Features

January/ February 2012 The Myth of American Productivity

Politicians say we have the most productive workers in the world. They don't know what they're talking about.

By Michael Mandel

Alternatively, companies can cut costs by seeking out cheaper suppliers around the world—to use the business school term, they can engage in global supply chain management. A U.S.-based computer company can lower its costs by moving its customer call center from South Dakota to India, Walmart can shift its clothing purchases from a Chinese shirt manufacturer to a cheaper supplier in Vietnam. Apple can find a cheaper offshore supplier for its iPhone display screen.

But here’s the rub: both of these corporate strategies— domestic productivity improvements and global supply chain management—show up as productivity gains in U.S. economic records. When federal statisticians calculate the nation’s economic output, what they are actually measuring is domestic “value added”—the dollar value of all sales minus the dollar value of all imports. “Productivity” is then calculated by dividing the quantity of value added by the number of American workers. American workers, however, often have little to do with the gains in productivity attributed to them. For instance, if Company A saves $250,000 simply by switching from a Japanese sprocket supplier to a much cheaper Chinese sprocket supplier, that change shows up as an increase in American productivity—just as if the company had saved $250,000 by making its warehouse operation in Chicago more efficient.

It’s important to note that the government does make an effort to control for these changes in import prices— for example, the switch from the Japanese to the Chinese sprocket—when measuring national economic output. In fact, the Bureau of Labor Statistics is assigned to this very job. But for a variety of reasons, including underfunding and some important omissions in data collection, the BLS does a poor job tracking the drops in prices that result when companies shift from a supplier in one country to a cheaper one in another. This is what’s known as “import price bias.” If Company A’s sprockets start pouring into U.S. shipyards from China rather than from Japan, the BLS has neither the manpower nor the procedures to know that these two imports are really the same part, albeit with a lower price and a different point of origin.

Import price bias also shows up in a big way when companies shift from domestic suppliers to cheaper foreign suppliers. Consider refrigerators, for example, like the ones made in the Whirlpool plant mentioned earlier. Refrigerator imports from lower-cost countries such as Mexico, Korea, and China now total almost $4 billion annually, up 19 percent since 2007. Clearly these growing imports are displacing domestic production and employment— but how much? Today the official statistics treat imported refrigerators as if they cost the same as U.S.-made refrigerators, so that $4 billion of imports is assumed to displace $4 billion of domestic production. But a more accurate measure would take into account the lower cost of Chinese- or Mexican-made appliances, so that $4 billion of imports might really displace $5 billion, $6 billion, or even $8 billion of domestic production. Unfortunately, the BLS does not track the relative price of imported and domestic fridges—or almost any other product, for that matter. Scale this problem up by a factor of a million, and you begin to see how pervasive import price bias really is.

These statistical deficiencies amount to an incapacitating handicap for anyone trying to understand the truth about American productivity. Because economically, there’s an enormous difference between “domestic” productivity growth and what Susan Houseman of the Upjohn Institute and I have called “supply chain” productivity growth. Over the long run, gains in domestic productivity should translate into higher living standards and more jobs for U.S. workers. Economic theory—and common sense—tells you that companies will want to hire more of the types of workers who are contributing to higher profits. If the profits are coming from improved factory productivity in Dearborn, High Point, or Mountain View, then the company will want to hire more good production workers at those plants.

“Supply chain” productivity doesn’t work the same way. If companies reconfigure themselves to better scour the globe for the lowest-priced goods and services, then their essential personnel are multilingual business school graduates with the ability to parachute into Shanghai or Bangalore and negotiate the best deals with suppliers, logistics experts who can keep the goods flowing, marketers to sell the goods, and software engineers to program the computers that communicate with the suppliers. In other words, the bulk of the company’s own workers essentially perform a creative or coordinating function, rather than a manufacturing one. These workers might be in the U.S., or they might be spread around the world.

The model of success in this vein is Apple, which has no manufacturing facilities. Instead, it maintains enormous profit margins through innovative product development and tough negotiating with suppliers. One thing feeds the other: because Apple brings the promise of huge markets and trendsetting products, it has enormous clout to bargain with suppliers for lower prices.

