Increases in U.S. Worker Productivity, More Than China's Currency, Responsible for Loss of U.S. Jobs

According to AFL-CIO President Richard Trumka:

"The Chinese government has been keeping the renminbi undervalued by about 40% as a deliberate and central plank of its export strategy. That's a 40% subsidy for the products they send here and a 40% tax on products we try to send there. Our dollars stimulate another nation's economy while we rack up unsustainable trade deficits at home.

The result is writ large on the walls of the Great Recession: 57,000 U.S. manufacturing facilities shut down in the last 10 years, costing us five-and-a-half million good-paying jobs, nearly half of those to China alone. The loss of these skilled workers, engineers, designers and scientists has undermined our middle class and dangerously eroded our technical, industrial and innovative capacity."

MP: It's true that the U.S. has lost more than 5.5 million manufacturing jobs in the last ten years, from more than 17 million jobs in 2000 to fewer than 12 million jobs in 2010 (see top chart above, data here), which is a 32.5% reduction in factory employment.  And yet during that same period, manufacturing output (data here) actually increased by more than 5%, from $3.1 trillion in 2000 to $3.26 trillion (measured in 2005 dollars) this year (see chart above).  On a per employee basis, manufacturing output per worker increased by more than 50%, from $182,000 in 2000 to $278,000 (measured in 2005 dollars) this year (see bottom chart above). 

Since manufacturing output bottomed in June 2009 at $2.97 trillion due to the recession, there has been a 10% increase in the gross value of industrial output to $3.26 trillion, during a period when manufacturing employment actually decreased by almost 1 percent (and by more than 100,000 jobs), resulting in an 11% increase in output per worker in just a little more than a year.  That surge in manufacturing worker productivity is the largest increase ever over a one-year period, going back to 1972 (see chart), and we can thank the recession for that efficiency surge, as companies were forced to learn how to increase output with fewer workers. 

Bottom Line: Manufacturing worker productivity has doubled in the last 17 years since 1993, and that has contributed to the loss of more than 11 millions jobs. That is, if factory workers were only as productive today as their counterparts in 1993, it would require more than 23 million factory workers today to produce $3.26 trillion worth of manufacturing output today, instead of the 11.7 million workers employed today to produce that much manufacturing output. 

Therefore, it's the significant increase in the manufacturing worker productivity that is more responsible for the loss of millions of U.S. manufacturing jobs than the value of the Chinese currency.  Instead of pressuring China to strengthen its currency to increase American factory jobs, it might be even more effective to pass legislation that would make it illegal to increase worker productivity, e.g. enacting legislation prohibiting the use of labor-saving technologies such as internal-combustion and turbine engines, as Don Boudreaux suggests here.