Perhaps the biggest mystery in economic analysis in the last few years has been trying to find an explanation for the big decline in labor force participation since 1999. A
recent NBER working paper by Abraham and Kearney has posited the most comprehensive answer to date. Since it was summarized in
this Washington Post article, I’m just going to quote a few paragraphs and suggest that you read the entire article.
The share of Americans with jobs dropped 4.5 percentage points from 1999 to 2016 — amounting to about 11.4 million fewer workers in 2016.
At least half of that decline probably was due to an aging population. Explaining the remainder has been the inspiration for much of the economic research published after the Great Recession.
– snip –
University of Maryland economists Katharine Abraham and Melissa Kearney built [a method to arrive at a detailed analysis of the data]. After reviewing the most robust research available and doing some rough-but-rigorous math to estimate how much job loss each phenomenon can explain, the duo discovered something surprising: pretty much all the missing jobs are accounted for.
Just as important, they pinpointed the culprits. In a draft paper released by the National Bureau for Economic Research this week, Abraham and Kearney find that trade with China and the rise of robots are to blame for millions of the missing jobs.
To summarize, here are the number of job losses they found due to each reason:
China 2,650,000
Automation 1,400,000
Minimum wage increases 490,000
SS disability 360,000
Veteran’s disability 150,000
Incarceration 320,000
TOTAL: 5,320,000
Here’s the accompanying graph:
Notably, the authors found that both immigration and the “Mr. Mom” contribution to this number was trivial. One thing I wish they had explored, but I did not see any comment, is the issue of child care costs causing some mothers to decide it would be better to stay at home and raise their children vs. be in the labor force, which I concluded several years ago was probably a much more significant factor.
The total above is virtually equal to the entire decline in the number of prime age persons in the labor force since 1999. But the most significant point for me is that *almost half* of all of the decline prime labor force participation can be ascribed to:
China’s accession to the World Trade Organization in 2001 and its subsequent rise to the top of the global export market.
Something tells me that that a lot of those workers who were displaced by China live in places like Pennsylvania, Michigan, and Wisconsin. A big “thank you” to Bill Clinton, Brad DeLong and all of the free-trader Democratic neoliberals for doing their part in the rise of Donald Trump.
Hmm,
How many of these workers were displaced prior to the 2008 election? 2012?
I am thinking that the effect would have been much greater in those elections(particularly due to the recession).
I agree with the entire thing, but blaming election results in 2016 because of this is a bridge too far. At the same time, I love the idea that this was a Dem policy. Not defending them, as I believe we should have protected our workers and their performance sucked, but the Reps did the heavy lifting.
Gee…. all these years people have been saying: I lost my job because they shipped it to China (Mexico) and the econ’s world response is: No, you lost it to automation. As justification: Manufacturing is up in the US.
So is the number of manufacturing jobs in China.
“The share of Americans with jobs dropped 4.5 percentage points from 1999 to 2016 — amounting to about 11.4 million fewer workers in 2016.
At least half of that decline probably was due to an aging population. Explaining the remainder has been the inspiration for much of the economic research published after the Great Recession.”
I don’t think I accept this. How do they know the aging population job loss was not due to automation or China or whatever?
I get it in terms of labor force participation rates, but not in terms of job loss numbers.
Why were the retiring workers jobs not filled?
This is from a September 2016 BLS report “Labor force participation: what has happened since the peak?” on the various age and gender groups feeding into the decrease of PR. The data is from 1985 to 2015.
“After rising steadily for more than three decades, the overall labor force participation rate peaked at 67.3 percent in early 2000 and subsequently fell to 62.7 percent by mid-2016. In recent years, the movement of the baby-boom population into age groups that generally exhibit low labor force participation has placed downward pressure on the overall participation rate.
From 2000 to 2015, the decline in participation occurred across most of the major demographic groups. Teenagers experienced the steepest drop in participation, which coincided with a rise in their school enrollment rate. Yet, labor force participation rates of both teenagers enrolled and not enrolled in school fell since 2000. Adults 20–24 years showed a decrease in labor force participation that was less steep than that of teenagers. The young adults least likely to participate in the labor force were those without a high school diploma, in particular young women, especially mothers.
The labor force participation of women 25–54 years also declined from 2000 to 2015. This decrease was most pronounced for women who did not attend college. Women with a college degree experienced a much smaller reduction in labor force participation. Since 2000, labor force participation of mothers with children under 18 years old has receded; the declines were larger among less-educated mothers.
The labor force participation of men 25–54 years continued to decline from 2000 to 2015. The decrease in participation among men with less education was greater than that of men with more education.
The labor force participation of men and women 55 years and older rose from 2000 to 2009 and subsequently leveled off. This plateau could be attributed partially to the fact that the oldest baby boomers reached age 62 in 2008 and became eligible for Social Security retirement benefits.”
