Aug. 27, 2014 SIGN IN | REGISTER

Full Employment Requires Job Growth in Manufacturing, Reduction in Trade Deficit | Commentary

Though job growth over the past six months has averaged about 175,000 new jobs per month, economists agree that number isnít where it should be. Full employment, in which nearly everyone willing and able to work has the chance to do so, remains elusive.

Yet, to achieve that goal, few economists see a significant role for manufacturing, which historically has powered job growth during economic recoveries. Although manufacturing has shed 30 percent of its jobs since 2000, output growth at the nationís factories exceeded economic growth overall except during recessions. Many economists have, thus, concluded that American manufacturing is strong and job losses in the sector are largely due to labor-saving technology. Such conventional wisdom also has kept economists from pursuing policies to boost manufacturing jobs.

This view, however, reflects a fundamental misunderstanding about what manufacturing statistics measure and mean. For arcane technical reasons, domestically manufactured computers and semiconductors account for virtually all real output growth in the sector. Output growth at the nationís factories has otherwise been weak since 2000. And though automation undoubtedly has displaced some workers in manufacturing, research suggests that persistent trade deficits and Americaís decline as a location for production have accounted for much of the sectorís job loss.

In addition, partly reflecting the growth of outsourcing, a large share of the workforce directly or indirectly needed to make manufactured goods ó now about half ó works outside of manufacturing. For example, many assembly line workers may be employed by a temporary help agency and maintenance workers may be employed by a contract services firm.

Recognizing that the United States has lost competitiveness as a location for production and that globalization and international trade are largely responsible for the steep loss of manufacturing jobs is an essential first step for fashioning appropriate policy responses.

Addressing the trade deficit is an important starting point. The current 2013 level of $500 billion means that a large amount of demand is directed outside of the United States rather than at home, where it could create jobs.

Boosting exports or reducing imports enough to bring trade into balance would generate 4.2 million jobs directly and another 2.1 million jobs indirectly. The 4.2 million jobs directly created would be disproportionately manufacturing jobs, which remain a source of relatively high-wage employment for the 70 percent of the workforce that lacks a college degree.

The trade deficit gets little attention in todayís discussion about economic growth. Many incorrectly assume that the United States has a long history of running large trade deficits. The trade deficit actually was relatively small through most of the 1990s. Following the East Asian financial crisis, countries throughout the developing world deliberately depressed their currencies against the dollar to accumulate foreign reserves, causing our trade deficit to soar.

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