive

Everytime someone writes about the halcyon days of U.S. manufacturing jobs, I’d like for them to cite or link to some definitive sources about just what that was like.

How many people had these jobs? What was the median lifestyle in terms of purchasing power? How about size of home, number of cars, etc.? What percent of income was spent on food, and how often did this median manufacturing family go out to a restaurant? Did this worker need a high school diploma? (Because in the 1950s and 1960s only about half of adults had one.). What about workplace conditions and safety? (This was before OSHA and the EPA.). In how many ways did that worker stretch money by performing repairs or work that Felix, me, or a lot of the commenters here would pay someone to do for us?

My point being – perhaps it really was better, at least for some. We also, however, have a mix of nostalgia and confusing the purchasing power of a UAW worker from the past 20 years and an average manufacturing worker in the 1950′s. (Or, for that matter, confusing a UAW worker in the ’50s or ’60s with an average manufacturing worker of that era.).

This is admittedly anecdotal, but my father grew up in a household in that era that was supported by his father working in manufacturing. When I hear him talk about what his life was like growing up – or see the house in which he, his siblings, and my grandparents lived – it seems an awful lot like what I think someone could afford on $25k or $30k today, at least in places with modest property values like KenG mentions.

Posted by realist50 | Report as abusive

Once upon a time, in the halcyon 1950s and 1960s, a man could have a blue-collar factory job and make enough money to support a whole family. Those days are over now,

No they’re not. You just have to live at 50s or 60s living standards. Real wages have risen faster than inflation since then so this must in fact be true.

I wouldn’t say that raising a family on $28 k a year would be easy but it’s certainly possible…..if you adopt those 50s or 60s living standards that is. Small house, one car, holidays are with family or the once in a childhood to Disney, very little eating out and no takeaways and so on and so on. Booze is domestic beer…..

Posted by TimWorstall | Report as abusive

y2kurtus:
I think you bring up some very good points.

I would add one other thing is this discussion because we leave out professionals in talking about how much someone can make – how much should a doctor be paid? When medical care can be done over the internet, how many roadblocks should be put up? And aren’t these roadblocks merely cartel protection rackets?
AND Shouldn’t we really be getting all our pontificating from China, where we can have exotic and much, much, much cheaper pontificating????

“Junior doctors at public hospitals in major cities, like Shanghai, earn about 3,000 yuan ($450 US dollars) a month in their first few years, while experienced doctors in their 40s are paid less than 10,000 yuan,” according to the South China Morning Post.

http://english.cri.cn/6909/2011/07/25/27 43s650260.htm

If we want to “stop discriminating on the place of birth” than let’s “stop discriminating on the place of birth” for doctors and ponitificators, as well as blue collar workers. Indeed, I would like to see an increase in my choice of politicians as well – the American ones seem pricey, but low quality…

Posted by fresnodan | Report as abusive

The problem isn’t manufacturing per se, but the type of manufacturing. Germany for instance did not follow the Anglo-Saxon countries into the “productivity can only come from lower wages” self-defeating spiral of decline, but instead increased education and invested in increased technical skills, improved the work ethic (which was already very good) and exported high value items – even to China.

The press too have contributed to the decline by for decades saying cost was more important than value, and that cheapest is always best – and that anything that isn’t the cheapest must be ripping you off. You’ve done that yourself in this column Felix, pushing Vanguard and index funds at the expense of Actively Managed funds.

When you add these two things together, you end up with a self-perpetuating spiral of decline that will only end when the US economy is worth less per head than that of its lowest priced competitor.

Every time you buy a cheap import, you undermine your own living standards – even if it is your company that imports or sells the items due to the weakening effect on the currency of a too high Trade Deficit. That can clearly be seen from the ability of a today worker not being able to support his family when his father or grandfather could – on their own.

Posted by FifthDecade | Report as abusive

“…the reason that people aren’t going to college to learn the skills needed on a modern manufacturing assembly line is…”

College skills are not needed on a modern assembly line. No further analysis needed.

Posted by KevinMc | Report as abusive

FifthDecade, I think the theme of your comment, and most of the points, are valid, except you assign too much credit for Germany’s success to the choices they made as a nation. If they weren’t part of the euro, their currency would be valued so high that their exports would be far less than they are now. How many people would pay $$60 or $70K for a 3 series BMW? Or $35K for a VW? (and yet they still whine about the debtor nations in the EU)

Posted by KenG_CA | Report as abusive

Couple more optimistic thoughts –

1) US manufacturing wages are to a large extent limited by foreign wages and transportation costs. If wages in China, India, et al. are growing at the pace it appears they are – it should allow for significant wage inflation of US manufacturing labor (foreign productivity and transportation costs held constant).

2) Any return of manufacturing will help to offset decline in the collective US manufacturing skill set.

I agree that we are a long way from the 60s USA but with 7.8% unemployment, it’s probably one of our best options for getting people back to work.

Posted by MikeB2012 | Report as abusive

Good points, y2kurtus, but your math is off:

“13.50/hour X 40 hours X 50 weeks X 2 earners = $54,000″

That should be “60 hours” and “52 weeks” if you want the US to catch up to China. And in many cases, “3 earners”.