So much for the plateau in 2008. Lets look at some charts and graphs:
Since China took mfg’ing production jobs, then why did US mfg’ing employment keep falling at the same rate from the 1960’e before China entered the WTO as after? It should have declined much faster after Chna entered the WTO according to the authors’ estimated calcs & assumptions..
For this and other reason’s it doesn’t add up even a little bit.
I do agree though that employment displacements from one sector to another should have been and still should be compensated by the general taxpayer and businesses displacing employment to different regions of the economy. But the R’s will refuse on grounds that it reduces GDP…. you know, becaue laissz-faire is best.
Longtooth, would population growth explain the equivalent rate drop?
DB,
No
https://fred.stlouisfed.org/series/USAPEFANA
However, you can see the quick drop around 2000 with some of it due to the recession back then.
https://fred.stlouisfed.org/series/CEU3000000001
Lot more to it then just workers. Anne at EV is great at FRED.
https://fred.stlouisfed.org/graph/?g=ixk2
Long before China entered the scene:
Solid state transistors when to Japan
Portable radios & and almost all electronics goods went to Japan
TV’s wen to Japan
Semi-conductors went to Japan and Taiwan
Steel went to Europe and Japan
Machine tools went to Europe
Heavy Equipment / Farm Equipment / Forklifts went to Japan
Automobile Transmissions went Japan
Automobiles went to Japan and Europe
Textiles went everywhere but the U.S.
Commercial Airliners went to Europe (Airbus first deliveries 1967)
Oh, and Japan was automating long before the US got into that act.(to start to complete).
I do not disagree with the China shock effect, but I cannot wrap my head around the actual numbers. Obviously large, but if I see a reduction of manufacturing workers of 1.7 million from China’s WTO entry until the beginning of the recession, it seems obvious that we lost 11% of manufacturing jobs.
https://fred.stlouisfed.org/series/CEU3000000001
But then I look at the Real Output Per Hour per person in manufacturing during the same period and notice a 26% increase it becomes confusing to me.
https://fred.stlouisfed.org/graph/?g=ixk2
Blaming Automation is as dumb a reason as I’ve ever heard.
It’s like blaming humans for finding and using productivity improvements.
Go back to the hoe (huge advantage over sticks), and then we can blame plows. And that damned internal combustion engine (invented and developed in Germany) that put all those buggy whip and carriage employees out of business. And then Fords’ assembly lines, and electric motors, and incandescent lighting, etc. ad-infinitum… so why not just blame semi-conductors and from them computers, and from them the internet?
Doya’ think the US is an island or something? No other humans get to use or find or invent or improve human productivity?
And international trade has been going on since the Phoenicians, Greeks, Persians, and Egyptians, followed by European nations and then Great Britain taking the lions share of it. Do you think we should turn it off? Good luck.
Small minds! .
And don’t forget the “Silk Road”!
Automation has been increasing on a exponential rate since the hoe. The rate has become so fast that societies and gov’ts now see and feel the direct effects every decade or less And it will soon be every 2 to 5 years and then what? Stop the world? Go back to 1776? What?
Some people are dumb, dumb, dumb. You’d think they learned something by going to Jr. High and High School. Apparently not.
Lt,
C’Mon, Man.
This is not about abandoning progress or going back to the future. It is about the effect of our trade policies on employment. That’s it, we do not need to confuse an issue that is already confusing.
Anyone smart enough to do this math(or find the numbers)?
We have around a $400 billion trade deficit with China. If we need to increase manufacturing output by $400 billion, how many extra workers would that take at current production levels?
smart enough, just lazy
EM,
I take the overall view of things… the issue IS progress … the outgrowths of it are a matter of how it’s handled (or not) which is to say gov’t rules or policies. China’s entry into the WTO (hence international trade) was no more or less than the effects of trade with Europe & Japan on US mfg’ing labor
If you’re going to compete you have to compete globally. If you’re prevent having to do so, you put up walls. to your own detriment..
EM,
When Japan went hell-bent for more automation and out-did the US on price and quality competitiveness in every one of their endeavors, do you blame “automation” or Japan for using it?
As China becomes an even larger user of automation methods and thus improve quality and reduce prices will you blame automation or China using it?
If your competitive advantage is lower labor costs because of your lower standards of living, do you blame lower standards of living or lower labor costs? Or is there some rule that says lower labor cost are “unfaiir” competition, which is also to say that lower standards of living are “unfair”?
North Korea is now the most automated nation on the globe. So do you blame North Korea for using it or do you blame automation?
LT:
You mean Demmings plus the Toyota Production System? In order of magnitude; Material, Overhead, and Labor. Quit whacking Labor.
This is not now and never will be an issue of shutting down trade with other nations. The US has always traded with other nations. This about extremely poorly negotiated free trade agreements which have allowed other nations to run up huge trade surpluses.
