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Economy & Business Environment Blog

May
12
2017

Growth in American manufacturing jobs? It’s happening in Michigan

Authored by Gad Levanon and Diane Lim.

 

Today’s jobs report reinforces the slow yet steady recovery of the auto industry. Since 2009 when auto manufacturing jobs bottomed out at just over 600,000 jobs, the sector has seen steady improvement: back above 900,000 jobs for the past two years and at 946,300 in April, according to today’s report.

Still, U.S. manufacturing and auto manufacturing jobs have yet to reach their pre-recession levels. And as we’ve said in our Hill column before, the recession by no means can serve as the scapegoat for the challenges facing the manufacturing industry.

But for a happy story about manufacturing, look no further than Michigan.

Yet despite its heavy reliance on the tumultuous auto industry, employment in Michigan has recovered better than in the country as a whole. From 2009 to 2016, total jobs there grew by 12 percent compared to 10 percent nationally. They achieved those gains despite their total population growing much more slowly than the country as a whole. And in the overall manufacturing sector, job growth has skyrocketed in Michigan, rising by nearly 32 percent compared with just over 4 percent nationally.

In fact, from 2009 to 2016, manufacturing boasted almost one of every three new Michigan jobs. Some of that (nearly one out of every eight new Michigan jobs) occurred within the auto industry — it turns out mostly in auto parts manufacturing than in the assembly of the cars. Not a surprise given the high technological sophistication of automotive instrumentation these days.

But even more of a surprise, most of the recovery in Michigan manufacturing took place in manufacturing outside of transportation. Michigan’s share of non-transportation manufacturing is now much higher than it was at anytime in the past 26 years.

While all manufacturing jobs accounted for about 32 percent of the total jobs growth in Michigan from 2009 to 2016, non-transportation manufacturing jobs alone added 18.5 percent. Nationally, all manufacturing jobs have accounted for less than 4 percent of total new jobs over the same period.

As a result of the employment recovery in Michigan, the unemployment rate dropped to 5 percent in 2016 — the lowest rate since 2000, and one of the lowest ever.

So what accounts for the Michigan miracle?

One potential explanation: in the years following the Great Recession, Michigan had an unusually large number of available workers with particularly high skills and experience in manufacturing. That uniquely talented workforce, well versed in adapting to the latest technological advances, may have encouraged some businesses to employ a larger share of their workers in Michigan. And many of the skills and experiences that people acquire working in the auto industry can transfer to other forms of manufacturing.

The high-skilled nature of manufacturing jobs in Michigan also makes them less likely candidates for automation or offshoring. Neither a machine nor cheaper foreign labor can adequately substitute for the talent of a Michigan worker.

But at the currently low unemployment rate and tightening labor market, and with trends for the working-age population in Michigan looking rather bleak, Michigan’s supply of human talent may be bumping up against a natural limit — suggesting that Michigan’s attractiveness to manufacturing employers may soon diminish.

To sustain the manufacturing recovery in Michigan, public and private sector leaders alike will need to better encourage younger Michiganders to stay and work in Michigan manufacturing (like their parents did), and attract people from other states and countries to reside there.

This piece was originally featured in “The Hill.”

May
12
2017

Our unemployment rate is great, so why aren’t wages rising faster?

Authored by Gad Levanon and Brian Schaitkin.

Five years ago, an unemployment rate of 4.4 percent — which the latest jobs report shows — would have been unthinkable. The impact of the tighter labor market is noticeable in larger recruiting difficulties and higher quit rates, but so far low unemployment has not been sufficient to deliver the types of wage increases workers crave. Nominal wage growth has remained stubbornly below 3 percent. Adjusting for inflation, real wage growth remains below 1 percent. In fact, the last time workers truly had leverage to enjoy an extended period of real wage growth was during the halcyon days of the dot-com boom.

So what factors are preventing workers from securing wages in an environment that should be favorable to them?

First, worker sentiment indicators suggest that the labor market is as tight as it was at the end of the last expansion, but not tight enough to force more robust wage growth just yet. The “labor market differential” is a valuable measure derived from two questions in the Conference Board’s Consumer Confidence Survey. It is calculated as the difference between the share of respondents who believe jobs are plentiful and those who believe jobs are hard to get. This measure currently sits at a slightly higher level than right before the Great Recession, though still far below record high levels reached in 2000. Should the measure improve further, payrolls may well rise.