But not many companies are quite so successful at this game. Any number of American firms have offshored production and even product development to foreign suppliers, only to then see those same suppliers become lowcost rivals. One company that fell into that trap is Hewlett- Packard, which has reduced real spending on R&D since the mid-2000s, focusing instead on supply chain management and outsourcing its computer production and development. The resulting lack of innovation put HP at a bargaining disadvantage relative to its suppliers. That’s why HP’s latest tablet computer couldn’t undercut Apple, and why HP is talking about getting rid of its computer business. Without innovation, a supply chain strategy fails over time.

It’s not clear, then, that an economy-wide shift from a focus on domestic production to one on consumption, trading, and organization will lead to a stable arrangement between the United States and the global economy. Why should the rest of the world consent to being organized by us if we aren’t producing—and if we’re borrowing to support our consumption? In the end, organizing may not pay enough. Yet much of the reported gain in U.S. production seems to be coming from gains in supply chain productivity, rather than domestic productivity. We don’t know for sure about this. As we’ve said, the official data doesn’t reveal much about whether U.S. companies have moved their operations offshore or kept them at home; depending on the circumstances, both can show up as productivity gains. But the manufacturing sector and the economy as a whole certainly feel like they are being hollowed out. And indeed, some recent research suggests that the size of the mismeasurement problem is huge. To cite just one example, a 2011 paper by Houseman and three coauthors from the Federal Reserve found that non-high-tech manufacturing growth from 1997 to 2007 may have been overestimated by as much as one-half because of import price bias. Similarly, ongoing research from a new policy brief from the Progressive Policy Institute shows that the official statistics have significantly overstated GDP and productivity growth since 2007—implying that the recovery has been even weaker than we thought.

Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a video news and education company.

Comments

  • Andrew on January 11, 2012 10:28 AM:

    Great article. I have a funny feeling that a lot of players in DC would rather not know the truth. They would rather hang on to their ideological hobby horses.

  • Matthias on January 11, 2012 10:42 AM:

    Well argued and clearly written. We really need more of this kind of thorough analysis.

  • RepublicanPointOfView on January 11, 2012 12:36 PM:

    What a misleading article!

    When our politicians say that America has the "most productive" workers, they are correct. You just fail to understand what they mean!

    When they say America, they mean Corporate America which, of course, really means International Corporate America.

    When they say "most productive", they mean that their workers produce more and more wealth for the already wealthy.

    I look forward to January 21, 2020!

    On that date, the 10th anniversary of Citizens United Not Timid vs FEC, we shall officially rename this country The United Corporations of ameriKKKa. The 21st of January shall become a national holiday formally observed by all with selected politicians publicly paying homage to those who own them.

    To increase the productivity of workers given that day off from work, the Thanksgiving holiday will be eliminated and the 4th of July declared superfluous. Naturally, the Presidents Day holiday that some currently enjoy shall be deemed inappropriate to our new nation with its CEO selected by the Corporate Board of Directors.

    What a joyous day to celebrate when our country has returned to the economic success of 1) The wealthy having greater wealth; 2) The reduction of the middle class to those who provide direct services to the wealthy; and 3) all taxes being paid by the peons to whom employment has been granted. Never forget that a job is a privilege granted to you by the wealthy and not a right!

  • PEA on January 11, 2012 12:40 PM:

    Great job highlighting and explaining some fundamental issues. It's truly what should matter to the 99%. Needs to be widely shared!

    Can the analysis you suggest the BLS do also be done by academics and grad students (perhaps with funding from enlightened foundations)? Great training for future economists and arguably more credible results, if their assumptions and methods are made public along with the results (like science). As you note, both parties engage in false assumptions or rhetoric about the economy, so real change might have to be initiated outside govt.

    Another way in which so-called increased productivity can be misleading happens when everyone else has to pick up the slack after a down-sizing. I know many conscientious professionals who have soldiered on, doing 150% work for years and not being paid for their extra effort and hours. The negative side effects of this so-called increased productivity are often hidden: superficial work, mistakes, poor planning, omissions, etc., (e.g through lack of time, lack of knowledge by remaining employees, or their eventual resentment. This undermines the quality of output, and ultimately the sustainability of the business or public sector work. The regular cramming of too much work onto the shoulders of too few employees can seriously undermine their health, increase stress on their families, etc.--all of which have real costs pushed by the employer onto the employees (somewhat like the collateral damage of physical pollution that is often not paid for by the polluters). So while reducing the workforce can be ok for awhile (especially if there were redundancies in the system originally), the increased stress in the system can ruin it in the long term.