It is readily apparent to me that employment in manufacturing fell rather dramatically after China entered the WTO.
Here is the yearly average of Employed in Manufacturing. (In thousands) The peak after 1960 was in 1979.
Yearly
Average_____ Employed
1979________19,428
1980________18,732
1981________18,634
1982________17,364
1983________17,049
1984________17,921
1985________17,819
1986________17,552
1987________17,609
1988________17,905
1989________17,984
1990________17,695
1991________17,068
1992________16,801
1993________16,776
1994________17,024
1995________17,245
1996________17,237
1997________17,418
1998________17,560
1999________17,323
2000________17,265
2001________16,441
2002________15,257
2003________14,509
2004________14,315
2005________14,226
2006________14,157
2007________13,878
2008________13,403
2009________11,848
2010________11,529
2011________11,727
2012________11,927
2013________12,019
2014________12,184
2015________12,335
2016________12,353
See: https://data.bls.gov/timeseries/CES3000000001
Once at the webpage change the “From:” date to 1960 and click on “GO”
JimH,
China became a member of the World Trade Organization (WTO) on 11 December 2001.
By that time the US mfg’ing employment had dropped from March 2001 at a faster rate than it did AFTER China entered the WTO in December.
That was coincident with the dot-com bust recession, so your eyeballs must have missed that little factoid, huh?
Run,
I mean Deming and JIT, PLUS automation. High accuracy repeatable machining on high volumes by automation was what I observed personally in Japan at two vendors — I also visited the two highest volume “precision” mfg’ing in US. Both precision, repeatability , and volume capacities were much inferior to Japans. Besides that Japan’s price was lower. The US mfg’ing business heads said the roi on that level of automating with that level of precision and volumes didn’t pan out for roi … it wasn’t in the cards. I found this to be true for some of the other US mfg’ing technologies as well.. the investments and roi required wasn’t worth it. This was in the early to mid 1980’s.
And why do you think I’m “whacking labor”? Far from it. I’m a huge labor fan… and union fan. I’m only describing the effects of automation improving productivity and thus displacing labor, and that international competition includes that with lower standard of living nations, hence lower labor costs.
US tax policies promoted US capital dollar investments offshore .. that’s a gov’t issue, not a labor issue. There have been impacts on US labor to some degree — nothing like the numbers NDD’s link reports — but forcing US capital to weigh roi of automation against using international lower labor costs. US tax policy promoted the latter.
Rabbit or hare?
LT:
Change factory layout and you achieve improved throughput. No new CNCs etc. Same old turret lathes, NCs and, and automatics (Bullards and transfers lines).
I’ve commented before about what I learned in my one and only Intro to Macro class in the mid-late 1960’s
1. The US was exiting mfg’ing to services as a it’s long term economic policy… precisely because it made the US economy less susceptible to international production competition in the long run.
2. Capital flows know no borders or allegiances.
3. Global capital flows would increasingly flow from higher standard of living nations to lower ones — stagnating the former and raising the latter.
I chewed on that for years and years before I final realized there was no grounds to reject it and every reason why it was true.
Run,
You’re kidding, right?
“Change factory layout and you achieve improved throughput. No new CNCs etc. Same old turret lathes, NCs and, and automatics (Bullards and transfers lines).”
That was how the US volume precision mg’ers were doing it in the 1980’s Japan was using fully automated systems putting out 10x the volume per square foot and 5x the volume per labor (including engineers). Raw stock went in one end, finished units, deburred, clean as a clean-room came out the other end. No dust, no shavings on the floor, basically like a clean-room. Cutting tools were automatically replaced in the automated system based on real time measures on each part (also within the automated equipment).
Japan and then Europe took over precision machined parts mfg’ing. . t.quet so re
s 90’s, while 0080
LT:
No, the Japanese were not. They implemented the Toyota Production system. The minimalized inventory, lot size and forecasted demand. They focused their production lines long before they added automation. They also concentrated on quality of output. Read Yasuhiro Monden. I would loan you the book; but, I am not in LA. You do not need automation to make quality parts.
LT:
I never kid. I used to do this stuff. Much of the inefficiencies came from the planning practices and the layout of the factories. Drill presses here, saws there, NCs in the middle, inventory on the side, shipping on the far side, etc. Nothing flowed properly. Top that with lengthy setups justified by “yuge” lot sizes and a field of inventory looking like the eggs (roll stock) in the spaceship in Aliens (a remark of mine). I looked at the mandrels and asked how long to set up, how long to deliver to a customer (competition was beating them to the customer), etc. I forget the answer for the setup; but, but, they ran 30 day lot (demand) sizes of each product to justify setup. If you are an engineer, you know what that means.