Moreover, measures of productivity and inflation also serve as key drivers of wage growth. Since 2005, average productivity growth (the amount produced by a worker per hour) has been considerably slower than during the period between 1997 to 2004. Slower productivity growth means firms are receiving lower returns per worker and therefore are unwilling to pay higher wages. A low inflation environment in recent years has also reduced the need of employers to compensate for increases in the cost of living, which contributed to lower wage growth.

The structure of the labor market has changed dramatically since 2000. More Americans work in these service sector jobs, which also lend themselves to more flexibility for employers in determining business location and tapping into many different pools of workers. With lower union membership rates, service-providing industries can utilize alternative work arrangements more. For example, the rise of contract labor has allowed firms to hire janitors, security guards, and other workers in non-core functions at lower costs. Also, the changing age composition of the labor force has held down wage gains as a large number of experienced and well-paid older workers are retiring.

Finally, it is important to remember that wage growth lags behind a tighter labor market, so the best of times for workers may well lie ahead. Unemployment fell below 5 percent in the middle of 2005, but it was only in the middle of 2007 that real wage growth moved above 1.0 percent. By this standard, faster wage growth could arrive at the end of this year or at the beginning of 2018.

The Atlanta Federal Reserve tracks wages of those who have remained employed for the past 12 months and that measure shows that wages started growing at a more rapid clip almost two years ago. Some of the workers rejoining the ranks of the employed now have spent years away from the labor market and therefore command lower wages, bringing down the overall average. With fewer workers left on the sideline though, employers will have increased difficulty filling vacancies. A seller’s market could well be on the horizon for workers soon, and with that a long sought after raise.

This piece originally appeared in “The Hill.”

May
03
2017

America’s Foodies are Powering the Economy with Manufacturing Jobs

Authored by Gad Levanon and Diane Lim.

In a column last month, one of us detailed the long-term decline in manufacturing jobs. But it turns out that the somewhat gloomy story by no means pervades the whole manufacturing sector. On the upside, in April’s jobs report, it serves as a reminder of America’s impressive ability to make and manufacture food.

While overall manufacturing employment has been on a fairly constant upswing since 2010, it still remains more than 1.5 million jobs below its pre-recession level from 10 years ago. Although food manufacturing jobs, now at 1.6 million, comprise just 13 percent of total manufacturing jobs, food manufacturing has contributed more than all of the net new manufacturing jobs over the past year, as the rest of manufacturing has lost 3,000 jobs. And unlike the rest of manufacturing which has failed to get back to pre-recession employment levels, there are now over 100,000 more food manufacturing jobs than before the recession.

So why has food employment done so well?

One reason: despite food manufacturing being a “goods-producing” industry, the American consumer increasingly views food as more of an “experience” and less of just a “thing.” The growing preference for “food experiences” means higher demand for food and, ultimately, more jobs producing food.  Start with the simple fact that food consumed away at restaurants now surpasses food consumed at home. Consider all the labor that goes into satisfying, for example, the young urban couple who now wants a distinctive presentation of the food — and to boot, a backstory of the ingredients in the food. Look no further than the rise of the “foodie” — a term that would leave most scratching their heads even a decade ago.

Second, demand for food is by necessity a constant, no matter our economic circumstances. It is not adversely affected by an economic downturn in the way purchases of durable or luxury goods — houses, cars, household appliances, even clothing — are. We have to eat, no matter where we eat, at home or at a restaurant. When incomes decline, we might tighten our food budgets by eating out less and substituting store-branded grocery items for national ones, but we cannot eliminate our food purchases.

Third, in contrast to some other things our country makes, the U.S. still has a “comparative advantage” in producing food. In the simplest of terms, America does food well. Among the reasons, the food “supply chain” journey still remains largely within our borders. This matters due to the perishable nature of food. Overall, the country has the benefit of close proximity between production, at food manufacturing facilities, and consumption, at grocery stores and restaurants.