  • Alan on January 11, 2012 1:39 PM:

    For many years, the American voter has been told that globalization will allow Americans to move into "higher value" jobs, increasing wages and standard of living. To the extent that has worked in the past, great. But it appears that easy gains have already been realized and that more recently, as jobs have moved overseas, it has resulted in rising unemployment and stagnant or reduced wages here in America.

    We need to find some way to get back to the basic promise of American jobs and wage growth. The best way to do that is to (a) ensure that American companies and the workforce can be globally competitive and (b) tie the sale of goods and services in America to American jobs.

    I believe that the following policies would solve these problems withing a free market framework:

    1. Eliminate corporate taxes, so that there is no tax advantage to locating a company offshore.

    2. Provide universal healthcare and retirement benefits, so that companies do not have to pay these costs for American workers.

    3. Subsidize regulatory compliance in key or strategic industries. If overseas manufacturing operations have lower regulatory costs, then all of part of the incremental costs of regulatory compliance in the USA would be paid for by the government.

    4. Pay for all of the above with (a) personal income taxes and (b) a VAT tax on all consumer products sold in the USA. Overseas manufacturers would pay the same taxes as American manufacturers, eliminating the tax benefit of manufacturing overseas. Services would not be taxed, removing the tax benefit of moving services such as call centers overseas. Exports would not be taxed, allowing American manufacturers to compete with foreign manufacturers for global sales. Products used exclusively in business would also not be taxed, to remove any tax penalty on locating a business in the America.

    5. Finally, as a key component to the plan, eliminate welfare and unemployment benefits and replace these with an employment program that subsidized wages to the extent necessary to provide job opportunities to all American workers. This could be done through the free market, in order to ensure that worker's skill are being put to their most productive uses. For example, each month or quarter, the Department of Labor could set a wage subsidy amount that would be paid for every American that is employed, provided that they are paid a minimum amount. The amount of the subsidy would the set to match employment demand and supply, and the VAT tax would raised or lowered as necessary to cover the costs of the subsidy. This program would indirectly tie the sale of good and services in America to American jobs: if moving jobs overseas resulted in the unemployment here in America, the wage subsidy, paid for by the sale of products in the USA, would rise until the jobs came back.

    A plan such as this would help restore the competitiveness of American companies and workers, while ensuring that all citizens benefited.

  • G Ray on January 11, 2012 1:42 PM:

    Interesting article. Looks like we need better and more government analysis and statistics.

    In an article in the NTY in August last year there were a number of excellent graphs that showed another part of this issue. I don't have the URL but I did print out the graph.

    The productivity (measured poorly according to you) rose 80% from 1979 to 2009. But the hourly wages only went up 7-8%. Where did the money from this extra productivity go? To income of the top earners. The top fifth of earners went up 55%.

    So along with inaccurate productivity statistics the increase in gain in productivity did not increase the wages of the average person. Just the top managers.

    We have a big problem that is only getting worse.

    Thanks
    G

  • skeptonomist on January 11, 2012 2:24 PM:

    This piece makes some good points but ignores the inequality in political power between labor and capital. True international competition would level not only wages, but profits and managers' compensation, but capitalists, especially American ones, can use their political power to maintain monopolistic positions. It is difficult for labor to organize internationally and those in control of the media and government can use nationalism to put workers in competition.

    Economists exacerbate this situation by focusing on relative "labor costs" and generally ignoring capital costs when considering international trade positions.

  • Rick on January 11, 2012 2:24 PM:

    Well written and thought provoking article. I had not thought about the difference between supply chain and production productivity. It seems to me though that increased domestic productivity does not necessarily lead to more jobs. My thought is quite the opposite. Automation can and has led to greater productivity and loss of jobs. Displaced workers will need to learn new skills or move to less skilled and lower paid work.

