Manufacturing Jobs Won't Save Labor Market Says... US Labor Department?

Reuters published a great analysis last week of the future of the US labor market, and the report's main conclusion shouldn't surprise anyone who's followed this blog for a while: the US manufacturing sector will experience a renaissance of sorts and may even see a near-term uptick in jobs, but longstanding, systemic factors - mainly continuing improvements in productivity - will prevent manufacturing jobs from keying a long-term recovery in the struggling US labor market.  What is surprising, however, is that the latest data come from President Obama's own Department of Labor:

U.S. manufacturers are hiring at the fastest pace in more than a decade to keep up with new orders but sweeping technological advances could cost thousands of factory workers their jobs in years to come.... 

Last year, factories added 237,000 jobs - the most since 1997 - and that burst in hiring is seen stretching into this year as the economy recovers from the 2007-09 recession. 

But a renaissance for industrial employment is unlikely. Over the long term, factory job creation looks destined to stagnate as technology advances, and manufacturers' role in the labor market will likely continue a decades-long decline. 

A Labor Department report published on February 1 projected factory employment will drop to 11.5 million workers by 2020 - down from 11.9 million in January - despite expectations production will increase in coming years....  

Even though the United States remains a pre-eminent manufacturing power, accounting for about a fifth of global factory output, only 9 percent of its workforce is engaged in factory activity, and that percentage is falling. Manufacturers' share of the labor market will likely drop to 7 percent by the end of the decade, according to the government projections, down from nearly a third in the 1950s when unskilled workers played a bigger role....

The Labor Department's new report is available here.  Almost all of the topline conclusions are important, but here are a few of the most telling:

• The health care and social assistance sector is projected to gain the most jobs (5.6 million), followed by professional and business services (3.8 million), and construction (1.8 million).

• About 5.0 million new jobs--25 percent of all new jobs--are expected in the three detailed industries projected to add the most jobs: construction, retail trade, and offices of health practitioners. Seven of the 20 industries gaining the most jobs are in the health care and social assistance sector, and five are in the professional and business services sector.

• The 20 detailed industries projected to lose the largest numbers of jobs are primarily in the manufacturing sector (11 industries) and the federal government (3 industries).

• Of the 22 major occupational groups, employment in healthcare support occupations is expected to grow most rapidly (34.5 percent), followed by personal care and services occupations (26.8 percent), and healthcare practitioners and technical occupations (25.9 percent). However, the office and administrative support occupations group, with projected slower than average growth of 10.3 percent, is expected to add the largest number of new jobs (2.3 million).

• One-third of the projected fastest growing occupations are related to health care, reflecting expected increases in demand as the population ages and the health care and social assistance industry grows.

• Occupations that typically need some type of postsecondary education for entry are projected to grow the fastest during the 2010-20 decade. Occupations classified as needing a master’s degree are projected to grow by 21.7 percent, followed by doctoral or professional degree occupations at 19.9 percent, and associate’s degree occupations at 18.0 percent.

• Of the 30 detailed occupations projected to have the fastest employment growth, 17 typically need some type of postsecondary education for entry into the occupation.

• Two-thirds of the 30 occupations projected to have the largest number of new jobs typically require less than a postsecondary education, no related work experience, and short- or moderate-term on- the-job training.

• Only 3 of the 30 detailed occupations projected to have the largest employment declines are classified as needing postsecondary education for entry.

So what do these numbers tell us?  Well, first and most obviously, manufacturing employment will continue its decades-long decline in the United States, particularly as a share of GDP.  Of course, as I've repeatedly mentioned, the long-term decline is not just an "American" phenomenon - it's happening pretty much everywhere in the world:

And before you ask, yes, it's also happening in China.  For example, Chinese manufacturing giant Foxconn announced recently that it plans to replace 500,000 workers with robots over the next few years.  And it's certainly not alone.

However, the outlook for US manufacturing in every area other than employment is quite good.  Reuters notes that the United States will continue to be a global manufacturing powerhouse, and, interestingly, we have China (in part) to thank for that:

[A]nalysts say much of the recent hiring spurt is just a temporary rebound from the recession, when manufacturing output fell about 20 percent and factories laid off 2 million people. Still, there are factors supporting the sector.... 

After a decade of heightened competition with China, which devastated American industries like clothing makers, the U.S. factories that remain are more high-tech and less likely to be undercut on labor costs. 

Moreover, wages in China are rising much faster than in the United States, reducing the incentive to offshore production, while the recession itself raised pressure on U.S. companies to embrace more cost-saving measures, like automation. 

S & S Hinge Company, for example, has retooled its plant in Bloomingdale, Illinois, since the recession. A pair of computers runs its newest production line, which makes hinges 50 percent faster than older lines. That is helping the firm meet rising orders for parts that go into pickup truck toolboxes while reducing the need for more staff. 

"We've upgraded our factory. We actually put in a new operating system. So it has cut the need for more bodies," said Richard Sade, the company's chief operating officer.

Fascinating stuff.

Second, the Labor Department report shows just how helpful a good education will be for finding and keeping a job in the 21st century American labor market.  Most of the fastest growing job sectors require post-secondary education, while almost none of the shrinking sectors do.  However, all is not lost for less-educated Americans, as the numbers make clear that there will still be plenty of jobs out there for them too (although not in manufacturing, it seems).

And that brings me to the third big takeaway from the DoL report: clearly the most promising sectors for jobs in America are almost all in services, especially health care.  Again, this is not surprising.  Services' share of the US labor force and GDP has been climbing for years now, and it's where the United States is globally dominant.  Reuters again:

As grim as that sounds for many workers, a future with fewer factory jobs isn't necessarily bad for the economy. 

Part of the drive to be more efficient has led factories to outsource more work, contracting services from accounting firms, consultancies and other companies.

Even though the number of workers in U.S. factories today is roughly the same as 70 years ago, jobs in business services, a sector that includes many people working indirectly for manufacturers, have grown eight-fold. The Labor Department expects business services will be one of the top job-creating industries in coming years.

As I noted a couple months ago, the often-maligned services sector has plenty of room for growth and produces tons of high-paying, globally-competitive jobs.

But it's this obvious fact that has me calling the Labor Department report "surprising."  President Obama has spent the last few months touring the US factories and touting a labor market recovery based seemingly on only American manufacturing.  And his budget and tax proposals are all biased in favor of manufacturing (and thus inherently biased against services).  This makes absolutely no sense, as Reuters politely notes:

[The services boom] makes plans by Obama to give manufacturers special treatment - or to penalize them for offshoring jobs - wrongheaded, says Jagdish Bhagwati, an economist at Columbia University.

Obama last week proposed new tax breaks for manufacturers, but many economists view the decline in factory employment as a normal part of the economy's development.

Very normal... and happening here in the United States for a very long time now.  So long that even the US Department of Labor has caught on.

So when it comes to fixing the American jobs market, maybe the President should - and I can't believe I'm about to say this- chat more with the Labor Department and less with his political staff next time.

(Okay, stop laughing.)