And that supply-chain journey that food takes from farm to table has a dizzying array of steps in the process. As a Committee for Economic Development of The Conference Board report points out, the process involves and employs millions of people in a huge diversity of roles. By no means is it just workers in the food manufacturing industry, but people who work on the service side of food. For example, employment at food and beverage stores now far exceeds pre-recession levels, up more than 250,000 jobs over the past 10 years.

Apparently, we Americans especially enjoy our carbs and sweets, as employment in retail bakeries (think gourmet cupcakes) has increased by more than 25 percent in 10 years. And our growing preference to eat out shows in the employment numbers for restaurants and bars, now far above pre-recession levels by about 2 million jobs.

Even as our economy shifts from making things to providing experiences, the American “foodie” turns out to be a manufacturing and job creating powerhouse. So with today being Friday, let’s dine and drink to that!

Mar
30
2017

Emerging Markets in 2017: Trends to Watch

Trends Across Emerging Markets: Three To Watch In 2017

Emerging market economies pack a serious economic punch, but will they fire on all cylinders in 2017?

At my research organization, The Conference Board, we project emerging markets to grow at a dismal 3.6% in 2017. Just above half the long-term average growth rate they achieved since 2000. With these economies collectively comprising 55% of the world’s GDP in 2016, how they perform will go a long way in setting the pace at which the global economy grows. Several factors could alter the growth path of emerging markets in 2017 and beyond. Without question, the following three warrant serious attention.

Interest Rates
A hike in the Federal Reserve interest rate will strengthen the US dollar. But as a result, the depreciation in emerging market currencies will make their imports more expensive. Not only will this effect inflation, it also will hamper their ability to produce and export goods, production of which requires imported intermediate goods/raw materials. According to OECD the import content of export – the amount of imported raw material used in the production of exported goods and services – in the seven large emerging economies (i.e. the BRIC plus Indonesia, Mexico and Turkey) spanned from 10 to 30% in 2011.

The rate hike, and the resulting increase in the return over investment in the U.S., will also lead to a return of capital from emerging markets back to the U.S. The lower foreign investment could affect economic growth in countries that rely significantly on foreign investment.

The increasing value of the dollar will affect commodity exporting countries.

If commodities are traded in US dollars, the real revenue earned by these countries will be lower, thus disturbing their balance of payments and ultimately their growth

II. Trade Tumbles

Since the 2000s, a major factor energizing emerging economies has been their integration into the global economy. For them, the door to trade opened wide and fast. Emerging market trade now constitutes more than half of global trade. Nevertheless, global trade growth has nosedived in recent years, particularly after 2011.

Recent research also suggests global import intensity in the post-2000 years was driven strongly by international production fragmentation, which has stalled since 2011. This might reflect the increasing ability of countries to produce upstream products for domestic use or increases in trade restrictions. As such, the growth of trade looks unlikely to increase in the year ahead. Upcoming potential trade restrictions by the U.S will only further slowdown momentum.

Also contributing to the reduction in growth of global trade volume is falling commodity prices.

It constrains the ability of commodity exporting countries to import from economies like China. Within China, the change in the structure of production and consumption favoring less trade-intensive services has reduced its import intensity. Thus, the overall reduction in the import intensity within emerging market economies also has contributed to the trade slowdown.

Lastly, advanced economies face a looming and serious labor shortage problem, which might increase pressure for more automation and digitization of production processes. There is evidence that low-wage jobs are and will remain vulnerable to technological substitution. Given the increasing wage pressure in emerging economies, this might then reduce the off-shoring of low and middle-skill jobs. This would be a secondary effect, and hence will likely hamper future trade growth.

III. Productivity Putters

Labor productivity growth drove the remarkable growth surge in emerging market economies. Yet, most emerging market economies still lag on that front and thus have significant potential to catch up; their relative productivity pales compared to advanced economies.

For instance, today’s labor productivity levels in China and India, respectively, clock in at 1/5th and 1/7th of the United States’. Moreover, these economies have experienced declines in labor productivity growth in recent years. When you consider the likely decline in trade, which I detailed in trend #2, continuation of weak productivity growth looks more and more likely.

For some emerging markets, the chance to catch up in productivity moves farther out of reach by the day.

Consider China. The country is shifting away from an investment-manufacturing-export dependence model to more domestic consumption of goods and e-services. This transition looks all but certain to slow down the brakes.

