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Yet more evidence that trying to prop up industries won’t work

REUTERS/Chris Keane
The growing amount of imported goods from China over the past twenty years and the fact that manufactured imports, in particular, often substituted for American-made products might strongly affect the demand for labor in the U.S. generally, and in manufacturing specifically.

Every Monday morning, I get a newsletter from the National Bureau of Economic Research. I look forward to it because it has the most recent NBER Working Papers — articles that have not yet been published in academic journals but which contain the newest research from leading scholars around the world.

I noticed a paper at the top of the list this past Monday: “Import Competition and the Great U.S. Employment Sag of the 2000s.”  (An ungated version is available here.)  When I read the abstract, a number jumped out at me: 2.4 million.

What’s so special about that number?  It’s an estimate of the net number of jobs lost in the United States from 1999 to 2011 due to import competition from China. That’s far bigger than any assessment I’ve seen before.

Let me put it into context:

The picture below shows the employment-population ratio for the U.S. from June 1983 (when the 1981-83 recession officially ended) to July 2014 (the latest date for which we have data).  The employment population is the ratio of the number of people working to the working-age population; for instance, in July it was 59 percent.

The employment-population ratio rose throughout the 1990s, reaching a peak of 64.7 percent in April 2000. The Great Employment Sag is the period from April 2000 to October 2006, when the employment-population ratio to 62 percent from April 2000 through September 2003 and then regained some ground until it reached 63.3 percent in October 2006.

Robert Moffitt of Johns Hopkins University nicely summarized the significance of the sag: “The decline in the employment-population ratios for men and women over 2000–07 … represents a historic turnaround in U.S. employment trends. The decline is disproportionately concentrated among the less educated and younger groups within the male and the female populations and, for women, especially among unmarried women without children.”

Moffitt concentrated on the supply factors that might have caused the sag. That is, he looked at why workers might not have been willing to work as much from 2000 to 2007 as they had been in the 1990s. He concluded that about half the decline for men was due to stagnant and falling real wages, while for women it was a combination of factors involving wages and family conditions. Moffitt also emphasized what did not cause the sag: tax changes, increases in government transfer payments such as unemployment insurance, or minimum wages.

The trade dimension

This is where the new study enters the picture. If only half the sag is caused by the supply of labor, the rest must have been caused by changes in the demand for labor, i.e. by employers changing their hiring behavior.

The growing amount of imported goods from China over the past twenty years and the fact that manufactured imports, in particular, often substituted for American-made products might strongly affect the demand for labor in the U.S. generally, and in manufacturing specifically.

The authors of the study set out to calculate this number by adding up the direct job losses in industries exposed to Chinese imports; the indirect job losses in industries linked to industries exposed to Chinese trade; the net jobs either lost or created as workers moved into other industries; and the job effects on the broader economy due to workers’ incomes being affected by Chinese imports.

This is a tall order, but one that economists can tackle due to the data-gathering prowess of the Department of Commerce and the computing power now available on our desktops. By adding up all of these effects, the authors concluded that there were “net job losses of 2.0 to 2.4 million stemming from the rise in import competition from China over the period 1999 to 2011.”

To put that number in context, think about manufacturing employment. There were roughly 19 million people employed in manufacturing in 1999 and that number fell to about 12 million in 2011. If most of the jobs were lost due to trade with China were in manufacturing, then growing Chinese imports were responsible for about 25 percent of the manufacturing job losses during the 2000s.

Notice this is only due to Chinese imports. My hunch is that if this study is replicated for all of our trading partners the number will probably approach 50 percent.

What should we do about this?

Increasing import competition from China definitely played a part in the Great Employment Sag of the 2000s and the decline in manufacturing employment during that same period. However, the decline in manufacturing employment is a long-term phenomenon stretching back to the 1940s, and is tied to both increasing productivity in manufacturing and increasing demands for services rather than goods.

The 2.4 million jobs lost due to Chinese import competition makes this worse, but closing the door to Chinese products won’t reverse the trend. Instead, this study is yet another reminder that we need to formulate new public policy strategies that focus on people, not industries. That is, rather than trying to prop up industries that are having difficulty competing, let’s ensure that our citizens have the education they need to change careers, health care and pensions that aren’t tied to their employer, and active labor market policies that allow them to move from one job to another without destroying their lives.

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Comments (6)

  1. Submitted by E Gamauf on 09/02/2014 - 04:55 am.

    Willing & Able: Do we need better economists?

    Please correct me if I am wrong, but it looks to me as though a paragraph fell off the page & is needed to bridge the early part of the article to the last paragraph.

    Quoting a comment about Moffatt:
    “… he looked at why workers might not have been WILLING to work as much from 2000 to 2007 as they had been in the 1990s.”

    Somehow the statistical disparity is because people CHOOSE not to work in manufacturing?

    Such conclusion needs to be supported in a logical connection, or refuted. The reference report implies that the cause is the pay scale – and that there is a numeric correlation in food stamp increase, as though food stamps are an alternative choice.