My answer? If we were to ship right after the mandrel, the average ship time would be 15 days on a 30 day lot. It is pretty obvious what the answer(s) is and are if you wish to improve delivery. Fix your setups and cut your lot size in half and keeping doing so until you reach a improved turn over of product and inventory as far as you can take it. Just that simple plan would echo through the plant and lower the work in process, the raw material, and finish goods with out new technology. To prove it, I did an analysis of each work center to see what was the transit time, wait time, and actual production time. 8 to 12% of the time was spent in production on a product/component after the mandrel. Tons of WIP sitting around for days waiting to be worked on.
Automation improves process speed; but, it is still not a schedule, production, or capacity plan covered by a business plan. The Japanese got it right in lot sizing to “1.”
“Sunao Yokota, manager of the gleaming new Hofu (Nissan) plant, bristling with robots and new machinery, adopts the pose that the plant, despite its newness, is a swamp of waste and inefficiency. ”This is a very crude operation,” he said. ‘There are thousands of ways to rationalize here.”
This article will confirm your statement on the eighties. Yosuhiro Monden’s book (Toyota Production System) was written in the eighties when I bought it in paper back for an exorbitant $35.00 then. It is till a gold mine of information. For my efforts at Miami Industries in Piqua Ohio along US 75 on the east side, they did nothing. Cyclops Inc. bought them out, then they were sold again and no I am not sure what they do now. I (we) were more successful at Catapillar, ARO Tool, Dana, National Can, etc. in rearranging how they planned and laying out the factory floor.
Don’t chase technology for technology’s sake especially when other and simpler methods can be implemented.
Longtooth,
First you were sure that the rate of decrease in manufacturing jobs had not changed since 1960:
“Since China took mfg’ing production jobs, then why did US mfg’ing employment keep falling at the same rate from the 1960’e before China entered the WTO as after?”
Now you believe that the rate of change began some 10 months before China joined the WTO:
——————————————————
“China became a member of the World Trade Organization (WTO) on 11 December 2001.
By that time the US mfg’ing employment had dropped from March 2001 at a faster rate than it did AFTER China entered the WTO in December.”
——————————————————
But that won’t fly either. On 15 May 2000 HR4444 was introduced into the House of Representatives. It became law on 10 October 2000.
“H.R.4444 – To authorize extension of nondiscriminatory treatment (normal trade relations treatment) to the People’s Republic of China, and to establish a framework for relations between the United States and the People’s Republic of China.”
See: https://www.congress.gov/bill/106th-congress/house-bill/4444
So China received MFN status and thus low tariffs before 2001.
Run,
What you refer to as the “Toyota Production system” is what the US called it. It was actually called Just in Time (JIT) logistics Toyota developed it. It was a logistics system to cut cots of inventory from the raw stock to final assembly, both internal to Toyota’s processes and at their massive number of vendors for parts. It forced mfg’ing engineering discipline from design & development to process methods production to keeping lines from stopping (which increased inventory costs hugely which was only possible using Deming and Shewart control charting methods without sacrificing quality.
US resistance to Deming’s methods were notorious an everywhere. This was principally due to the emphasis it required from engineering instead of emphasizing mfg'[ing line personnel “error”. Engineering was expensive and hourly paid help was cheap. In Japan Deming’s methods put the emphasis on engineering which paid huge dividends in the long run.
I learned about Deming’s methods in a Quality Control class I took in college (as an elective no-less to fill out my units that semester). It was called “continuous mfg’ing quality improvement by statistical sampling methods” which Deming and Shewart developed for munitions quality testing for working for DDD during WWII (a necessarily destructive thus costly testing method). It was one 10 page section in a 400 page Quality Control text (the bible at the time)..
It’s not surprising that you didn’t know the levels of automation going on in Japan though. Almost nobody in the US did. I learned of it by chance when I was looking for some kind of automated pick-&-place unit in the mid-1970’s and found that the Japanese had a few — which I ordered for evaluation….. they were crude then but superior to the US varieties and 2/3’s the cost…The version I used for production apparently was a subsidiary of or affiliated with Sony and the next year Sony came to me out of the blue to show me the stuff they’d developed for our tolerances and reliability requirements. Their tech was far ahead of ours by that time.
In the mid 1980’s one of the guys I knew in procurement engineering had been contacted by a couple of Japanese precision machined parts mfg’ers who wanted to bid on a new critical part He wanted to make a trip to Japan to check it out (they promised their tolerances were tighter and costs lower and their volumes could be adjusted rapidly to meet our volumes There was huge internal resistance t even considering an unknown foreigin vendor, much less visiting them. But when he finally got permission he came back with pictures and sample parts of their process. It was mind-blowing for most and not really believed, so I was asked to visit them to get more detailed understanding of whether this was a put-on for real. It was for real. We used them for 1/4 our volumes for the 1st year which we changed to 75% of our volume after just 6 months their quality was so superior.
It turned out that this vendor was producing precision machined parts for a huge part of Japan’s own businesses… especially the automotive businesses. Who knew?
