by: Jon Roberts, Principal, TIP Strategies, Inc.

We have been following manufacturing trends closely for the last decade. The decline in manufacturing employment – which we predicted would continue – is as apparent as ever. In fact, we argued that manufacturing employment would follow the same downward trend that agricultural employment followed at the end of the previous century. For both sectors, increased automation has steadily replaced labor and helped drive tremendous productivity gains. The primary difference is that we are far removed from the transition which took agriculture from farm laborers to combines. In the case of manufacturing, we are square in the middle of it.

The August 15th Cheap Robots vs. Cheap Labor editorial from the New York Times regarding Foxconn is revealing. Foxconn is the world’s largest manufacturer and assembler of electronic components. Despite the fact that Chinese employees typically earn only a fraction of what U.S. workers earn ($1.36/hour), the founder and chairman of Foxconn is aggressively seeking to reduce his workforce through industrial automation. Productivity gains within the workforce have natural limits. Employees get sick, need personal time off, and are subject to spells of low productivity in ways that “robots” never are. Or, to put it differently, investment in new equipment heightens productivity in a cost-efficient manner. Even a very low-cost labor force is not as efficient (or as affordable) when industrial equipment is an option.

We know that productivity and employment growth are not necessarily linked. As a business we become more productive when we do more with less. And that “less” is first and foremost represented by labor costs. Which is why Foxconn will replace thousands upon thousands of workers with machines. This is a trend that has been occurring for decades and it will only accelerate. While we know this, and accept it as a business reality, it is deeply disturbing to say the obvious in a political context. We cannot simultaneously praise productivity gains while bemoaning the loss of manufacturing employment. Productivity can – in many cases – be achieved precisely by cutting workers. Reduced employment rolls often follow in tandem with significant productivity improvements.

If we assumed that our competitive advantage, as a nation, was being compromised by the off-shoring of our manufacturing we would be missing the larger point. Whether we manufacture in the U.S. or in China (or anywhere else), the pressure to reduce labor costs is the same. And the more that other countries achieve greater productivity, the greater is the incentive for our businesses to make the capital investments that reduce labor costs. There is, after all, no better way to reduce labor costs than to reduce the total number of workers.


Not only is the total number of people employed in manufacturing declining, so is manufacturing’s share of total employment. Of course, it is worth repeating that a decline in the share of manufacturing employment does not indicate a decline in the productivity (or output) of the manufacturing sector. In fact quite the contrary has been true in recent decades. While the actual number of manufacturing jobs has dropped steadily since 2000, the value of manufacturing output (as measured in shipments per worker) has increased dramatically.

These trends in no way imply that manufacturing (or agriculture, for that matter) is not important to the economy. It is as important as it has ever been. What we have been arguing is that manufacturing employment is a problematic economic development indicator. In other words, measuring local economic development success by the number of new manufacturing jobs created can take you down the wrong path.

Related posts:

1. Cheap Robots vs. Cheap Labor
2. Does America Need Manufacturing?
3. The Green Jobs Numbers
4. Manufacturing’s New Innovation Labs
5. Manufacturing Profits Came Back. Manufacturing Jobs Didn’t.