Posted by TFF17 | Report as abusive

While the rate of change differs to some degree, manufacturing as a percent of GDP has declined fairly steadily since 1970 in basically every developed economy. Same for manufacturing employment as a percent of employment, which makes since as manufacturing productivity has tended to grow faster than service sector productivity. Germany also shows both of these trends.

http://lincicome.blogspot.com/2009/11/is -recovery-strategy-based-on-exports.html

http://ncf.uschamber.com/blog/2012/03/ma nufacturing%E2%80%99s-declining-share-gd p

Posted by realist50 | Report as abusive

The premise of this is almost trivial. Those jobs moved overseas because the economics of hiring domestic workers transitioned from being very profitable, to marginally profitable, to unprofitable. Now that’s happening in reverse – of course they’re low-paying marginal jobs. (That’s what happens at the margin.)

Did you expect high-paying manufacturing jobs to magically reappear overnight? Hopefully the calculus keeps moving in this direction as the rest of the world’s living standards rise. The end-game (assuming there aren’t crazy economies to scale) is each nation has a reasonably-sized manufacturing sector with wages in line with national wages plus a skill premium.

Posted by absinthe | Report as abusive

These are my absolute least favorite types of economic arguments: an argument that we should have a lot of jobs and they should all be high-paying because that is fair and just and all that. Regardless of the real costs involved, a high-paying middle-class job is a right to everyone.

I do think the middle-class has been hit by some very real issues, but a solution won’t be reached by simply whining about jobs paying too low. Employers have to pay what the market wage is to stay in business. Actual solutions involve looking at why the market wage and/or the unemployment is where it is.

Posted by mwwaters | Report as abusive

Spot-on, MWW.

It is possible to create circumstances where manufacturing and middle-class jobs return – just get rid of the foreign competition (and immigrant-labor) that has driven wages (and prices) down to third-world levels. Doing something like that violates the theory of “comparative advantage”, so it may theoretically be ‘bad economics’. That doesn’t necessarily mean it can’t be a net-positive from a sociological point of view.

Posted by MrRFox | Report as abusive

One of the problems with putting forth comparisons between the mid-twentieth century and today’s world is that we are comparing apples and oranges. If we were to upgrade the 1950s family to the life of that family in today’s world, the 1950s family would probably be on public assistance. In 1958, right after the recession, I started working in manufacturing for a blue-chip corporation for $2.10 an hour (that was their starting pay). I had a high school diploma and great technical training (electronics) while in the US Navy – four years). I lived in a three room apartment (with my wife – who did NOT work), sharing a communal bath/toilet with three other apartments. I would receive my paycheck (minus deductions) on Friday and by Monday (after paying rent, buying groceries and other necessities) I was broke again. I had an eight year old car that I had to baby carefully to keep it operable. I got little to no overtime. I worked my butt off, living from paycheck to paycheck. Our luxuries consisted in a six inch BW TV and a radio. In today’s world, I would probably be eligible for public assistance. I enrolled in evening classes in college, taking a minimum of courses (took me 7 years to graduate). During that seven years, my life was pretty much as described above. I was forced to take two weeks of vacation each year during the annual summer factory shutdown (the first year’s “vacation” was unpaid). However, during those same seven years, I continued to put more than 100% into my job and began to get promotions, little by little, until I graduated from college when I was able to jump into a salaried, white-collar position. Even then, we had few luxuries. My wife and I rarely at out and, even then, it would have been at a fast-food joint. We did not go to movies. We did not exchange Christmas presents. We certainly would have been labeled at the poverty level in today’s world. We did not own our own home nor did we even think about incurring a mortgage (we wouldn’t have qualified, anyway). We were NOT considered unusual, however. I had a great life, though. I retired VERY comfortably nine years ago. I live better, overall, in today’s economy, than I did before I retired. On far less than I was making while working, we live better than the average American. We have more than we need and far more than the average household in the US has today. Because, over the years, I prepared for retirement, I am not dependent on Social Security, though without it we would likely have to make some adjustments in our life style. My van, that I keep primarily to have a vehicle capable of carting my two huge dogs around, is fifteen years old (still in pretty good condition). My wife’s “luxury car” is nine years old and it runs and looks almost new. In the 50s and 60s, I made many of the needed maintenance and repairs on my vehicle. Today I cannot, so the cost for repairs on my cars is unbelievably high. Good maintenance I can do myself and good driving habits, keep my cars in better than average condition. How many people, today, own houses (with huge mortgages) that they really shouldn’t try to afford, and trade cars when the old one is more than acceptable? How many people drown themselves and their kids in luxuries they do not need (and grow tired of too quickly)? In the 50s and 60s, most people did not do that. Our lifestyles in the US are way out of whack, given our instant gratification syndrome, with our incomes. Do not get the idea that I am one of those old fogies who is not “up” on technology, etc. I own three computers which we use daily (and not for social networking and games, as many people think we might) and, though I am not a real “techie,” I am computer savvy. Comparing the 50s and 60s with today’s world, using “statistics,” is a game. My grandmother used to say, “Figures don’t lie, but liars sometimes figure.” We Americans, today, squander what we earn. We live higher on the hog than our incomes justify. The “poverty” level of today makes the same assumption and, in the 1950s world, would have been considered acceptable living. Our debt ratio, today, is also way out of whack. In the 50s most families ate dinner at home, together. Dining out was a rarity. Kids tended to wear their clothes longer and we bought what we could actually afford. There were few multiple car homes. One car garages, or none, was the norm. We did not spend a hundred, two hundred a month on telephones and electronic toys. We did not buy a new TV or other entertainment devices every two or three years, just because it is the fashion or to keep up with the Joneses. It is not so much that the cost of things has risen so dramatically over the years in comparison to income as it is HOW we spend our money. In the 50s we spent based on what we earned. Today, we spend based on what we have yet to earn. Lifestyle is the key, not the income/value statistics. Manufacturers/retailers sell what the public will buy at the prices they know the public will pay. You get what you pay for. If the public will not overspend beyond their means, the products will not be made nor sold. As I said, you get what you pay for. People on public assistance live better than many, if not most, of the people in the 50s did. It is our “perception” that we need to change. I am not trying to say that we do not have problems with our economy. What I am saying is that our lifestyle and our instant gratification syndrome are a huge part of the problem. So, quit trying to make it look like the people of 50s were living high on the hog while we are starving today. That is just not true. You are comparing apples with oranges.