But in places like China, a return to investment-led growth in productivity is unlikely to push up productivity. To energize and sustain productivity growth, emerging market must look to equipping their populations with new and necessary skills. Many of these economies face severe skill challenges; even more worrying, they continue leaving these challenges on the back burner.

If some emerging markets fail to regain robust productivity growth, they will likely fall into the ‘middle income trap’ phenomenon that has impacted several fast growing Asian economies.

The Bottom Line

The current global environment is not conducive for higher growth in emerging market economies. In the wake of declining global trade, eroding productivity potential, and the foreign investment possibly moving elsewhere, what can help change course? The enactment of policies strengthening domestic demand and easing supply-side bottlenecks would go a long way. Yet that remains a huge challenge.

This piece originally appeared in “Emerging Market Views.”

Mar
30
2017

3 Things the Jobs Report Doesn’t Tell Us About the US Economy

This blog is authored by Gad Levanon and Diane Lim.

Like every U.S. jobs report, this morning’s report gave an incomplete snapshot of the labor market’s current condition and trajectory.

Make no mistake-the Bureau of Labor Statistics (BLS) report remains the gold standard in terms of being the highest quality, most reliable labor market data out there.

But here are three reasons why this monthly report fails to provide a high-resolution view of the labor market-a view that we economists need to better understand what’s going on.

It doesn’t fully capture unconventional jobs like Uber.

The survey questions fail to fully capture the rising trend of non-standard job arrangements. For example, jobs associated with mobile platforms, like Uber, along with the broader population of the self-employed, including temps and contractors.

These types of work arrangements are not always viewed or counted as employment by either the “worker” or “business” surveys that feed into the BLS report. From the worker’s perspective, a part-time (and often sporadic) activity, even if paid, can be considered more of a hobby or side gig than a “job.”

From the business’s perspective, hiring a “consultant” for specific services is not the same as bringing more employees onto the company payroll. So when the surveys ask workers about their employment situation and ask businesses to “count jobs,” these non-standard work arrangements typically fall under the survey’s radar, and thus don’t get captured in the employment report.

It describes the employment conditions of groups, not individuals.

The report aggregates businesses into industry categories and workers into large demographic categories. Any particular group might show close to zero change in the number of jobs or employment status. For example, in today’s jobs report the manufacturing industry shows a gain of only around 5,000 jobs out of 12.3 million, and the demographic categories of adult men, whites, and those with college degrees each show no change in unemployment rates.

Yet if we could look more closely across different parts of the country, different companies within an industry, and even different occupations within a company, we would likely see plenty of job churning. (In the manufacturing industry, for example, around 275,000 jobs are gained or lost in any month.) And we would likely see changes in the composition of jobs across the narrower categories within the broader ones. Those more micro-level movements would give us much better clues about where the overall labor market and economy as a whole is headed.

It says “a job is a job” rather than identifying “whose” job it is.

Finally, the two separate surveys that feed into the employment report make it difficult to figure out how employment arrangements are distributed across real people. The establishment survey counts jobs as reported by businesses, while the household survey measures employment and unemployment as reported by individuals.

One person can hold multiple jobs, but a job is a job in the establishment survey. Each job in the establishment job count cannot be linked to specific people in the employment status household survey. A person employed in three part-time jobs can be counted as one “full-time” employed person in the household survey (holding multiple jobs), and three jobs in the establishment survey. So more jobs counted from the business side does not always mean “more employment” from the household (real people) perspective.

The monthly employment report falls short in providing the microscopic, high-resolution view of the labor market that economists yearn for. That’s why BLS does so much more, and collects so much more data, than what goes into the monthly employment report-a prime example being their survey of contingent and alternative employment arrangements. They last fielded this survey a dozen years ago in 2005, but have scheduled the next one to be fielded this spring, with the results set to come out in late 2017 or early 2018.

These kinds of supplemental surveys that collect more granular, micro-level information on employment status are essential for economists to have a better understanding of today’s uncertain and ever-changing economic conditions.

This piece originally appeared in “The Hill.”

Mar
30
2017

How The G-20 Leaves Emerging Markets In Limbo

Trade Sentiment Lingers, Emerging Markets Face Headwinds

There is little doubt that anti-trade sentiments are clouding the future of the global economy.

