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U.S. Manufacturing Suffered Its Worse Decade Since the Great Depression, According to ITIF Report

“In the 2000s, U.S. manufacturing suffered its worst performance in American history in terms of jobs. Not only did America lose 5.7 million manufacturing jobs, but the decline as a share of total manufacturing jobs (33 percent) exceeded the rate of loss in the Great Depression,” according to a new report from the Information Technology & Innovation Foundation (ITIF). In Worse Than the Great Depression: What the Experts Are Missing About American Manufacturing Decline, ITIF contends that there is a fundamental flaw in the conventional wisdom regarding U.S. manufacturing job loss. Most economists, pundits and elected officials maintain manufacturing job loss is a result of productivity-driven restructuring, similar to the U.S. agriculture sector that has lost jobs but remains healthy due technology-driven increased productivity. However, the authors provide two methodological flaws that have led to poor data and shaped conventional wisdom:

  1. Most economists and pundits do not extend their analysis beyond one macro-level number — change in real manufacturing value-added relative to real gross domestic product — which at first glance appears stable; and,

  2. More fundamentally, U.S. government statistics significantly overstate the change in U.S. manufacturing output, and by definition productivity, in part because of massive overestimation of output growth in the computer and electronics sector and because of problems with how manufacturing imports are measured.

In drastic contrast to conventional wisdom, the authors contend that U.S. manufacturing job loss should be attributed overridingly to the decline in U.S. manufacturing output. Although productivity-driven restructuring plays a role in job loss in select manufacturing sectors, U.S. manufacturing productivity has been overstated and manufacturing outputs have fallen since 2000. Using alternative data analysis methods, the authors found several “corrections” to data regarding manufacturing in the 2000s that support their claims including:

  1. U.S. manufacturing labor productivity growth was overstated by a remarkable 122 percent;

  2. Although manufacturing output was reported as 16 percent rate increase, it actually fell by 11 percent; and,

  3. If manufacturing output had “grown at the same rate as that of the rest of the business sector,” the U.S. currently would have approximately 13.8 million more jobs.

This drop in productivity is mostly the result of the failure of U.S. policies related to manufacturing and the lack of national manufacturing strategy, according to the authors. They also attribute some of the lost productivity to the policy of competing countries. Some countries have manipulated the international system through some manipulated by “egregious foreign mercantilist” policies. Most countries, however, have supported their manufacturing sectors through “better national competiveness policies,” including significantly lower corporate tax rates.

By adopting policies related to the “four T’s (Tax, Trade, Talent and Technology),” ITIF argues that the U.S. will regain its manufacturing competiveness and balanced its trade defecit in manufacturing products in less than a decade. This would lead to “millions of higher-than-average-wage manufacturing jobs, as well as an even greater number of jobs from the multiplier effect on other sectors of the economy.” Read the report…

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