Posted by DavetheLogician | Report as abusive

I love reading about manufacturing and wages from some desk jockey. Reporters need to publish things they have researched and have facts on, not give their business and financial opinions on what values american manufacturing needs to assign to what positions…are you kidding me? The over generalized crap about a certain wage not being high enough to be considered a career is ridiculous. You should never try to make an entry level job a career…thats why its called entry level…thats what killed our manufacturing…employers can’t produce a product competitively when they are paying entry level job slots the wage of a higher level position…it drives the cost of the product way up. You can’t pay someone who works at mcdonalds flipping burgers the same as the manager…burgers would be $10.00 apiece. I’m sorry but you can’t expect to work lower level jobs your entire life and expect the wage to keep up with a career. You have to make moves in life to get higher pay…not just work the job and expect it to automatically keep going up. When guys who have been employees their whole lives and never have had to make a business work and succeed but write articles and papers on the subject like they have, is disingenuous. Its not fair to the business owners out there to over simplify the situation like that. Sitting back and making judgements and writing articles with limited hands-on knowledge is irresponsible…

Posted by sidevalve56 | Report as abusive

Some interesting discussion.

Should a middle-skilled job be expected to support a family of four in style? Our middle class expects more than they did in the 50s. Better health care, more restaurant meals, more clothes, faster cars (and at least one per adult), and a whole bunch of electronics with attached service plans. I don’t see many families looking for 1200 sq ft houses, either.

Should an entry-level job be expected to support an independent household? Other countries, other times, adult children live with their parents until marriage. Sometimes even beyond that. We are marrying later, but moving out earlier.

Last but not least, does the marketplace care what a job “should” pay? In a global economy, we are competing with people who have (and expect) much less. Is the cruel reality.

Posted by TFF | Report as abusive

“Natural gas costs four times as much in China…”

And IF we would begin to build out the infrastructure to produce and transport domestic gas TO China (and the rest of the world) we would create millions of HIGH VALUE jobs. But the Obama administration is hung up on the issues of fracking and global warming, so they’re throwing roadblock after roadblock in the way.

Posted by smits | Report as abusive

Perhaps the realization should be the US and all countries are in a world market. With World wide competition at competing wage rates, product quality and logistics. To be competitive in the world markets, a manufacturer needs to either be the world wide low (total) cost producer, have a unique product or manufacturing process or have a clear distribution system advantage.

There are few if any “unique” products for more than a few months, manufacturing process are replaced or re invented all the time and a distribution system advantage will have a very short life. So, we are back to “low cost producer”.

That is the market the US is in and it is the world the holds us captive.

Posted by VisSol | Report as abusive

And just to add to the grim future picture: retail trade employment is going through a similar transformation to manufacturing, just a few years behind the curve.

Brace yourself for the birth of a new set of movements like the Luddites.

Posted by willderwent2010 | Report as abusive

“There’s a huge difference between $13.50 per hour and $21 per hour”

But an even larger one between $0.00 and $13.50 an hour. I know three people that would quickly deal with the ‘bad
pay’ – as it beats… no pay.

Posted by Overcast451 | Report as abusive

Overcast451:
“I know three people WHO would quickly deal with the ‘bad
pay’…”
WHO refers to people; THAT refers to things.

Posted by laurelg | Report as abusive

The dirty little secret you never see referred to is that in unionized US plants workers are actually working only 5 or 6 hours out of 8 (based on 30 years of consulting and exposure to over a thousand plants here and abroad.

Posted by tjthre | Report as abusive
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