For proof, look at the March G20 meeting in Frankfurt, Germany, which made headlines for excluding anti-protectionism language in its joint declaration. This clearly  broke the G20’s tradition of giving a thumbs-up to trade. If public officials backpedal on their commitment to open trade, they will jeopardize prosperity worldwide, especially in emerging markets.

Three things may happen if the anti-trade train continues to gather steam. Every one of them will surely keep business leaders up at night—and not for celebration.

Rising Volatility

While emerging markets are usually volatile, they have enjoyed high growth as global growth and trade expanded. Now, the pro-trade and pro-growth environment that brought sustainable global growth could be giving way to one that is considerably more uncertain as a number of mature economies turn their attention inward. Most emerging market economies depend on demand from these mature economies, so they are especially vulnerable to rising trade protectionism.

Forecasts suggest that 2017 global economic growth could inch up to 2.9 percent – up from 2.6 percent in 2016 and slightly better than earlier projections on the back of better performance from energy-producing emerging economies and some momentum in the US, Europe, and Japan. But uncertainties—including those on the trade front—continue to weigh down growth prospects for emerging economies, especially India, Mexico, Turkey, and Saudi Arabia.

On the upside, the US, Europe, and Japan are experiencing stronger internal growth dynamics. Still, this slight boost—even if it fully materializes—will lack the economic punch to ignite emerging markets.

Trade Markets Reshuffled

The evident lack of consensus from the G20’s March meeting on commitment to free trade puts trade-boosting agreements at risk. In particular, there’s America’s marked shift in its trade stance—namely, the death of the Transpacific Partnership (TPP). To make matters worse, little prospect exists for progress on the Transatlantic Trade and Investment Partnership between Europe and the US. While the Comprehensive Economic and Trade Agreement between the European Union and Canada passed, if barely, the future of the North American Free Trade Agreement (NAFTA) moved further into uncertain territory.

How can a reversal of trade fortunes affect emerging economies? Consider Mexico. The US market accounted for more than 80 percent of Mexico’s 2015 exports, according to the World Trade Organization. While that number overstates Mexico’s reliance on the US economy (by also including US imports that are re-exported), Mexico’s reliance on the global economy nonetheless remains intense. Recent Conference Board research using the World Input-Output Database reveals Mexico’s dependence on the global economy has significantly increased in the past two decades. In fact, global demand currently helps to generate close to 20 percent of Mexico’s GDP, a major chunk of it being from the United States.

As the larger trade partner within NAFTA, the share of US demand in Mexico’s GDP that results from demand from abroad is large—about 70 percent on average during the past 15 years. The opposite is not true. Mexico’s economy will suffer both from US trade protectionism and, indirectly, from US-engendered global trade protectionism.

Productivity Puts On The Brakes

Over the next decade, the world economy looks all but certain to putter along. The aging workforce and slowing productivity growth represent structural trends that are nearly impossible to change in the near term. The world economy will find it hard to reach and maintain 3 percent growth. While emerging markets will continue to contribute the lion’s share of global growth, they are not immune to the major trends slowing global growth. Examples are China’s aging workforce and Latin America’s slowing productivity, notably in Brazil.

Emerging markets will grow on average 3.6 percent per year in the next decade, down from 4.1 percent in 2012-2015. For the medium term there are no signs yet that policy changes will alter the trend. On the contrary, signals from the G20 finance ministers’ meeting suggest the opposite.

If the global free-trade agenda gives way to greater protectionism, the repercussions could put emerging economies in limbo. Also, the potential positive effects of trade on productivity and competitiveness recede farther out of reach.

Looking ahead, the outcome of several elections in Europe this year will affect how far anti-trade sentiment will advance. The next G20 summit will take place in July, and it remains to be seen whether this twelfth meeting of G20 leaders will provide more hope for emerging markets instead of more gloom. To a large extent, their prosperity—and that of the entire global economy —depends on it.

This piece originally appeared in “Emerging Market Views.”

Mar
29
2017

Three Trump Actions That Could Rattle Europe’s Economy

While no longer fashionable in the popular discourse, trade has been a key engine of prosperity. Relations across the Atlantic have been solid and deep but recent recommendations from the White House risk souring that economic friendship.

