MA Decline in Manufacturing Employment: Causes and Consequences

Recently, the COVID-19 pandemic has taken its toll on employment levels across all industries, with the shutdowns of Spring 2020 forcing people out of work and enhanced unemployment benefits providing a disincentive to go back. However, as easy as it is to blame the increased unemployment benefits for declining employment levels, there’s one industry in MA whose employment rates have been declining for years before COVID. Using the Pioneer Institute’s MassEconomix Database, it’s clear that the number of manufacturing jobs has been falling consistently since at least the early 2000s. 

The US signed NAFTA  in 1993, effectively eliminating trade barriers among Mexico, the US, and Canada. Although advertised as a means to expand trade and lower tariffs that would decrease prices for the average American, one report from the Pew Research Center says that a plurality of Americans doubt NAFTA’s success, citing job loss and wage decreases.

“Only one-fifth of Americans believe that trade creates jobs compared to a median of 44% among people in advanced economies, 52% of those in emerging economies and 66% of those in developing countries, according to a new Pew Research Center 44 country global survey. The disparities are similar when Americans are asked if trade increases wages, with the U.S. public holding a far more negative view than people in most other nations.”

Regardless of the people’s sentiments, it is undeniable that one of the negative trade-offs of this agreement in the US was the loss of many blue collar manufacturing jobs. According to one report published by the Economic Policy Institute in 2003:

“Between 1994 (when NAFTA was implemented) and 2000, total employment rose rapidly in the United States, causing overall unemployment to fall to record low levels. But unemployment began to rise early in 2001, and 2.4 million jobs were lost in the domestic economy between March 2001 and October 2003 (BLS 2003). These job losses have been primarily concentrated in the manufacturing sector, which has experienced a total decline of 2.4 million jobs since March 2001.”

The same free-market, comparative advantage principles guiding NAFTA also guide decisions made to export jobs to the Far-East. Nearly one-sixth of US manufacturing jobs were exported to China in the 2000s, according to a 2016 study, and 78% of Taiwan’s exports between 2006-2012 were intermediate goods, namely electrical equipment and machinery, that were used to create consumer goods in China before being shipped to the US. 

Because wages in these emerging economies are lower than in the US, it costs less to make the same product in Taiwan or China than in the USA. To remain competitive and make the largest profit possible, American companies export those manufacturing jobs overseas where it is cheaper to produce the same goods.

However, China’s wages are rising as workers’ standards of living increase as well, according to a 2017 CNBC report. This in turn raises production costs. It will be interesting to see how global supply chains shift and if American companies begin to re-shore as China, once a favorite for cheap labor, grows more expensive. 

“Free-er” trade through NAFTA or with Far East countries, however, is not the only cause of the decline in manufacturing employment, according to a report from the Brookings Institution. As technology has progressed the last 50 years, automation has only gotten cheaper, leading to more job replacement. One estimate from Ball State University’s 2015 report on Manufacturing in America states that 87% of manufacturing jobs were replaced by machines in the 2000s.

Thankfully, the leaders of NAFTA countries have taken steps to acknowledge the need for renegotiating terms of the deal in recent years. In 2017, President Trump met with Canadian President Trudeau, where it was decided that both countries would be open to coordinating on projects to “keep wealth on our continent”, and Mexican President Nieto had already taken steps to renegotiate with the private sector before tackling the restructuring of NAFTA. The result of restructuring was the United States-Mexico-Canada Agreement (USMCA), which was signed by the three leaders in November 2018.

Overall, the loss of manufacturing jobs corresponds with increased automation and the off-shoring of blue-collar industrial jobs, so there is no cause for surprise. 

 

Isabel Wagner is a Roger Perry Government Transparency Intern at the Pioneer Institute. She is currently studying Political Science and Economics at Boston College.