Manufacturing Employment Declines: The Canary in the Coal Mine for All Employment…Or Not?

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I recently wrote a blog post detailing how America’s manufacturing output has continued to trend upward while the manufacturing workforce shrinks.  Growing productivity driven by advances in technology has allowed fewer U.S. workers to produce ever greater manufacturing output.

Two recent articles suggest that the trend to lower employment as the result of technology advances is extending beyond manufacturing.

In March of this year the Bureau of Labor Statistics (BLS) published an article entitled “The declining average size of establishments:  evidence and explanations”.  The article cited evidence that the average size of establishments* in the U.S. has been declining since 2000.

The study goes on to report that establishments are starting smaller and staying smaller.  The finding appears to cut across virtually all industries.  The key hypothesis from the BLS analysis relevant to any discussion of the future of employment is this:

We believe that this finding of smaller establishment births is consistent with the hypothesis that new establishments are entering the economy with new modes of production that place a greater emphasis on technology and a lesser emphasis on labor.

The second article appeared in the August 18th issue of the New York Times.  Entitled “Skilled Work, Without the Worker”, the article goes into detail about how robots are replacing human workers at manufacturing sites around the world.  They predict that this trend will continue, and extends beyond manufacturing to the distribution business as well.

According to the author: 

Some jobs are still beyond the reach of automation: construction jobs that require workers to move in unpredictable settings and perform different tasks that are not repetitive; assembly work that requires tactile feedback like placing fiberglass panels inside airplanes, boats or cars; and assembly jobs where only a limited quantity of products are made or where there are many versions of each product, requiring expensive reprogramming of robots.

But that list is growing shorter.”

If these findings accurately predict the future of employment, we’ll have to see more, smaller enterprises being formed if we are to have any hope of achieving anything near full employment.

Of course, the other conclusion one could draw is that as the average output per human worker goes up, this productivity gain could (should?) result in higher wages for the worker, depending upon (a) the level of competition for those workers, (b) the willingness of business owners and managers to practice stakeholder capitalism that recognizes that workers are also customers , and (c) the actions of government to protect workers and workers’ incomes.

It might do well to look to Germany.  According to an Op-Ed piece by Hedrick Smith published in the New York Times on Labor Day:

“In Germany, still a manufacturing and export powerhouse, average hourly pay has risen five times faster since 1985 than in the United States. The secret of Germany’s success, says Klaus Kleinfeld, who ran the German electrical giant Siemens before taking over the American aluminum company Alcoa in 2008, is “the social contract: the willingness of business, labor and political leaders to put aside some of their differences and make agreements in the national interests.”

So, is this dire news for workers, or the dawn of a new age of a more highly paid workforce driving the demand for goods and services to ever higher levels, resulting in a full employment economy?

*The U.S. Census Bureau defines “establishments” and their relationship to “enterprises” as follows:  “An establishment is a single physical location at which business is conducted or where services or industrial operations are performed. An enterprise is a business organization consisting of one or more domestic establishments under common ownership or control. For companies with only one establishment, the enterprise and the establishment are the same. The employment of a multi-establishment enterprise is determined by summing the employment of all associated establishments.”

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