    This article gives a slightly different perspective.
    http://www.theatlantic.com/magazine/archive/2012/01/making-it-in-america/8844/?single_page=true

  • R.T.Thaddeus on January 11, 2012 2:57 PM:

    There is another more common ploy used to claim "increased productivity." A unit of ten workers produces 100 widgets a day at a cost that includes salary and benefits, the largest costs associated with producing the widgets. The unit of ten is "downsized" to five, but still required to produce 100 widgets a day. Presto, a huge gain in productivity. And if the workers are soon required to produce 120 widgets a day, still more productivity gain. Of course the stress increases on the workers with attendent health problems, personnel problems and other debilitative effects, but productivity shows up on the bottom line as a big increase. Still more productivity could be gained if humans could be replaced by robots. Robots don't have to be paid, fed, housed, clothed or otherwise coddled.

  • Keith on January 11, 2012 3:11 PM:

    Your critique of BLS statistics on productivity makes sense, but I am skeptical about the bulk of your proposed solutions. We certainly need to find ways of measuring true rather than illusory productivity, but using better measures to direct an industrial policy is an unnecessary extension of the idea that has no likelihood of a good payoff. Ours is not a central planning culture, and while we can do a good job of planning particular expenditures, such as building the TVA, we have never created an industrial plan as such. We lack the planning infrastructure that countries like Japan, China, or France have long developed, we lack the faith in planning that they possess, and our orientation toward change makes grand planning especially difficult. Our best planning took place during the Constitutional Convention after the Revolution, and consists of organizing our political structure. From that we get the historical emphasis on education and a minimization of social control as the best ways of advancing our people and our prosperity. Anyone who reads the wonderful Atlantic article cited earlier by Rick on January 11 will see how valuable that educational infrastructure remains even today, and there is likewise plenty of careful research to support the value of our entrepreneurial culture that the minimization of social control fosters.

  • Dave on January 11, 2012 6:47 PM:

    According to the latest numbers, manufacturing job growth last year (2011) was the strongest since 1997.

  • DHFabian on January 12, 2012 7:54 AM:

    My understanding of the issue of American productivity: With the Reagan administration, the Republicans created the myth of "lazy/spoiled American workers" to justify what came to be known as the "war on the working class." The goal was to increase productivity while decreasing wages and workers' protections (i.e., "working harder for less"), "enhancing corporate profits." At the time, American workers were compared to Japanese workers who gave up everything for the sake of their employers. By contrast, "lazy" Americans demanded overly-generous generous wages and benefits for doing little more than showing up at work. This, we were told, was driving corporations into bankruptcy, destroying the US economy. And indeed, Americans largely agreed to work far harder and longer for less. Facts have an annoying way of ruining the best-planned agendas. We learned how the zeal to surrender personal lives to employers, living to work, took a very heavy toll on the Japanese people. Instead of benefiting the nation, their economy collapsed. The facts about actual US worker output and quality found their way into the public discussion, threatening the continued upward redistribution of US wealth. We saw that while worker productivity and quality increased, and corporate profits soared, incomes fell and poverty significantly increased. .Unfortunately, by this point, US workers had surrendered almost everything, the economy collapsed, and time will tell if it's possible to restore our former quality of life.

  • anonymouse on January 12, 2012 8:04 AM:

    This is one way to tell your readers that you value their click stats more than the readability of your articles.

    To all of the entrenched old people on your staff attempting to design webpages like newspapers: You won't run out of paper by printing the article all on one page. I promise.

  • James Vick on January 12, 2012 2:18 PM:

    Agreed: Productivity is the sole source of quality of life improvements. Yin-Yang: Yes, agriculture productivity has contributed to fat people's problem. Countermeasure: Do not blame the farmers. Those lacking discipline (the fat folks)deserve blame. Productivity in government: What is BLS productivity? You do not know. So, how is it known it is underfunded? Would it be closer to zero like that of the SEC agents, who spent their workday on internet porn sites? Management: Good managers consistently elevate the productivity of their workforce. However, they do not do that for the sake of productivity. Their primary job is to create assets far greater than liabilities. Productivity contributes to that, but if a supply chain enhancement outpaces productivity growth, then that will be done.

