The Loss of Manufacturing Jobs and the Two-Tiered Economy

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This was originally going to be a response to The Stay Puft Marshmallow Man (hereafter "puffy" or "puffalump"), but I thought the topic deserved it's own post. The first post is here.

Puffalump remarked that:

it's like this: Western economies have pretty much outgrown manufacturing. Once upon a time %70 of the population was in agriculture, now it's %2. We used to have big textile factories in the 1800s, then we moved into production of more tech-driven machinery like cars. Now we produce ideas, other countries build the stuff (for example: http://www.microsoft.com/surface/

this is a typical progression of a capitalist economy. Europe, Japan also moved from ag. to text. to manufac. to tech.

as more countries move up the ladder, others move in to fill the gap they leave and along the way, and the world becomes more integrated.

You want a revolution? this is a revolution! China is racing down the trail we helped blaze. What are we going to do about it; step up and move boldly into the uncharted waters of the future, or freak out and try to reverse the flow of history?

He meant that the manufacturing jobs are declining -- our actual manufacturing output is increasing. The problem is that our productivity is outpacing our production, so jobs are lost.


Even though production is up, those lost jobs are a real bite in the @$$ for the workers.

I think that the loss of these jobs is, to a great degree, contributing to the two-tier economic system we are becoming. From 1995 to 2004, the cutoff for the lowest quintile in income increased 25%, but for the highest tenth it went up 30%. For net worth, those numbers are +8% for the lowest quarter and +66% for the top quarter (and +77% for the top tenth).

Much of that can be attributed to education.

The median net worth of a family headed by a college-educated person went up 76% in that period, vs. a 26% DECLINE for those without a high school diploma and a mere 7.5% increase for those with only a high school diploma.

Income showed disparities similar to net worth, but not quite as bad. For those with a college degree, the median income increase 29.7% from 1995 to 2004, but went up only 10.9% for those with a high school diploma, and only 8.4% for those without one.

During that period, the CPI went from 152.4 to 188.9, a 24% increase. So without a college degree, you're lucky to even keep up with inflation. As such, we see the reduction in the net worth of the lowest quintile -- they're spending their savings, and going into debt, to keep up with inflation.

None of this is to say that there is no mobility in our economic system. There is -- perhaps more than in any other country. But upward mobility is becoming more dependent on a college degree, for the very reason that puffalump mentioned -- we are becoming an idea-based workforce.

Some call this is a "service economy." Well, with the productivity increases in our manufacturing sector putting people out of manufacturing jobs, the jobs are certainly becoming service work. Service work is a three-tier system: menial service, such as retail sales, lawn care, housecleaning, and some construction; skilled labor, such as plumbers, HVAC repair, auto mechanic, and heavy-machine construction; and "idea people", such as engineers, doctors, managers, accountants, and lawyers.

I do not know how the skilled laborers are doing. It would be interesting to see how well those with a trade school education are faring. But it really does not look good for those at the lower end of the education scale. Our public education system is failing those who do not go on to college. It's not as though a higher percentage are going to college, either, leaving the dumber ones behind. The rate has dropped from 58.5% in 1996 (the peak) to 55.7% in 2004. The problem is many of these people are not prepared for college. In 2004, the six-year graduation rate for those trying to get a bachelor's degree was 55.3%. The three-year graduation rate for an Associate Degree was 30.0%.

Many people who graduate from high school are not college material. Only about 30% of high school graduates are getting a bachelor's degree. This may be a product of our societal schizophrenia. We are both egalitarian and a meritocracy. We think that anyone can make it, and that those who do better should reap those rewards. The result is that we gear high school to be college prep (anyone can make it) then let them fail out of college (meritocracy). This may be why the graduation rate in the Associate programs is so much lower. What high school preparation they did get was not geared to degrees such as Electronic and Dental Technician, but Mathematics and History, and not doing a very good job of that, either.

Germany, by contrast, has a three-tiered school system. It tracks, in a way, the three-tiered economy of unskilled, skilled, and "idea" workers. It restricts who can go to college, but it pays for one's entire education. I'm no fan of the federal government's getting into this (education is the responsibility of the states in Germany, and should be here, too), but our education system is not what it should be, and the people on the low end of the education ladder are bearing the consequences.

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3 Comments

jacob said:

Jack,
Part of the decline on the income of those who are without a high school diploma is the market is flooded with illegal immigrants who are willing to work for lower wages. Americans who are native or legal are thus forced to compete in such a market, and lose.

stay puft said:

our ability to come up with these Ideas ("American Ingenuity") is how we stay ahead of the global competition, both economically and geo-politically. I think our ability to generate "good ideas" is rooted in the diversity of our workforce, and in it's relatively high level of education. As fewer and fewer people are employed in manufacturing, it's in the country's interest to see to it that former factory workers receive the training and assistance they need to participate in the new economy.

Jacob, even studies that show a negative impact from illegal immigration on the wages of unskilled workers indicate that that negative impact is negligible. Unskilled workers in the US are already competing with workers in China, Mexico, etc. The real issue is that you can't survive in the US on $10 a day, and you can't compete with unskilled workers in other countries if you demand more than that. The solution is to reduce the number of unskilled American workers.

as to german education:
Maybe it's a way to control the labor market, but it just seems unAmerican. I've never liked the idea of making a 12-year-old choose to take the mechanic path or the ph.d. path, or in putting quotas on how many people can receive certain educations.

Jack said:

Part of the problem is that the former factory workers may not have the requisite brainpower. A guy that didn't do so well in high school (he was more interested in football and girls, because he had a job lined up at the factory anyway), and who has been at that factory for 20 years, is going to have a real hard time going back to college. Trade school may be a possibility. I would not mind a few more mechanics, plumbers, and general contractors. It would drive down the cost of getting my bathroom remodeled.

I must say I find the conclusions of those studies a little hard to swallow. First, it's just not "intuitively obvious." Second, since it is impossible to do a controlled experiment, the results are somewhat questionable from the start.

The 12-year-olds don't have a choice, they have a test. Granted, it is EXTREMELY stressful. Let's face it -- your whole future rides on the results of that test.

But either way, I do think we need some changes in our school systems to reflect that fact that not all students are college material. Getting someone's hopes up and sending them off to college to fail leaves them unskilled AND with student loans. Gee, thanks.

It would be more "compassionate" to discuss the situation with the children and their parents before entering high school and say, "Look, your academic performance up to now indicates that you probably wouldn't succeed in college. You need to decide whether you will take the college track or the trade track. If you decide on the college track, you will need to attend summer school to catch up. If you don't do well on the college track next year, we will move you to the trade track."

Of course, we don't actually HAVE a trade track in our high schools, but we sure need one.

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