Admittedly, TTIP has never been really popular on both sides of the Atlantic, and the Trump Administration might well put the nail in the coffin. Today, maintaining the status quo looks like the best case scenario as a result of the following three Trump proposals. If they’re enacted, they look all but certain to keep Europe’s business and policymakers up at night.

1.  The border adjustment tax

While still under consideration, the proposed border adjustment tax calls for goods and services entering America to face a price adjustment. It would resemble a VAT but a crucial difference is that it would apply only to imports. The Trump Administration and others in Washington suggest the idea as a way of collecting revenue to accommodate for the resulting shortfall from steep tax cuts, and to promote a protectionist agenda focused on “Buy American”.

Moving from a production to a destination-based tax system in the world’s leading economy can have gigantic consequences for business worldwide. Even though economic theory suggests that the tax could be entirely offset by an equivalent appreciation of the dollar, it is difficult to imagine that this happens entirely and fast enough to avoid adaptation measures.

The border adjustment tax could force European companies to cut costs to stay competitive and to reorganise their supply chains to source locally to serve the North American market. While there may be some advantages to that, such as being more environmentally friendly, local sourcing faces constraints of various kinds: availability of natural resources as well as capabilities and know-how that goes into the production of goods and services. As a result of the adjustments that the tax would engineer, business in the US and Europe will face higher costs. That will inevitably translate into higher prices for consumers.

2.  TTIP is out; new tariffs may be in

Once upon a time, there were talks to harmonise regulations between America and the EU to strengthen trade and prepare the rules for the 21st century. Now discussions centre on complicating and increasing them. While TTIP remains in a deep freeze, talk of new fines coming out of the Trump White House are alive and well.

If the border adjustment tax does not go through, an increase in tariffs could be the other barrier to trade. One proposal under consideration – as an example – is to slap 100% tariffs on European meats and Vespa scooters. Tariffs would translate into much higher prices for American consumers and higher costs for American companies that use European products as intermediate input. Moreover, they are rarely unilateral: Since the border adjustment tax and ad-hoc tariffs are not compliant with the World Trade Organisation rules, these measures are likely to trigger retaliation.

A trade war would harm Europeans exporters that contribute to a surplus worth €100 billion with the US. This surplus derives from the export of goods divided between 11% of agricultural products and 88% manufacturers in 2016.

3.  Corporate tax wars

It may surprise Europeans that the US corporate income tax rate ranks highest among mature economies, at 35%. To put that in perspective, the Finns pay 20%, the French pay 34%, the Irish pay 13%, and the Italians pay 28%. At the same time, revenue from corporate taxes as a percentage of GDP is among the lowest, because of loops in the tax law and profit shifting.

Corporate taxation (a national competence in the EU) is a delicate issue for Europeans – just consider the irritation from the $13 billion fine the Commission issued to Apple in 2016. Well-paid lawyers have engineered dizzying tax arrangements to take advantage of the lack of harmonisation in Europe and the loopholes created by the existence of a single market without a single taxation.

The risk of new tax competition from the US will likely exacerbate this tension among EU member states that use tax rates to compete amongst each other for business. Not only that: it would blow the new attempt by the European Commission to create a common tax base for large companies that operate in the single market (i.e., firms with a global turnover of over €750 million per year).

As a result, trust in the EU is damaged, fueled by eurosceptics who use the case of taxation to argue that the EU serves the purposes of multinationals better than its citizens. In the midst of this eternal contention, proving that large companies are willing to pay their fair share of taxes is left to individual will and stewardship.

This piece originally appeared in “EurActiv.”

Mar
24
2017

The Real Reasons Behind the Fall in America’s Manufacturing Jobs

This morning’s employment report shows a healthy increase of 235,000 total (nonfarm) jobs last month—pretty much across the board, in all major categories except for retail services. The manufacturing sector alone gained 28,000 jobs—a stronger showing than we’ve seen in a long time.

But we shouldn’t break out the champagne over one month’s worth of manufacturing jobs. Compared with a year ago (February 2016), manufacturing has been essentially flat (up just 7,000 jobs). Looking further back it becomes obvious that manufacturing just has not followed the typical storyline of an industry merely living through and recovering from the Great Recession.