  • Robert Hallsey on January 12, 2012 6:36 PM:

    Michael Mandel writes, "Today's high poverty and unemployment rates will only be part of a painful but temporary period of disruption, as exports of manufactured goods increase and unemployed workers are gradually absorbed into other sectors of the economy, just as an entire generation of farmworkers moved north and west to work in factories. There are two big problems with this theory, however."
    ===

    While I enjoyed Mandel's analysis, I believe the theory has a greater problem, one that most people overlook. As agriculture stopped being a source of mass employment, manufacturing rose to become one. Now that manufacturing is ceasing to be a source of mass eployment, no new source of mass employment is emerging.

    That is the approaching waterfall nobody on this boat seems to notice. There's no way to avoid it either. Even without any offshoring at all, automation would continue to lower the number of people needed to create all the goods and services the market can clear. And it's futile to point to rising manufacturing employment at home. The increase is too small to make a difference. We have to face it: manufacturing as a source of mass employment is dead, and there's no new employment paradigm.

  • mark vickers on January 13, 2012 10:49 PM:

    Amazing and potentially very important article. Thanks so much for writing it.

  • Evagneline Brabant on January 14, 2012 2:03 PM:

    Well, we used to have the most productive workers in the world, even with the union thugs limiting our productivity.

    However, within twenty years of the start of Affirmative Action hiring, our GNP had declined by over 30%.

    For those not in the know, minorities were hired who were not even remotely as qualified as the white males they replaced.

  • Harry Moser on January 14, 2012 5:59 PM:

    Excellent article! I do have several important refinements:
    1. The article repeatedly refers to companies seeking lower prices offshore. An important part of the solution is to convince companies, instead, to make their decisions based on total cost of ownership (TCO), including as many as 29 costs, e.g. carrying cost of inventory, IP risk, impact of separating manufacturing from engineering, etc.
    2. Calculating value-added based on price instead of TCO overstates the actual savings due to offshoring and thus further contributes to the exaggeration of productivity.
    I was one of the business executives in Pres. Obama�s excellent Jan 11, 2011 Insourcing Forum. I emphasized, and the assembled executives and union leaders supported, the need for companies to more consistently utilize total cost of ownership analysis instead of price variance in making their sourcing decisions.
    The non-profit Reshoring Initiative, www.reshorenow.org, provides for free a Total Cost of Ownership (TCO) software that helps corporations calculate the real offshoring impact on their P&L. Readers can bring back some manufacturing by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore.

  • sleepyhead on January 15, 2012 12:03 PM:

    The American consumer will not boost spending until we know what's up with our house. Let's start the recovery with shaking out the real estate mess.

  • cwolf on January 16, 2012 4:18 PM:

    We're Number One !!!

    ...at producing Obese citizens.

    Half the "jobs" in the US require little more than the ability to say "Super Size...", or "paper or plastic"

  • Alzatex on January 23, 2012 8:20 PM:

    With robotics coming on strong it may be necessary for American manufacturing to get more efficient. For example German manufacturing make use of Timing equipment for production and understand the benefit of a timer on any production line. Alzatex timers are high quality and have increased production for many American companies with a return on investment within months, sometimes in weeks. http://alzatex.com

  • Mike Muoio on January 25, 2012 11:17 AM:

    Yes...great article and I have been telling the boss similar stuff see below.

    We do need that audit as we cannot identify the abuse we are bearing without it.

    Great insight....and I did enjoy seeing you on C-Span.


    September 21, 2011


    President Obama
    The White House
    1600 Pennsylvania Avenue
    DC 20500

    Mr. President,

    Sadly I learned this morning that General Motors is moving its electric car development to Shanghai to work more closely with SAIC. How do you feel about this having had the US Taxpayer save the bastards from certain bankruptcy?
    Why don’t you call Steve Rattner and figure out just what the new “management” is thinking on this one.
    I thought the new technology was to be a domestic focus of your policy.
    Well if you believe this is the way to execute that policy, you really need to heed the advice that follows.
    Mr. President I would again, for the seventeenth time, ask you to get your game together or refuse to run again. I am your base and you have lost me and the only reason you would get my vote is I refuse to vote for wacko neo- fascists.
    Please seriously consider not running or an immediate resignation. Some people just are not cut out to be leaders and so far you have simply refused to lead.
    I have copied Secretary Clinton on this note to let her know she is our only hope to maintain the White House in 2012.
    Please lead and get these programs initiated or get out of the way of progress.
    We cannot drive economic recovery via tax cuts, temporary increased consumption, silly trade policy and monetary easing.

