Smart Philosophy Major Snowed by Rustbelt Governor

Robert Waldmann

Matthew Yglesias has a new argument for encouraging exports of manufactures. I am not at all convinced. He seems to be asserting that employment in wholesaling and transportation follows production not sales and so is increased by manufacturing for export. I really doubt that.

Yglesias wrote (click to see his graph).

I saw Michigan Governor Jennifer Granholm at CAPAF earlier today and she naturally went on at some length about the importance of preserving manufacturing employment. In the course of doing so she very briefly made the more nuanced point that manufacturing activity supports considerable employment in manufacturing-related services. … Given the rate of productivity growth in manufacturing, there’s no plausible volume of exports that’s going to sustainably increase manufacturing employment. But that doesn’t mean that exporting more goods won’t boost employment:
… during the pre-recession slump in manufacturing employment—a period in which manufacturing output was growing thanks to increases in productivity—that employment in services related to manufacturing was going up. What kind of services? “Upstream” services are …. “Downstream” services are wholesaling and transportation. When output collapses, this dries up, but if we had an export-driven increase in output we’d see increases in these fields even if manufacturing employment per se doesn’t really rise.

I am very not convinced

Downstream Services are wholesaling and transport. Hmmm isn’t retailing downstream ? That would be a problem wouldn’t it ? You know that retailing of exports happens over there. I do not believe that a significant fraction of the downstream services are transport and wholesaling for export. How could that be ? It can’t take that much labor to take things from a factory to a port and then the container is just put on a ship.

I suspect that most employment in transporting and wholesaling manufactured goods is, like retailing, transporting and wholesaling goods made anywhere to be sold in country. Getting the goods to the store is labor intensive. That doesn’t depend on whether the good is domestically made or imported.

You might be able to convince me that you are not totally utterly completely wrong by looking at huge swings of the dollar and huge swings of net merchandise exports. Hmmm I will check myself.

Well this is very crude, employment by very broad sector from the bls. Employment in “trade, transportation and utilities” roughly corresponds to Yglesias’s numbers for “downstream services.”

I look at the 80s a period of a strongly overvalued dollar and a ballooning trade deficit. I find employment in “Trade Transportation and utilities” grew more than 20% while employment in manufacturing declined. In the 90s employment in Trade Transportation and Utilities grew less while manufacturing employment was roughly stable. This is crude but there is no evidence for your odd theory that exporting implies lots of jobs in trade and transportation.

Any thoughts ? Anyone ? Rusty ?