3 ms·

Capital intensive manufacturing stays here longer, labor intensive leaves first as competition allows the goods to be much cheaper.

jjk166 6y ago
Except that's not at all what we see. Big factories representing immense capital investment were shut down first, while smaller factories and job shops remained constant or even increased. Major manufacturing employers like the automotive industry (which is not just the cars themselves but the many vendors making parts) didn't move their operations overseas - but instead consolidated production. The goods that start being produced overseas during this time period (late 90s - early 00s) are primarily things like injection molded plastic which are not very labor intensive but are capital intensive. There were several changes that much better explain the decline of the rust belt than off-shoring. In the first part of this period (70s-80s) you have low cost air conditioning becoming widely available, meaning that manufacturers could move operations out of the relatively cold rust belt and into the sun belt where labor regulations were less strict and real estate generally cheaper. You have the mass entry of women into the workforce as two income households become the norm, increasing wage competition, along with the weakening of unions. Increasing fuel prices mean that transportation is a greater concern in factory placement while the relatively new interstate highway system means that factories can be located anywhere instead of just pre-existing water and rail hubs. As computer technology becomes readily available you have the proliferation of CNC manufacturing, PLC controls, and robotics which dramatically increase productivity. By the time you get to the 90s-00s, wages have been stagnant for 20 years while secondary education has become more common and white collar jobs with higher wages have dramatically increased with the wide adoption of personal computers and the internet. At the same time, digital electronics have emerged as a much larger section of the economy, and they employ different skillsets in different regions. As all these forces both decrease the need for manufacturing labor in general and the desirability of the rust belt in particular, you have a snowball effect of fewer workers -> less skill in circulation -> less economy of scale of concentrating industry together -> less production in the rust belt -> fewer workers. Meanwhile, let's look at what's happening outside the US. Germany and Japan become major industrial powerhouses in the 70s and 80s, mostly specializing in very high value added manufacturing - cars, electronics, machine tools, etc. Growth in Japan stagnates in the 90s however, and Germany is far from a runaway success. The soviet union's collapse destroys the second most industrially powerful nation practically overnight. China obviously has been very successful since 1990 in industrializing, but their results don't actually match up with America's decline: America's trade balance suddenly starts plumetting in 1997 and bottoms out in 2006 before it starts recovering, and with the exception of 2008 and 2020 has since been stable while China's trade balance remains essentially constant until 2005 when it slowly but steadily starts increasing. Chinese steel production started a steep upward growth in 2002 and has since increased by about 4X whereas US steel production has been essentially constant since 1983. There is a sudden spike in manufacturing employment in china from 1989 to 1991, but nothing concurrent with the either the US manufacturing job losses in the 1999-2004 or the 2008-2010 periods. Now I won't argue that off-shoring has had no effect, but clearly the data is not consistent with jobs simply moving overseas.
- colinmhayes 6y ago
  Thanks for the schooling. In the end I'd say the effect is similar, rust belt workers are less needed than they once were and therefore wages have declined. The idea that the government can convince jobs to come back without handouts is a pipe dream.

jjk166 6y ago

Except that's not at all what we see. Big factories representing immense capital investment were shut down first, while smaller factories and job shops remained constant or even increased. Major manufacturing employers like the automotive industry (which is not just the cars themselves but the many vendors making parts) didn't move their operations overseas - but instead consolidated production. The goods that start being produced overseas during this time period (late 90s - early 00s) are primarily things like injection molded plastic which are not very labor intensive but are capital intensive. There were several changes that much better explain the decline of the rust belt than off-shoring. In the first part of this period (70s-80s) you have low cost air conditioning becoming widely available, meaning that manufacturers could move operations out of the relatively cold rust belt and into the sun belt where labor regulations were less strict and real estate generally cheaper. You have the mass entry of women into the workforce as two income households become the norm, increasing wage competition, along with the weakening of unions. Increasing fuel prices mean that transportation is a greater concern in factory placement while the relatively new interstate highway system means that factories can be located anywhere instead of just pre-existing water and rail hubs. As computer technology becomes readily available you have the proliferation of CNC manufacturing, PLC controls, and robotics which dramatically increase productivity. By the time you get to the 90s-00s, wages have been stagnant for 20 years while secondary education has become more common and white collar jobs with higher wages have dramatically increased with the wide adoption of personal computers and the internet. At the same time, digital electronics have emerged as a much larger section of the economy, and they employ different skillsets in different regions. As all these forces both decrease the need for manufacturing labor in general and the desirability of the rust belt in particular, you have a snowball effect of fewer workers -> less skill in circulation -> less economy of scale of concentrating industry together -> less production in the rust belt -> fewer workers. Meanwhile, let's look at what's happening outside the US. Germany and Japan become major industrial powerhouses in the 70s and 80s, mostly specializing in very high value added manufacturing - cars, electronics, machine tools, etc. Growth in Japan stagnates in the 90s however, and Germany is far from a runaway success. The soviet union's collapse destroys the second most industrially powerful nation practically overnight. China obviously has been very successful since 1990 in industrializing, but their results don't actually match up with America's decline: America's trade balance suddenly starts plumetting in 1997 and bottoms out in 2006 before it starts recovering, and with the exception of 2008 and 2020 has since been stable while China's trade balance remains essentially constant until 2005 when it slowly but steadily starts increasing. Chinese steel production started a steep upward growth in 2002 and has since increased by about 4X whereas US steel production has been essentially constant since 1983. There is a sudden spike in manufacturing employment in china from 1989 to 1991, but nothing concurrent with the either the US manufacturing job losses in the 1999-2004 or the 2008-2010 periods. Now I won't argue that off-shoring has had no effect, but clearly the data is not consistent with jobs simply moving overseas.

colinmhayes 6y ago
Thanks for the schooling. In the end I'd say the effect is similar, rust belt workers are less needed than they once were and therefore wages have declined. The idea that the government can convince jobs to come back without handouts is a pipe dream.