Automation in Japan was a direct outgrowth of Deming’s & Shewart’s methods. It made roi on capital intensive automation possible.
I’m not going to argue with you about it. I was there. I experienced it as part of my job. I was pushing it in our division’s own mfg’ng processes. After the success we had after finally shifting to statistical control and automated methods we tried to get it implemented in our company’s other divisions … and failed. The opposition was huge. It took 15 years to finally get it to become more common and that was within our company. Outside it was even longer.
Think of it this way. You could put 100 testers costing $200k each and build a new building to house them and operators to operate them and engineering to keep them all running while testing 100% of parts at 80% yields. OR you could build 3 $1million dollar testers with automation and rigorous statistical control with 3 operators a-la Deming, housed in a small space, and testing 2% of production with higher quality and 99.8% yields.
Your choice. Shifting to automation and statistical controls pay’s huge dividends on net … but you have to go through the phase of leaning how to shift the burden to engineering effort instead of “perfect operators” first.. Engineering always blamed line personnel… because they thought it was lower cost than hiring more engineers. Japan figured out it wasn’t long before the U.S.
LT:
Funny thing, the Foreword of my book, “The Toyota Production System” is written by Tachiichi Ohno san. In the Preface of the book, Tachiichi Ohno san is identified as an inventor of “The Toyota Production System” of which JIT is one pillar as referenced by him. He called it The Toyota Production System as did I in the early eighties.
Lt, thank you for your explanation.
Longtooth noted:
When I first started writing at AB my issue was income inequality noting that we had changed the way we make money. I noted that government policy was the cause and that taxation policy was one of the prime ways it was done. So, I would agree with LT regarding his first 3 statements.
I agree in part with his next statement regarding tax policy. I believe it has effected labor immensely precisely because it has changed the means of making money from one of labor/production to money from money. I have a posting here in the past that noted a Japan Ministry of Finance report specifically showing just how much US was making its money from rent (royalties, etc.). The Ministry was concerned.
But mostly I would answer his 2 questions of weighing ROI and unfair competition with a big Yes.
I asked on a regular basis in my writing: why do we have an economy? If this question is simply answered with “to make money” then the answer to LT’s questions is No. But, if the economy is in service to something more, then the answer is yes. Our government’s responsibility is greater than what economic’s (Milton or John) seem to be concerned with, though I believe due to Milton and the rise of Ayn in combination it’s been reduced to: mind the money and all with society will be well. I interpret LT’s questions in this mind set.
So, as to keep this brief being that “competition” is the model favored: drag racing. 2 types, straight up, or handicapped. To answer LT’s questions with a No, is for government to have decided straight up is the fairest way for our economy to fulfill it’s purpose. To answer LT’s questions with a yes, is for government to have decided handicapping is the fairest way for our economy to fulfill it’s purpose.
A market is not an economy and an economy is not a society. I view that the purpose of an economy is to serve the goal of ever reducing the risks of life and living. The roll of government (at least our government) is to assure that happens as equitably as possible. As in “pursuit of happiness”.
Thus, LT’s first 3 statements I read as true, but they were not inevitable, nor destiny. They were created deliberately and it was selfish in it’s wisdom.
Daniel:
If reducing the risks of life and living is the goal, then we must look for the cause of why Labor leaves the US.
Run,
Here’s another little story.
As a college summer co-op in 1970 was assigned as a scribe to write down an engineer’s test results new process that had taken 2 years and 4 engineering years to develop. It was a critical process for a new product for the corporation.. It turned out it didn’t work though. For political reasons I was asked if I could come up with a “fix” to make it work in time, while the division was in a tizzy to find a new engineering to do the “real fix”.
In 2 months I developed an entirely different type of process with not help from the real engineers, that cut the cost to 10%,increased voumes pwer machine by 10x and inspection 1 per machine per shift from 50% inspection planned.and produced far greater quality and tolerances.
That’s why I was hired when I graduated.
A year later another engineer used the technology I’d developed to develop a process that cuts costs to10% of my process with equal quality and 10x the capacity per machine than mine.
A year later that process was automated saving 9 of every 10 operators. The automation cost was 6 months of 9 operators fully burdened costs That automation process was used for the next 10 years, becoming even lower in cost as computers become lower in costs and statistical controls were placed on the process to continually increase tolerances for newer and newer higher tech products..
My process method was based on using science (I was a science major in college) rather than “engineering”.. i.e. dropping back to basic physics and going from there. The engineer that improved on my process also used science to figure out how to do it faster at lower costs with some simple changes.
The automation and statistical methods were the swingers for the long run though. They allowed tighter and tighter tolerances to be implemented with no loss of quality and gave our product a huge advantage over our competition’s costs, allowing us to produce higher quality more reliable far higher capability of function at far lower costs.