    We must drive it via manufacturing, exports and infrastructure reconstruction.

    The prima fascia evidence on trade over the last 30 years would strongly suggest that, “free trade” is not good for American workers and we have lost over 50,000 factories and 20 million jobs mainly to China. (B. Clinton and WTO)

    If your advisors (“Transnational Pawns”) told you that this would not happen with a new Korean deal, you need to fire them immediately as they have and will continue to cause major damage to your credibility.

    Your support for these deals make you look like a proud member of the National Chamber of Commerce, which is a truly un-American institution and borderline fascist organization.

    Mr. President I would remind you for the seventeenth time that you might very well lose the 2012 election unless you start to demonstrate some leadership on JOBS, TAXES and the BUDGET! Your prospects for reelection continue to dim.

    I will keep this brief. Four concepts you need to communicate effectively and with extreme passion as soon as possible.

    1. Jobs

    Effective immediately, via Presidential Emergency Order, everything that enters America that is manufactured will have a 30% tariff.

    This is a much more effective means to achieve free and fair trade than debasing the dollar and it will preserve raw material prices, not to mention keeping oil affordable. The policy you have adopted is crushing the elderly interest rate driven incomes, and you are killing the driving public and economy with gas price inflation. It will also keep direct foreign investment here! (In Q1 direct foreign investment declined 52%).

    2. Taxes

    Effective immediately, via Presidential Emergency Order, the Pre-Reagan tax rates go into effect. In addition, all federal corporate taxes are abolished.

    We simply must have the revenue. By eliminating corporate taxes, 67% do not pay taxes now; you can eliminate all the tax law and deductions etc associated with corporate tax. This should be red meat for your loyal opposition and they will support it.

    It would also help get them out of the lobbying business.

    3. Defense

    We will reduce defense, by Presidential Emergency Order, over a three-year period by a fa

  • Dig Deep on January 30, 2012 7:49 PM:

    The author mentions regulations - but not the real consequences of allowing imports from emerging market producers that have very low regulation costs versus our domestic reg's and subsequent costs.

    Until this imbalance is remedied, we'll continue to lose jobs. My opinion is that we do have too many reg's, but clean air & water and a workforce with benefits makes sense.

    So why is it that we impose these higher costs upon ourselves and allow off-shoring to circumvent our local laws and ship the goods right back to our own retail shelves? Could it be crony captialism with politicians favoring powerful mult-nationals?

  • Rory Larson on February 10, 2012 8:42 PM:

    Aside from inaccurate statistics, I think a deeper issue may lie hidden in a failure to grasp the difference between micro- and macro-economics. Value-based terms like "efficiency" and "productivity" are always subjective. They make sense only where you are identifying with a single party with a well-defined budget and a linear measure of success. But when we shift to macro-economics, these terms are absolutely meaningless, because there is no such thing as objective value. An economy is not a single business enterprise; it is an entire ecosystem, in which all players are struggling to make their living in competition with all the rest. If we measure efficiency from the point of view of company management, then maximizing company profits over expenditures is efficient, whether that means automating to lay off employees, working remaining employees more effectively (e.g. longer and harder), or finding cheaper employees. In that case, the manager who saves his company a million dollars by outsourcing and offshoring to a cheaper source of whatever they have hitherto paid local workers to do, has indeed greatly increased the productivity of his company. The fired employees, on the other hand, have just lost their means of making a living, and their households have become much less productive.

    Perfect efficiency and productivity from the companies' point of view would mean that they would be able to produce enough to satisfy all the world's wants, either robotically or through slavery, without having to pay anything to anyone else. The catch is that nobody else would be able to buy their products, because other people would have nothing of their own to offer that the company owners would need. In that case, there would be no reason to continue manufacturing anything beyond what the owners themselves would consume, and the rest of the population could be left to starve while the owners focussed on a death struggle with each other to buy control of all strategically important assets while maintaining hyper-efficient security systems to protect themselves from the desperate masses, and from each other.

    The economy is not a cooperative; it is an ecosystem of mutually competitive living things. Beyond the point of total energy and material that can be extracted from the environment, increased efficiency and productivity for the occupants of one niche means starvation and death for others.

