Some politicians love to play on popular fears that low-wage foreigners are “stealing” good paying American jobs by way of outsourcing and globalization. The claim is made by all political stripes.
A sound economic analysis of the claim about job losses due to international trade should address two questions: First, is it true that the U.S. has lost jobs due to trade (or other factors)? Second, is this phenomenon good or bad overall for the U.S. and world economies?
On the first point, it can appear as though the U.S. has lost jobs. For example, manufacturing employment in the U.S. has declined by about 2 million from pre-Great Recession levels and is down by over 7 million, or 37 percent, from the all-time high reached in 1979.
So indeed, the U.S. has been losing manufacturing jobs for decades, giving support to the arguments about the link between outsourcing and the so-called de-industrialization of America. But manufacturing is just part of an enormous U.S. economy. What do we observe when we look at employment in the entire economy?
First, we’ll note a painful loss of 8.7 million jobs from peak to trough of the latest recession, a decline rivaled only by the Great Depression of the early 1930s. However, unlike the Great Depression, which took a full decade just to recover its loss of 10 million jobs, the latest recovery gained back the 8.7 million jobs in less than seven years and has to date now added a net 5 million new jobs.
Payroll employment in the United States now stands at an all-time high of 143 million. Pundits and economists may argue that the rate of job growth has been weaker recently than prior economic recoveries, and perhaps that’s the case. I’m certainly not here to argue that we live in the best of all possible worlds; I’m simply pointing out that there has by no means been a net reduction in employment in America, notwithstanding the big drop off in the manufacturing sector nor the massive recession we endured in 2008-09.
The good news gets better, though: not only have we gained jobs on net, but jobs have grown faster than the population over time. Since the 1979 peak in manufacturing employment, the U.S. adult population grew by 53 percent, whereas employment grew by 59 percent.
So, broadly speaking, there are plenty of jobs out there to go around. Some will contend that we’ve replaced “good” manufacturing jobs with lousy service sector jobs. Indeed the service sector, broadly defined, has seen employment growth of 90 percent since our 1979 benchmark.
But beware making hasty earnings assumptions about a sector that employs nearly 124 million people. To see whether the newly created service-sector jobs really don’t pay as well as the vaunted manufacturing jobs, we need to drill down into the employment and earnings data. What we’ll find is that a large majority of the new service-sector jobs pay just as well or much better than manufacturing jobs.
Of the net new jobs, fully 62 percent of them feature, as of January 2016, average hourly earnings equal to or greater than current average hourly manufacturing earnings. So we lost 7 million good jobs only to gain about 32 million equal or better-paying jobs along with about 19 million lower-paying jobs.
We’ve established that, despite a major decrease in employment in the manufacturing sector, we’ve gained many more jobs than we’ve lost in the past 35 years or so, and that most of these new jobs pay better to boot. Economic changes, while painful in the short run, have brought gains in output and employment not only for the U.S. but also for the rest of the world as well. Overall, this is good news for the U.S. and world economies.
Some might argue that “we don’t make things here anymore” and we should lament this. This is patently false. We don’t make certain things, such as garments, toys or electronics, because global free trade and technological advances tend to shift America’s output into those industries in which our comparative advantage is greatest. But Americans do indeed make things, quite valuable things.
The U.S. Industrial Production Index shows that U.S. manufacturing has slowly bounced back and is now producing more products, in value-added terms, than ever before.
From an economic perspective, nothing could be better news. U.S. manufacturing creates 100 percent more value with 37 percent fewer workers. The broader point still stands: the U.S. economy is both more productive and has more job opportunities than ever before.
As the campaign season heats up, let’s not be misled by baseless arguments about America “losing” jobs or other countries “beating” us at trade.