Sunday, February 19, 2012

More on manufacturing (don't forget the "e")

People, I give you Robert Reich vs. Laura Tyson.

First, here's Tyson arguing that manufacturing jobs should be prioritized:

"...on average manufacturing jobs are high-productivity, high value-added jobs with good pay and benefits. Even though the premium on manufacturing wages has been declining over time, it remains significant. Between 2005 and 2010, average weekly earnings in manufacturing were about 21 percent higher than average weekly private non-agricultural earnings. In 2009, the average manufacturing worker earned $74,447 in annual pay and benefits compared with $63,122 for the average non-manufacturing worker." 

 As I've pointed out pointedly in the past, this is simply logically incorrect. You cannot use averages to represent what is happening on the margin. If the premium is falling, that clearly means that the marginal wage for new jobs is significantly lower than the average pay for all existing jobs. The correct comparison is between wages for new jobs across sectors (marginal analysis), NOT average wages for all jobs across sectors (infra-marginal garbage).

This point is magnificently made by Reich:

Even if we didn’t have to compete with lower-wage workers overseas, we’d still have fewer factory jobs because the old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech. Bringing back American manufacturing isn’t the real challenge, anyway. It’s creating good jobs for the majority of Americans who lack four-year college degrees. Manufacturing used to supply lots of these kind of jobs, but that was only because factory workers were represented by unions powerful enough to get high wages. That’s no longer the case. Even the once-mighty United Auto Workers has been forced to accept pay packages for new hires at the Big Three that provide half what new hires got a decade ago. At $14 an hour, new auto workers earn about the same as most of America’s service-sector workers. 

 Bravo, Roberto!

 Marginal wages in manufacturing are much lower than average wages, and many new jobs are ones that require a high degree of skills/education.

 Reich's solution to create jobs and raise wages for non-college Americans is to re-empower unions! This would certainly raise wages, but would in all likelihood not be a big boon for increasing the number of jobs.

 I think this issue of what to do about living standards of "unskilled" workers in America is going to continue to worsen and the only feasible long run solution is going to be a type of guaranteed basic income policy.

Hey if Herbert Simon, Freddy Hayek, Bob Solow AND Milton Friedman all agree on it, it must be worth considering, right?


Speedmaster said...

Isn't "Haas School of Business at the University of California, Berkeley" an oxymoron? ;-)

smith said...

Hello, A very insightful post. Thanks for the info. Its great that if our default settings are giving us messy or stringy builds, this dialog can probably help.Thanks for the information.
Precision dies