    Rory

  • Joe_Lighthorse on February 21, 2012 12:36 PM:

    Shines a bright light on yet another abstraction bandied about by many (mostly Republican) politicians.

  • Evan Stevens on March 05, 2012 11:12 AM:

    As a retired journeyman machinist I find myself an expert on US manufacturing productivity, so let me enlighten you.
    Starting in 1978 as an apprentice, my foreman was an able machinist. The scope of his skills ranged from manual equipment to programable, (not CNC), automatic machines. He was paid around $20.00/hr. About 5 years later, he left to start-up a machine shop overseas, as manager and instructor to new apprentices, while I was learning to use CNC equipment. After 22 years in the trade I was a hot commodity, skilled with all the latest materials and equipment and often still using very old types of manual equipment, depending on circumstances and expeditious opportunities that normally arise in machine shop operations. I was leaps and bounds beyond the capabilities and productivity of that first foreman, earning less than he had while doing more, but still earning the going rate.
    I then relocated and brought my skills to a shop that had not yet upgraded to automatic, let alone CNC equipment due to ownership-management belief that short-run and R&D work could be done more efficiently with manual machines. For my part, the compensation was better and I relished the challenge of competing on manual machines while the opportunity was there to help bring in upgrades.
    (For those machinists reading who typically feign being "spoiled" and unable to go back, I performed very well and was sought out for high precision work with tolerances the others had never dealt with.)
    1-1/2 years in that position, and earning what my first foreman had been paid, albeit with fewer bennies, (not adjusted, the same dollars per hour), and with knowledge gleaned from CNC work that he could not know, I told management that I could easily outstrip the quality and quantity of any ten manual machinists in that shop with CNC equipment, and in many ways I was then his top producer. I stand by that well informed claim, and yes, US manufacturing productivity, per man hour, has greatly increased. Far beyond the 1% - 3% annual reports claimed. Lasers cut, not sure, but I think 2 feet thick layers of "Levis"? How many workers must that have removed? I helped build a machine that replaced a 32 man cabinet shop with two workers who feed a wooden door making machine from a top producer. What happened to those highly skilled workers?
    The hunter who uses a rifle is more productive than one who uses a bow. It is the human condition that productivity is ever increasing, and technological advances have come online in machine shops since my retirement - big ones.
    At some point we will have to recognize that there is not enough need to keep all people producing 40+ hours per week. Just as science fiction has long predicted, good or bad, humanity is headed towards a mass die-off possibly, and a leisure species certainly. One man can produce more than his entire entourage could ever hope to consume. It is happening today.
    50% of US food produce is wasted, it goes into locked dumpsters behind grocery stores and restaurants. 3.5 million Americans are homeless and 25 million homes are vacant. Think about it.

  • peterl on March 06, 2012 7:04 PM:

    Such a pleasure to hear about how things work from a physical perspective by Evan Stevens.

    Most of these articles are written from a pure economic perspective: heavy on calculated aggregate values and abstractions.

    I believe the economic perspective is not detailed enough to clearly show what is wrong with our economy, which is why we keep having problems.

    For those commentators who talk about regulations, regulatory burden, etc. consider the following story told to me by a cousin. At Ford, the length of time from the point where the designer comes up with new color for cars (say, tinted tangerine) to the point where it can be used in a car is 9 years, essentially all of which is spent waiting for the government to complete the next step in the compliance process. I believe our current regulatory system has treated "delay" as cost free, resulting in long delays (10 years for tunnels under New York's East River, 9 years for paint colors, etc.) Delay also works wonders for the federal workers who are guaranteed to be excoriated, investigated, and charged if anything goes wrong, but will not be punished for slowing things down.

    We can't compete with foreigners if we wait many years for our products to be "approved." Interestingly, we are highly competitive in software, which normally does not require any government approvals between the point where the idea is conceived and the point where the consumer uses it. I believe we need to restructure our regulatory system to (A) run much faster, (B) recognize the reality that errors are inevitable, and (C) protect regulators from after the fact inquisitions. After the fact inquisitions will always find some technical conflict of interest or other violation. The regulator's only rational response is delay, which is what they have chosen.

