Manufacturing

Explaining Anemic U.S. Job Growth: The Role of Faltering U.S. Competitiveness

December 5, 2011
| Reports
More than two years after the “end” of the Great Recession, employment is five percent below its January 2008 peak. Why was this recession so severe and the recovery so anemic despite a myriad of actions by Washington? This report takes up seven explanations, disposes of six of them and makes the case for the seventh. 1) The Great Recession will not be dispatched with more Keynesian moves to jump start demand. 2) We should not simply accept the idea that we need to be patient as financial balance sheets are straightened out. 3) Uncertainty about taxing and regulation is always a consideration but it is not a major factor in hindering growth. 4) While we need better trained and more mobile workers, the reported mismatch between job openings and qualified workers is overstated as a factor in high unemployment. 5) Technological gains have not run their course as a job-creating force. 6) Finally, robots and machines are not making workers obsolete. A seventh factor best explains the sluggish job growth: faltering U.S. competitiveness, including in our manufacturing sector which lost a greater share of jobs in the last decade than in the Great Depression. To get the recovery going full steam, we need to develop and implement a robust national innovation and competitiveness policy.

More than two years after the “end” of the Great Recession, it’s clear that things are not working. GDP remains below its peak of 16 quarters ago while jobs are five percent below their January 2008 peak. As Laura Tyson of the Center for American Progress has calculated, even if job growth doubled from recent levels to the 208,000 per month rate before 2005, it would take until 2023 to get us back to pre-recession employment levels (given new entrants to the workforce).1 Understanding why job performance has been so poor is perhaps the single most important thing for Washington to do to get us on the road to robust recovery. But what is the right diagnosis? There is anything but consensus on this for at least seven diagnoses have been offered. The dominant ones are well known, having been debated almost daily in the media. For some, this is a “Keynesian” recession, albeit of unusually severe proportions. With demand flat, what is required is for government to use significant and sustained countercyclical fiscal and monetary policies to get people and businesses spending again. Others argue that “this time it’s different.” They argue this is a financial crisis-induced recession and as such that conventional Keynesian tools are of limited use and that recovery will inherently take much longer.

But following the logical prescriptions—fiscal stimulus for the first, and cleaning up balance sheets for the second—will provide some relief for the patient, but not the needed cure. Still others argue that regulatory uncertainty is the culprit, that companies worry about vast new regulatory burdens and increased taxes and are hoarding their capital until this threat has passed. But in fact, few businesses actually appear to be worried about this.A next three diagnoses are grounded in micro-level factors. The “skills mismatch” explanation holds that many more workers would be employed if they just possessed the right skills for current job openings. But while a contributing factor, it doesn’t explain why unemployment remains at around nine percent when it was under five percent just a few years ago. The “robots killed our jobs” explanation blames new technology for job loss, even though productivity is lower now since the recession began than previously and even though the economic literature is largely in agreement that productivity does not lead to net job loss. The innovation exhaustion explanation actually posits the opposite cause: too little innovation and productivity, holding that it is because the possibilities of technology-powered innovation have dried up, that recovery is so difficult. This is an appealing diagnosis, in part because it is closer than the other diagnoses. But it is still off the mark. The current IT-driven innovation system is alive and well. To the extent that this diagnosis is accurate, it has to do with where innovation is taking place which is not in the United States as much as it used to be. Unfortunately, the United States as a whole has become less innovative.

This gets us to the seventh, and in our view, most accurate and overlooked diagnosis for the anemic U.S. recovery: the failure of the United States to maintain its competitiveness in the world economy, particularly in manufacturing, means that the overall U.S. engine of growth is not running on all cylinders and that recovery is halting. It will only be when the United States regains the competitiveness of its internationally traded sectors that the U.S. economy will achieve escape velocity.

Explaining Anemic U.S. Job Growth: The Role of Faltering U.S. Competitiveness

December 5, 2011
Recent analysis of the economic crisis fails to consider the loss of manufacturing jobs and lack of innovation in the U.S.

The Great Recession officially ended more than two years ago but the recovery is barely perceptible and anxious policymakers are running out of options. Washington cannot seem to agree on what caused the Recession in the first place or how to create robust job growth. One camp argues for revving up consumer demand through fiscal and monetary policy. The other says the financial system got out of control and we just have to wait for our books to get back into balance. Read more »

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Oops, Never Mind: BCG Gets it Wrong on U.S. Manufacturing and China

November 29, 2011
| Blogs & Op-eds

After publishing conflicting reports on the state of U.S. manufacturing, Boston Consulting Group is in danger of providing false hope and wrong scenarios to the public. ITIF president Rob Atkinson emphasizes when BCG talks, lots of people listen. And now, the group has come out with a report that essentially tells policymakers: don’t worry about the fact that America lost almost a third of its manufacturing jobs in the last decade, a rate of loss even faster than in the Great Depression; we seers at BCG are telling you we’ll be fine. This is obviously a flawed argument and clarifies the need for a solid national manufacturing strategy.