In fact, the saga of manufacturing jobs is not so much about the cyclical recession, but more about more fundamental and longer-term economic trends.

Over the last 10 years, while other sectors have made great strides or at least inched upward, manufacturing has lost over 1.6 million jobs—down from nearly 14 million in February 2007 to 12.4 million in today’s report. Moreover, as a share of total employment, manufacturing jobs comprised just over 10 percent of total nonfarm jobs in February 2007; now, a decade later, they comprise only 8.5 percent.

It doesn’t look likely that once the economy has fully recovered from the recession, that manufacturing will be back to where it was before the recession (in the “old normal”). So what has dealt this more permanent blow to manufacturing?

Believe it or not, it has little if anything to do with public policy. Look to four factors.

First, consumers nowadays increasingly opt for “experiences” rather than “things.” This largely results from the changing demographic composition of American consumers. The rise of retiring, empty-nester Baby Boomers naturally leads to more demand for health care services and tourist destinations. At the other end of the generational spectrum, Millennials can’t live without services like Uber and Netflix; that also means they don’t need their own car or television. A trend away from “things” to “experiences” means jobs in service-providing industries rise (like health care). At the same time, manufacturing jobs in goods-producing industries fall.

Second, there’s automation. With each passing day, companies from a range of sectors use robots to a greater and greater extent. Their capabilities particularly suit them to work alongside or take over the type of work done by manufacturing production workers—tasks that are highly physical, precisely defined, and routinized. And automation will only intensify down the road: a recent McKinsey report determined that about 60 percent of time across all manufacturing jobs is spent performing activities that current technology can automate.

Third, off-shoring production often comes at a cheaper price tag. Locating manufacturing processes in other countries allows companies to leverage the less expensive labor available. Moreover, America’s native-born pipeline of young workers shows no signs of gravitating to the manufacturing sector. Immigrants are not well represented among manufacturing workers either. So we don’t enjoy the benefit of robust supply.

And last but not least, the manufacturing sector as a whole has little worker mobility. During the Great Recession, workers who lost manufacturing jobs disproportionately consisted of middle-aged white men living and working in the Midwest. These workers spent decades at a particular company or in a specific line of manufacturing work. Given their family roots and community ties, they cannot easily move to other parts of the country, where other forms of work (even manufacturing) may be more plentiful.

Mudslinging about which party dealt a blow to manufacturing can make for good politics. But the trends make clear: no public policy could have so much influence as to stop all the fundamental, economic reasons for the industry’s decline. We can’t fight the economic forces driving manufacturing employment, and neither should we try. Such a strategy is inevitably counterproductive. We should focus our public policy efforts on helping those manufacturing workers who got laid off during the Great Recession find a “new normal” – one that maximizes both their desired participation in the labor market and their well-being.

This piece originally appeared in “The Hill.”

Mar
10
2017

This Lost Generation May Finally Buy Pricey Things Now That Their Paychecks are Soaring

https://www.thestreet.com/story/14036395/1/the-solid-jobs-report-could-mean-one-thing-a-lost-generation-may-finally-spend-on-luxuries.html

This piece originally appeared in “The Street.”

Feb
16
2017

Want More Innovation? Up Your Diversity and Inclusion Game

To achieve true digital transformation, organizations need to be open and inclusive to tap knowledge and ideas that reside both internally and externally in other companies and institutions. Partnerships, especially nontraditional ones, and collaboration are the basic elements of successful innovation.

In its report Inclusion + Innovation: Leveraging Diversity of Thought to Generate Business Growth, The Conference Board found that the most innovative companies in its survey—those with a self-reported track record of continual organization-wide innovation—were more than twice as likely to describe their company as highly inclusive as those with sporadic innovation in some business units. The findings also show that consistently innovative companies are significantly more likely than inconsistent innovators to be extremely effective at encouraging external innovation networks.

Exhibit-17

 

This blog post is the fourth of four installments in the series, The Future of Digital Transformation and Innovation. Want more insight into how successful companies are embracing digital transformation? Discover the very latest research and advice from experts and leaders in the new report, Beyond Technology: Building a New Organizational Culture to Succeed in an Era of Digital Transformation.

 

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