[Mb-civic] An article for you from an Economist.com reader.

Sat Oct 1 16:19:40 PDT 2005

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THE GREAT JOBS SWITCH
Sep 29th 2005  

The fall in manufacturing employment in developed economies is a sign
of economic progress, not decline

THAT employment in manufacturing, once the engine of growth, is in a
long, slow decline in the rich world is a familiar notion. That it is
on its way to being virtually wiped out is not. Yet calculations by THE
ECONOMIST suggest that manufacturing now accounts for less than 10% of
total jobs in America. Other rich countries are moving in that
direction, too, with Britain close behind America, followed by France
and Japan, with Germany and Italy lagging behind (see article[2]). 

Shrinking employment in any sector sounds like bad news. It isn't.
Manufacturing jobs disappear because economies are healthy, not sick.

 The decline of manufacturing in rich countries is a more complex story
than the piles of Chinese-made goods in shops suggest. Manufacturing
output continues to expand in most developed countries--in America, by
almost 4% a year on average since 1991. Despite the rise in Chinese
exports, America is still the world's biggest manufacturer, producing
about twice as much, measured by value, as China.

 The continued growth in manufacturing output shows that the fall in
jobs has not been caused by mass substitution of Chinese goods for
locally made ones. It has happened because rich-world companies have
replaced workers with new technology to boost productivity and shifted
production from labour-intensive products such as textiles to
higher-tech, higher value-added, sectors such as pharmaceuticals.
Within firms, low-skilled jobs have moved offshore. Higher-value R&D,
design and marketing have stayed at home. 

All that is good. Faster productivity growth means higher average
incomes. Low rates of unemployment in the countries which have shifted
furthest away from manufacturing suggest that most laid-off workers
have found new jobs. And consumers have benefited from cheap Chinese
imports. 

Yet there is a residual belief that making things you can drop on your
toe is superior to working in accounting or hairdressing. Manufacturing
jobs, it is often said, are better than the Mcjobs typical in the
service sector. Yet working conditions in services are often pleasanter
and safer than on an assembly line, and average wages in the
fastest-growing sectors, such as finance, professional and business
services, education and health, are higher than in manufacturing. 

A second worry is that services are harder to export, so if developed
economies make fewer goods, how will they pay for imports? But rich
countries already increasingly pay their way in the world by exporting
services. America has a huge trade deficit not because it is not
exporting enough, but because American consumers are spending too much. 

A new concern is that it is no longer just dirty blue-collar jobs that
are being sucked offshore. Poor countries now have easier access to
first-world technology. Combined with low wages, it is argued, they can
make everything--including high-tech goods--more cheaply. But that's
only partly true. China's comparative advantage is in labour-intensive
industries; and a basic principle of economics, proven time and again,
is that even if a country can make everything more cheaply, it will
still gain from specialising in goods in which it has a comparative
advantage. Developed economies' comparative advantage is in
knowledge-intensive activities, because they have so much skilled
labour. For years to come, China will be more likely to assemble the
best computers than to design them.

Employment in rich countries will have to shift towards higher skilled
jobs to maintain economic growth. Countries that prevent this shift
taking place risk being left behind. Rather than block it, governments
need to try to ameliorate the pains which change inflicts by, for
example, retraining or temporarily helping those workers who lose their
jobs. 

People always resist change, yet sustained growth relies on a
continuous shift in resources to more efficient use. In 1820, for
example, 70% of American workers were in agriculture; today 2% are. If
all those workers had remained tilling the land, America would now be a
lot poorer.

-----
[1] http://www.economist.com/economist:doc-id=20051001/PD6AOHH
[2] http://www.economist.com/displayStory.cfm?story_ID=4462685

See this article with graphics and related items at http://www.economist.com/displaystory.cfm?story_id=4458528

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