Sooner or later somebody would have figured out what I figured out as a co-op so I just happened to do it first by pure chance that the process that took 4 engineering years to develop turned out to be worthless while I was working there for the summer., and the politics my manager was playing to bide for time to find the ‘experts’ who could develop the “real” process in time for new product introduction..
Though that was the origins if the process, the payback was actually in being about to automate it with statistical methods which allowed us to keep improving the product at near no cost to stay way ahead of the competition for 10 years. Otherwise it was just a cost improvement.
And BTW since our business was expanding by leaps and bounds, the displaced operators from that process were then available to for use in our expanding business… which taken in composite means hiring fewer new workers while producing more with less at lower costs
.
Automation does two things:
1. improves labor productivity
2. improves products quality & capabilities… which is another way of saying one thing leads to another.
This is a virtuous never ending cycle at accelerating rates..
What we do with the displaced workers is a question society must answer. The US’s (our) society hasn’t figured that out yet. It’s still steeped in and worshiping at the alter of “individualism”. Something’ going to have to give.
Sigh . . .
Run,
Let me add that the same thing is going on in services, albeit at present at a slower rate. Amazon is just going back to fundamentals of retailing well after compute costs and the internet enabled it.
Retailing is simply how to get what the consumer wants to them. By going back to this fundamental Amazon is able to do this at lower overall costs and consumer’s time. A lot like residential plumbing did once upon a time.
The only difference to plumbing is that plumbing was a new technology. Using computers and the internet is not new tech. It’s just using them to do retailing at lower costs and greater consumer convenience and less consumer time.
One thing leads to another at accelerating rates..
It took a long time to go from cultivating soil with sticks to the hoe. When the harness came along it took less time to go from the hoe to a plow, etc. It didn’t take long at all to go from a reciprocating cylinder steam engine to the internal combustion fossil fuel engine.
Societies are very quick to take advantage of disruptive changes, but awfully slow to deal with the negative ramifications. Have you figured out why yet?
Run,
“sigh”, indeed.
Nice discussion turned on its head
Some times this happens. last word, pecking order, etc. This is why I will sometimes turn off a post because it keeps on going in the comments section like the EverReady Bunny. Quick question, do you understand the two charts I posted in relation to PR and ages 65 and above. The PR for that age group is higher now than in 1985 and plateaued since 1985. I imagine I could pull data for that age group in 1985 and see what it actually was then and do a comparison; but, I sense the retirement is more normal than what people intend it to be.
Indeed there is a reason I work and its because of how much they pay me. I ain’t cheap.
ON steel in particular there have been drastic changes in process at steel mills not necessarily automation similar to ones run75441 discussed. Moving from open hearth to basic oxygen furnaces resulted in a 1000 fold increase in productivity in that step as the batches were done in less than 40 mins from 8-12 hours for open hearth.
Or consider the change from ingot, soaking pit rolling to continious casting with rolling as needed on the hot metal. From finished metal to semi finished product from 2 days to 30 mins. This is all documented in Still the Iron Age by Vaclav Smil. He cites the Gary works of US steel producing as much steel as in 1960 with 1/5 the number of employees. Now that 68% of us steel is made from recycled product, the mini mills also increase productivity.
So I do think it needs to be automation and process changes not just automation. (Similar to the rearrangement of factories run75441 discussed.
Lyle:
The owner of Ingersoll Engineers would say “Don’t chase technology for technology sake.” At Parker we made hydraulic and pneumatic cylinders for industrial usage including automotive. First I did was automate their MRP so they would not have to do it manually once per month. Went from once per month to once every two weeks to weekly. Life got easier for those planners.
They were slowly shutting down that plant and moving it to new places. Piston rods were chrome plated there and they were always short of inventory. I took it over with one other guy and we established a scheduling cycle which eliminated the shortages and proving they did not need another plant. They did it anyways.
In the early eighties the recession hit and we were chasing inventory in the other direction. I put my crew to work on eliminating production orders if not needed because demand disappeared. 14 months later they laid me off. Two months before that the Controller cam by me and asked what I was doing and to keep it up. In effect the cancellation of production orders meant less inventory and less purchasing. 10 months they broke even, 3 months they made a small profit, and 1 month they lost money. After 5 years, I was too young and dumb to ask for severance.
Just simple stuff . . .
Although it is interesting according to Smil that US steel makers were far slower than foreign ones in adopting the Basic Oxygen process. In addition they were slow to move to continious casting with Newcor showing the way there. It appears in the 1960s and 1970s US steel makers were big fat and happy and did not see the truck of the minimills that was coming to run them down. (Similar in a way to the auto industry)
Lyle:
It is called tradition. I never talked much about some of the things I did. I just did them.
Dan & EM
Fair enough. NDD’s post was about China the bad guy or US the bad guy for not keeping them out of the WTO, or US the bad guy for not requiring China make changes to become a full-on pure capitalist system.
This is called protectionism which limits competition to the good ol boys club. .