  • Richard W. Crews on March 07, 2012 5:21 PM:

    Two points :
    1. productivity means "we did it without you", and is not a great goal.. Profit and pay are, but raw stripped down ain't so great.
    2. If we used the word "standards" instead of "regulations", I bet a lot more people would be in favor of them.

  • Judy on March 08, 2012 1:29 PM:

    In about 1950 the Readers Digest published the following joke:

    Three Chinese men stranded on a desert Island eked out a precarious existence taking in one another's wash.

    In 1950 and for many years following, I would tell that joke and it would get an immediate laugh. In about the late 1960's I would get nervous laughs or puzzled looks. Now when I tell that joke, I get puzzled looks.

    The point of the joke, of course, is that you can't eat services. If someone doesn't produce, no one eats. Productive agriculture and manufacturing are the requiremennts for others to engage in services, education, financial derivatives, leisure, etc.

  • emjayay on March 21, 2012 12:02 PM:

    Brilliant discussion, people.

    Except I'm sure the nine years to a new car color is not accurate. In the late 70's the EPA made car makers use new less air polluting paint. That's why some companies had trouble with paint peeling after a few years. Anyway, they figured it out eventually and there's a lot less carcinogins in the air today. A lot of regulation is like that: envionmental benefits, some hassle but eventually probably not costing much more.

    Meanwhile, Bejing has the most polluted air by about a factor of maybe ten (100?) of any city on earth. God only knows what they are doing to workers and streams and groundwater and air to produce the cheap stuff we consume. It seems to me a way to level the playing field would be to have say the EPA or a non-governmental organisation certify stuff as being environmental enough, or not, in production. Kind of like dolphin safe tuna or organic labeling. Consumers would be steered toward a product maybe costing a bit more, more stuff might be made here or the world environment would be better off. Right now we are offshoring the pollution as well as the manufacturing.

  • emjayay on March 21, 2012 12:11 PM:

    I'm guessing the brilliant new Ryan budget proposal solves the underfunded BLS problem by eliminating it entirely. If industry wants stats so bad they can pay for them themselves. With all the money they save on taxes. Then when Congress wants to know what's going on, they can rely exclusively on numbers provided by industry lobbyists.

  • Queewhehori on August 30, 2012 3:06 AM:

    http://modafinilwithoutprescription.net/ - buy modafinil medstore - modafinil medication

  • sarvsammat on November 27, 2012 1:21 AM:

    Very nice story and good post god bless every people to fight this type work. I like your post very much and thanks to share this post dear.
    http://iphone games

  • Pat on March 16, 2013 12:24 PM:

    The deception of foreign grown profits is that companies can do well wherever they sell, but that doesn't mean that the people where they live benefit from those profits, particularly where foreign employees are used to produce the profits.

    Who wins, who loses becomes much less important where the deck is stacked to benefit only the dealer. When the house is the only winner, the games is over, and that is where America has been led through outsourcing, vulture, and crony capitalism.

    Who gets subsidies, and who doesn't matters because it confers upon the recipient the presumption of winning. It chooses winners and losers, whether corporate or individual, and it's clear from the state of the economy, several administrations have made their choice.

    Why should American continue to play this failing for them game when the dice are so loaded?

    americans want real money, real homes, real education, real jobs, and real prosperity, not bluff, blunder, bubbles, and blarney. Americans want common sense capitalism for all, not crony capitalism that increases their insecurity, and vulnerability. Americans want wheat, not chaff!

  • Aaron on April 23, 2013 2:31 PM:

    interesting article, but it ignores some important facets of this complicated issue.

    first, many Americans graduating from high school simply have no marketable skills. this isn't for lack of public school spending, because America spends 2nd out of the top 20 industrialized nations yet academic performance is 18th out of 20. there is something fundamentally wrong with our public education system, and there are too many sacred cows that would be gored if a serious, evidence based overhaul was instituted.

    furthermore, the mass influx of illegal unskilled and low skilled labor has artificially lowered the value of labor. in Texas, for example, an honest construction company paying the legal minimum wage would find it impossible to compete, according to a recent series on NPR. illegal immigrant workers don't often complain to the authorities, for obvious reasons. as a result, wage theft, unsafe conditions, and near-slavery occur in 21st century America.

    Large, international corporations and BLS statistics aren't the only factors that need to be addressed if we are to reduce the stagnation of wages at the low and middle levels.