Fed's Strauss Says Manufacturing Employment Decline Tied to Increased Productivity

IndustryWeek
Economists' market-driven approach to policy has dominated decision-making when government and private industry partnerships are needed.

Economists' market-driven approach to policy has dominated decision-making in Washington, Atkinson said. More government and private industry partnerships are needed to re-establish the United States a global manufacturing leader.

Innovation in Manufacturing: Driving Growth and Competitiveness

November 15, 2011
| Presentations

In the last decade, manufacturing job growth in the United States has been slower than in any other developed nation. Rob Atkinson calls for a national industrial policy that fosters innovation through tax incentives, workforce development and technology investments. Further, many economists maintain a market-driven approach to policy that has dominated decision-making in Washington. More government and private industry partnerships are needed to re-establish the United States as a global manufacturing leader.

Innovation Deficit Disorder: A Diagnosis For a Sick Economy

November 8, 2011
| Blogs & Op-eds

Writing for The Atlantic, Rob Atkinson argues the economic recovery theories of many economists and policymakers miss the essential point: the loss of U.S. innovation, competitiveness leadership and the origins of the devastating decline in the U.S. manufacturing sector in the last decade. Between 2000 and the peak of employment in January 2008, the number of jobs grew just 5.4 percent, while manufacturing jobs declined by a whopping 32 percent.

Despite these alarming trends, too many policy elites have urged us not to fret, arguing the United States is still strong in "innovation." But manufacturing and innovation are linked. Much of manufacturing (think semiconductors, drugs, medical devices, aerospace, and instruments) is high tech. Moreover, losing high-tech industry (the U.S. has run a trade deficit in high technology since 2000) leads to the loss of the upstream R&D and design jobs as well.

America Must Learn from Germany - Before It’s Too Late

October 24, 2011
| Blogs & Op-eds

In a feature for CNN's Global Public Square, ITIF President Rob Atkinson reflects on Germany's manufacturing strategy. While there are cultural and historical differences between the United States and Germany that makes consensus and cooperation more of a challenge here, the United States is no stranger to the idea of a shared sense of mission. The mobilization of American factories at the start of World War II and moon landing are dramatic examples of this. Less dramatic but equally impressive were changes in trade, education, tax and R&D policies adopted in the late 1980s to meet the economic challenge of Japan and other countries. The economic peril we face today pales in comparison to what we faced in the late 1980s. Only time will tell if we will look back at 2011 as the fourth year of a lost decade and 2012 as another year we continued to accept the end of American economic primacy.

Jobs that Build the Economy

October 26, 2011
| Presentations

ITIF president Rob Atkinson will present “How Advanced Manufacturing Drives Innovation and Wealth Creation in the United States" as part of the Jobs that Build the Economy conference. The conference will discuss how advanced manufacturing can grow our economy, maintain the quality of life for all Americans, and sustain a broad-based middle class. Topics will include: industry demand for skilled, U.S.-based employees; public and private elements of a national manufacturing agenda; the need for a multiple-pathway educational system including nationally portable, industry-recognized credentials; and the strategic value of market diversification and innovation.

Boosting Competitiveness by Connecting Science and Industry: Insights from Germany's Innovation Model

October 18, 2011 - 12:00pm - 2:00pm
Information Technology and Innovation Foundation
1101 K Street NW
Suite 610A
Washington
DC
20001

Germany has emerged from the global downturn as one of the world's strongest economies. What's the secret behind Germany's economic strength? Read more »

International Benchmarking of Countries’ Policies and Programs Supporting SME Manufacturers

September 14, 2011 - 9:00am - 10:30am
Information Technology and Innovation Foundation
1101 K Street NW
Suite 610A
Washington
DC
20005

U.S. manufacturing is in trouble, having lost one-third of its jobs in the last decade. Robust jobs recovery will be difficult without a manufacturing renewal. But renewal will not be possible if the nation's 245,000 small and mid-sized manufacturers (SMEs) collectively do not become more productive, innovative and competitive. Read more »

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