Commentary

Your Happy Labor Day Graph

Well, perhaps this is a not so happy labor day graph.

Want to know one reason why the jobs market isn’t coming back? This is far from the only reason, but look at this trend manufacturing—an industry employing millions of people. Not only are there 2.2 million fewer manufacturing workers today then there were in 2007 prior to the recession, but we’ve been on a long-term trend downward in manufacturing. The kicker is that at the same time output has been growing.

Manufacturing Output

You’ll note in the above graph that manufacturing fell right along with employment during the past three recessions, and very sharply in the most recent recession. But at the end of each recession output always continues to grow and employment continues to fall. Though the phenomenon is more pronounced in the most recent recession the trend is the same.

The solution to this, by the way, is not to force American companies to “bring back” workers from overseas. This fall in manufacturing employment is not so much an outsourcing caused event as much as an automation and efficiency caused event. As it turns out, manufacturing jobs are disappearing all over the world. David Henderson notes:

“Manufacturing employment declined from the mid-1990s to 2002 in a number of countries whose economies are rapidly developing, including China, Brazil, and South Korea. In fact, China, Brazil, South Korea, and Japan had steeper percentage declines in manufacturing employment over that period than the United States.

It is also worth noting that pretty much every major OECD manufacturing nation has seen declines over the past decades, as noted in the below chart (via Scott Lincicome):

Global manufacturing

In conclusion, consider this “Macroeconomic Puzzle” from Arnold Kling:

Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops.

I’m heading out to Yogi Castle to ponder that.

Anthony Randazzo

Anthony Randazzo is director of economic research for Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research portfolio is regularly evolving, and he maintains a wide interest in economic policy at both a domestic and international level.

Randazzo is also managing director of the Pension Integrity Project, which provides technical assistance to public sector retirement system stakeholders who are seeking to prevent pension plan insolvency. His research focus on the national public sector pension crisis has a dual focus of identifying the systemic factors that cause public officials to underfund pension obligations as well as studying the processes by which meaningful pension reform can be accomplished. Within the Project he leads the analytics team that develops independent, third party actuarial analysis to stakeholders considering changes to public sector retirement systems.

In addition, Randazzo writes about the moral foundations of economic theory, and is currently developing research on the ways that the moral intuitions of economists influence their substantive findings on topics like income inequality, immigration, or labor policy.

Randazzo's work has been featured in The Wall Street Journal, Forbes, Barron's, Bloomberg View, The Washington Times, The Detroit News, Chicago Sun-Times, Orange-County Register, RealClearMarkets, Reason magazine and various other online and print publications.

During his tenure at Reason he has published substantive research on housing finance, financial services regulation, and various other aspects of economic policy at the federal level. And he has written regularly on labor economics, tax policy, privatization, and Turkish-U.S. political and economic issues.

Randazzo has also testified before numerous state and local legislative bodies on pension policy matters, as well as before the House Financial Services Committee on topics related to housing policy and government-sponsored enterprises.

He holds a multidisciplinary M.A. in behavioral political economy from New York University.

Follow Anthony Randazzo on Twitter @anthonyrandazzo