    Do we strive to match the numbers,
    or do we want to re-employ manufacturing workers that have ostensibly lost those jobs? Perhaps this is the thrust of the article, but I fail to see where this is a matter of worker choice.

    Only in Neverland.

  2. Submitted by dana ely on 09/02/2014 - 05:39 am.

    Gini coefficient wordwide, SSDI

    A Financial Times article from Dec 2013, ‘Capitalism in Search of Balance’,by John Gapper has a nice summation of winners and losers. Gapper stated the big winners in the new world economy were the wealthy in the West, also the lower class workers in China AND India, The losers were the middle class in Europe and the US.
    Income inequality is shrinking in the world as a whole but rising in the West.

    Also this weekend Barron’s had an article on work force participation in the US. It is way down. They discussed men only. One stat they mentioned was the increase in Social Security Disability Insurance(SSDI). Apparently it has gone up, doubling really, from 1970 to now, guys 24-54, going from 1.4% of the workforce to 3.3% of the workforce. In a time of OSHA and IT jobs they wondered why? They seemed to ascribe the rise to a better organized set of advocates and lawyers. Besides it is hard to get angry at a guy getting 1100$ a month when Fuld of Lehman Brothers walks away with a couple hundred million.

  3. Submitted by Greg Kapphahn on 09/02/2014 - 06:41 am.

    The “Elephant in the Room”

    that we are all so determinedly pretending is not there of course,

    is that we have already reached the point where we have no need for such a high proportion of the population to be employed.

    Everything that needs to be done can be done with the number of workers who are already working (or fewer).

    It’s not as if there are jobs out there that aren’t being done because workers are refusing to allow themselves to be hired to do those jobs, unless of course the pay is insufficient to compensate for the cost of the training required, the extremely unpleasant nature of the job, or the physical wear and tear on the human body it requires.

    The question that “elephant” asks, which, far too often doesn’t fit anywhere on an economist’s balance sheet, or neat but inadequate equations is one of the distribution of resources:

    i.e who receives the financial (and other) proceeds which result from the work being done in our society.

    Wall Street and many of our nation’s wealthiest and most anti-worker “conservative” folk seem to believe that the BEST business model is one which features very highly paid boards of directors and CEO’s with zero human employees. They continuously push every enterprise in that direction.

    That such folk are unable to realize that an economy that moves too far in the direction will collapse because there will be NO consumer demand, is a testament to their complete blindness.

    The economics of “capitalism” a set of interlocking unquestioned, theological beliefs as rigid as any religious dogma ever was, needs “reformation” as surely as the Catholic Church did when Luther nailed his 99 thesis to the church door.

    Will an economic “Luther” arrive to change the current paradigm before capitalism collapses under the weight of those at the top who are continuously whittling away the foundations upon which the entire system rests? I can only hope.

    In the end, the question is not where the jobs are located, nor if we have people with the necessary training in the necessary location with sufficient compensation available to bring job and worker together, but how we “support” the average citizen when we no longer need that person to work.

  4. Submitted by jody rooney on 09/02/2014 - 11:19 am.

    Only another economist could

    relate to the giddy feeling that accompanies the National Bureau of Economic Research news letter as in “oh boy data”.

    But that aside. I don’t know that we have come to the point where fewer people need to work and I don’t know that that’s the elephant in the room. Because a larger leisure class just supports different goods and services. Fewer wool gab pants and more jeans as it were. There are also delays in service that could be improved by hiring additional warm bodies.

    I think, and this is based on intuition not data analysis, that we have three things at play.

    First I think the increased productivity of gained from the widespread use of computers has been underestimated.

    Second we can now shop world wide markets for both used and new goods, which is good news for the reduce, reuse, recycle, crowd. i.e the demand for used goods has increased because there are now markets – craigslist, ebay

    Third the demographics of with boomers downsizing possibly slower household formation by younger generations has decreased demand.

    Consumption may have been reduced and directed to different goods.

  5. Submitted by David Frenkel on 09/02/2014 - 11:32 am.

    job openings

    This article did not mention there is a severe shortage of skilled workers in manufacturing in the US. People think of manufacturing as dirty low paid jobs but many manufacturing jobs require 2 years of college or votech training and are good paying jobs. The full recovery of US manufacturing is relying on a skilled work force that is in short supply. Many companies are also bringing their manufacturing back from Asia to the US or Mexico. Labor costs are rising in China as well as transportation costs.
    Also as Microsoft is currently finding out US regulations look pretty tame compared to getting entangled with Chinese bureaucrats.

    • Submitted by E Gamauf on 09/02/2014 - 12:26 pm.

      Hand-to-mouth subsistence workers or skilled?

      The article seems well-intentioned to me.
      It also seems incomplete.

      Why are so many of these jobs outside the country?
      I don’t see anything that tells me if the workers in China are more skilled, or just cheaper.
      Perhaps they are willing?

      A better educated workforce alone does not change the disparity of manufacturing jobs.
      You have to establish if that’s actually the reason the jobs are overseas. I don’t see where that was done.

      The post-Citizen’s United Corporation is an undeclared citizen that owes marginal loyalty to any country.
      Is it about tax dodges?

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