OR
Its called force regime change to make everybody in the club play with by the rules of they established — oh, wait that’s what the WTO did — the US, Europe, and Japan designed it for conditions that applied to the big three traders It replaced the long standing GATT agreement which was it’s predecessor and more restrictive.
When China was admitted entry to the WTO they played by the same rules as everybody else, including especially dispute resolution.
China’s draw for the big three admitting it to the WTO was their both
A) Their population size as a huge boost in eventual consumers of Europe’s, US’s & Japan’s exports goods production, as well as the big three’s own businesses that could open factories in China (see B below) or negotiate deals with Chinese businesses..
B) Their huge low wage labor force (“comparative advantage”) which the big three businesses could use reduce their own production costs and then import them back to Japan, Europe, and U.S. markets.
Both A) and B) are precisely what happened.
For example of B) the company I worked for made a deal to form a new corporation (51% China owned, 49% owned by my company) with wage rates that started at $0.86/hour, and gradually increased over time as China increased the wage rates We built new production facilities in vacant farmland fields — half paid by China and half paid by our corporation, but all the infrastructure — utilities, roads, housing, shopping faculties, etc. were paid for by China, employing massive number Chinese Our Japanese wholly owned subsidiary then implemented and managed production in China. This went on and one by every major international company from Europe, Japan, & the U.S.
China in turn got access to the U.S.’s, Europe’s, and Japan’s consumer markets for their own goods exports.
Considering therefore that this is nothing more than creating reciprocal benefits in international trade, which has been going on forever, using comparative advantage as the market determinates of the most efficient use of labor and capital in a capitalist economic system, then I fail utterly to understand NDD’s complaint about US labor displacement..
My comments therefore were to put this in perspective of US capital roi , U.S. tax policies, and competition (productivity improvements), and how this related directly to US mfg’ing labor displacements, beginning with electronics already in the 1960’s, steel in the 1970’s, auto automobiles in the 1980’s, along with semi-conductors, etc, coupled directly to automation methods and capital roi (preceded by Deming’s methods in Japan).. It just continued more and more until US mfg’ing peaked in the 1980’s, and kept continuing right along to where we are today.
The complaint about China rests entirely on their comparative labor advantage. Low wage labor means US capital didn’t have to be invested in automation to maximize roi. Our tax policies advanced & directly promoted that condition. Where do you think the Reagan’s reduction from standard income rates to 20% on unearned income went for christ’s’ sale? US profit making enterprises aren’t stupid.. they maximize roi and keep tax policies beneficial to profit making..
They owe no allegiances to domestic labor — that’s society’s problem, which mean’s gov’ts problem, which, because capital owners captured gov’t a long, long time ago, means gov’t has had little allegiance to it’s labor force either… talk is really cheap.
So what you should be asking is why the U.S. voters keep voting to keep capital owners in charge of gov’t. And they did a doozy in 2016. The Supreme Court made money “free speech” that was based on constitutional interpretation, btw. Union powers have been laid waste by gov’t laws which and abetted the decline due to automation and offshoring in mfg’ing.
But as EM noted already, Mfg’ing productivity in domestic production is huge .. value/hour of labor. But that’s because U.S. mfg’ing concentrates their capital in high value goods where automation has greater roi than on most consumer commodities..
So I’ll apologize for erroneously thinking the subject was really about international competition and comparative advantage.
I will add a comment that part of the reason Europe and Japan adopted Basic Oxygen Furnaces faster was that they had a dose of rapid industrial disassembly (to borrow a phrase from space x) So they had to rebuild. The Basic Oxygen furnace was commercialized in 1952-1953 in Austria. Of course in addition tradition or in many cases the attitude that if its not broke don’t fix it are what big companies run by investment banker types are all about. (J.P. Morgan wanted Carnigie out of steel so innovation could slow and more money be made, well the money lasted for a while …) Many entrepreneurs have nothing to break so they can fix it from scratch (Bezos…) But the steel cos in the late 1950s to 1960 felt they had large sunk costs and …
Once again a demonstration of what many things have shown that if the management gets out of the way of engineers and lets them spend more great things and large amounts of money are to be made long term but the CEO may have retired by then.
Lyle:
Thank you for your comments. An engineer showed up at EV. They were giving him a hard time. I had to explain to him they did not know what he was talking about which was a large part of the problem.
Lyle,
Stated perhaps a little more directly, Europe’s and Japan’s industries had been destroyed by WWII. They had to rebuild virtually all of it. They rebuilt using the more advanced Steel mfg’ing while the US steel mfg’ers roi on new steel plants couldn’t pan out by writing off off their existing facilities. It was purely an economic roi decision
The US’s existing steel facilities were going full blast (no pun intended) supplying steel to rebuild while also supplying the U.S.’s growth afte the war.
