A U.S. manufacturing renaissance won't create many good jobs—just look at Germany, S. Korea and China, Harvard economist says



Manufacturing has been front and center in recent years as the U.S. and China engage in a tech rivalry while companies look to reposition more of their supply chains domestically.

President Joe Biden has touted his policies to encourage more U.S. production of chips and green-energy technologies. Earlier this month, his administration pledged up to $6.6 billion so that Taiwanese Semiconductor can expand its facilities in Arizona. And last month, the administration reached a $19.5 billion funding deal with chip giant Intel for four new U.S. plants.

But data in the U.S. and other global manufacturing powerhouses show that employment is another matter, according to Dani Rodrik, a professor of international political economy at Harvard Kennedy School.

In an op-ed published in Project Syndicate on Tuesday, the economist pointed out that labor productivity in U.S. manufacturing has surged by nearly six times since 1950, while the rest of the economy has seen productivity double. 

“The result has been a striking increase in the manufacturing sector’s ability to produce goods, but also an equally dramatic decline in its capacity to generate jobs,” he wrote, with 6 million manufacturing jobs lost since 1980.

And despite an “America first” agenda and a trade war with China, U.S. manufacturing’s share of non-farm employment slipped to 8.4% from 8.6% while Donald Trump was president, Rodrik said.

That share has dipped further to 8.2% under Biden, even as the government doles out billions to companies and the U.S. private sector has committed over $200 billion to new manufacturing projects after his Inflation Reduction Act and the CHIPS and Science Act passed.

“A skeptic might object that Biden’s policies have not fully borne fruit and are not yet captured in official statistics,” Rodrik added. “But the fact is that hugely capital-intensive semiconductor plants generate few jobs, relative to the physical investment they require.”

At TSMC’s new plants in Arizona, for example, the company projects 6,000 jobs will be created, which Rodrik calculated would be more than $10 million per job. And even if tens of thousands of additional jobs among TSMC’s suppliers are created, “that is a paltry return for employment,” he said.

Similarly, manufacturing’s share of total employment has dropped in Germany and South Korea, Rodrik continued. And in China, factory jobs have been in decline for more than a decline, both in absolute terms and as a share total employment.

“Automation and skill-biased technology have made it extremely unlikely that manufacturing can become the labor-absorbing activity that it once was,” he said. “Whether we like it or not, services such as retail, care work, and other personal services will remain the primary engine of job creation.”

To be sure, the CHIPS Act and similar policies to encourage domestic production aren’t necessarily flawed, as they could still boost innovation, but “rebuilding the middle class, generating enough good jobs, and reinvigorating declining regions call for an entirely different set of policies,” he concluded.

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