Bush's Lost Jobs - The Fuller Story - March 14, 2007
By Stephen S. Poloz, Senior Vice-President, Financing Products Group, Export Development CanadaListen to the Weekly Commentary podcast.
RSS | iTunesGeorge W. Bush has been blamed for many things. But one that comes up repeatedly is the loss of 3 million manufacturing jobs, which many critics attribute to his trade policies.
The theory behind this charge is all too simple. Critics observe that the U.S. has a large trade deficit, especially with China, which means that Americans import more from China than they export to China. To these critics, every Chinese item that an American buys represents a lost American job.
Since January 2001, the U.S. economy has shed 3 million manufacturing jobs, true. But there is a lot more to the story than that. Indeed, the economy has created 5 million jobs during Bush's time in office – so the non-manufacturing sectors of the economy have created about 8 million new jobs.
What kinds of jobs have been created? Mostly jobs in the services sector – some 7 million of them. For example, there were 1.8 million new jobs in health care, 1.3 million in government, 700,000 in finance, 500,000 in education and 84,000 in transportation. The hospitality sector contributed 1.4 million jobs. Besides this, over 800,000 jobs were created in construction, and 100,000 in mining.
Some have responded to this analysis by claiming that the new jobs being created were of lower quality, with lower wages, than those being lost, often citing job growth in hospitality. However, the average service sector wage was only 4% below the average manufacturing wage back in 2001; and today, that gap is only 1%. This is because since 2001 service sector wages are up 21%, whereas manufacturing wages are up 17%. And construction sector wages – a common destination for displaced manufacturing workers – are about 20% higher than the average manufacturing wage. This is why total U.S. income and spending have been strong, despite the woes of manufacturers.
It must also be recognized that this restructuring of the U.S. economy did not begin in 2001. There has been a gradual but steady shift away from manufacturing and into other sectors for the past 50 years. Back in 1955, 31% of all U.S. jobs (15.5 million workers) were in manufacturing. Today, that figure is only 10.3%, or about 14 million workers. Meanwhile, the number of construction workers has risen by a factor of 2.7, and service sector workers by a factor of 3.6, in the past 50 years.
International trade is playing a key role in this story. The productivity and wages of American manufacturing workers have increased enormously over the past 50 years. Much of this has come by using international trade to make companies more efficient, offshoring low-productivity tasks and raising the capital intensity of production in the U.S. Two-way trade is more than four times as important to the U.S. economy today as it was in 1955. Lower-cost manufactured imports boost spending power in the U.S., which leads to the creation of jobs in other sectors of the economy.
The bottom line? True, the U.S. manufacturing sector is under pressure to restructure, but this is not new. It has been doing so, successfully, for over 50 years. International trade is part of the solution, not the problem. It is the job of policymakers to make this clearer.
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