Catabolizing those cash cows didn’t’ make economic sense by a long shot. By the 1970’s Europe and Japan wee supplying much of their own steel and competing directly with the US’s old steel making facilities. It was lower cost for the US steel consumers to purchase more and more of their demand from Europe’s and Japan’s steel
US steel producers then had to make a decision on whether to heavily reinvest and scrap their existing plants (write-off) or abandon the steel competition, a decision made for them by financial institutions which would have to loan them the funds. Those funds (capital) were competing for roi and new Steel investment wasn’t even in the running.
As simple way of looking at this situation is that global steel competition would be divided three ways if US steel producers built new competitive facilities, reducing prices and thus profit margins, extending the time of returns on those investments, thus roi on a time based use of capital. Greater roi was available by investing in Aluminum ,which was on a huge growth path, and new high tech industries (semi-conductors & their uses), and at that time nuclear energy (GE, Westinghouse) who were supplying it. Global and US capital was in high demand — it had no good economic reason to look to the longer term US steel competitive markets for roi opportunities.
LT,
My interpretation of the original post and thus the study reported on is that no one is blaming China for being China.
All the study showed was that there was an effect on labor in the US when China got to be China on the world stage.
Everything you noted regarding policy and policy being to blame has been noted here at AB over the years by the blog’s authors and by the commenters.
So, I think we’re on the same page.
As to comparative advantage, my position has and is that it may be a valid econ concept/theory (though I believe it is in error as it’s presented in the typical closed system, reduction reasoning of econ) but it’s a dang stupid concept for policy precisely because it is arguing from the position of money and not labor. Labor being the dominate means by which humanity lives and reduces the risks of life and living.
Re: Longtooth: Going back a bit, Carnige was willing to write off for better tech, partly because he had a controlling interest in Carnige steel, while paid managers not being controlling owners can’t take the long term view that requires.
Daniel,
My interpretation of NDD’s post was that China’s the problem simply because goods labor in the US has been taking the displacement hit from foreign trade due to competitive (including comparative) advantage wrt labor since the 1960”s when Europe and Japan began to be competitive again after rebuilding. Picking China as causing this is “blaming”.
With specific regard comparative advantage.
1) It is not just “may be a valid econ concept”, it’s been the reality forever… both domestically and in international trade. That can’t be ignored or placed in a “concept” category, so we disagree on that point. The New England states had fast flowing rivers and streams conducive to energy production for goods. The Southern states had slow flowing rivers and flat agricultural land and climate, independent of slave labor. SF ay area developed from a trading port gateway to the US from the orient to one with a high concentration of colleges & universities (nearly all publically funded by it’s taxpayers) conducive to readily available ample supplies of high skilled labor resources for R&D and invention or at least working on the leading edge (Becker Instruments, HP, IBM’s disk drive division all before semi-conductors).
All examples of domestic comparative advantage ..among thousands of other such examples across the US.But I agree whole heartedly with you that money (capital owners) and not labor control things to the huge advantages of capital at labor’s expense. I don’t like it that way either, so we agree on that point.
But I’m also a realist and we both know capital has always ruled gov’ts at labor’s expense with constitutions, laws, or dictators inscribing it to remain that way It’s only a matter of degree.. In a relative democracy the degree is controlled n part by voters who can change the constitutions and laws — hence the Scandinavian nations, France, and Germany’s more cooperative societies v. the US’s individualist society.
Once upon a time a wise elder once told me to quit trying to convince people how it “should be” and deal with how it “is”.. He used the terms there are the “should be’s” and the “is’s”” Civilized progress is made by changing the “is’s” not by trying to convince people of the “should be’s”
It occurred to me that Wars are created by the ‘should be’s” which can certainly change the “is’s”, but not in a civilized way
Which get’s me to this: To make civilized change to the “is’s” you hvae to have civil power. Civil power comes from gov’t or ownership or beng the head of the company.
.
Daniel, I hit “send” too soon.
Which get’s me to this: To make civilized change to the “is’s” you have to have civil power. Civil power comes from gov’t or ownership or being the head of the company. None of those entities wants to destroy itself to change things.
Daniel,
For clarity: None of those entities wants to destroy itself in the course of changing things..
Child care is kind of a different variable here. Sure there are many families that look at it and decide that having a parent at home – nearly always mom – is how they are going to proceed. It is fairly easy to see that if not for Chinese imports or robots that that unemployed person would be very interested in working a paid job. But the situation with child care is that those taking care of their children probably are not interested in n outside job. Child care is a very easy service to understand the value equation: this is what we will do for you, here is where we are going to do it, these are the people that will do it and here is what we will charge you for this. It is pretty transparent because parents are understandably cautious with their children’s care. There is no Manhattan Project around the corner that is going to radically change things here is my guess. States will have sensible regulations that will create a cost floor, people will want to make some money on it and pricing will be at a point where some activities that the parent would do if they bought that childcare just won’t be worth it.