In the Long Run, We’re All… Unemployed?

In the Long Run, We’re All… Unemployed?


            In February, President Donald Trump hosted a manufacturing roundtable featuring the chief executives of the nation’s largest manufacturing firms. Companies from a motley of industries, such as Campbell’s Soup, Lockheed Martin, Emerson Electric, and Dow Chemical all share a vested interest in changing environmental and tax policies that would drastically affect profit margins and production processes. Dramatic rhetoric lamenting the demise of American manufacturing characterized the tone of the meeting, emblematic of the general opinion that while non-manufacturing industries domestically flourish at a rapid pace, manufacturing slowly withers from corporate outsourcing and offshoring.

            Indeed, Emerson Electric cut approximately 22 percent of its labor force in the past three years (21,800 workers); Campbell Soup laid off 18 percent during the same period (3,500 workers). The Trump administration’s solution is to cut corporate taxes significantly, which would offset high American wages and potentially offer the same profit margin to manufacturers. President Trump’s solution, however, misidentifies the true culprit of lost jobs: labor automation.

            The rise of automation, especially during the Obama administration, has cut costs for firms while increasing productivity. In fact, it is worth noting that American manufacturing value-added in 2017 is higher than pre-recession levels, and on a steady incline since the recession. Manufacturing unemployment has returned to low prerecession levels, at 4.2 percent as of January 2017. These figures directly contradict the notion that American manufacturing is dead – it is, in fact, alive and well. The point of political concern lies in acknowledging that the share of manufacturing employment of non-farm employment has been on the steady decline since the end of World War II; Trump is accurate in claiming there are fewer manufacturing jobs, but these statistics suggest that American manufacturing has been advancing due to a shift from labor-intensive to capital-intensive methods of production.

American firms find machinery, rather than labor, to be both more productive and cost-effective. In fact, a Congressional report published in January 2017 finds that American firms spend 11 percent of their value added on simply research and development, outspent only by Japan at 12 percent. While the sectoral unemployment rate is low, structurally jobs are not growing as quickly as the rest of the economy; a study by Ball State University's Center for Business and Economic Research reports that 87 percent of manufacturing jobs have been lost to increased productivity and physical capital between 2000 and 2010. American manufacturing is indeed growing, President Trump: it’s just leaving workers behind.

            Acutely cognizant of this issue, the Department of Labor and numerous labor-law non-profits have mitigated this increase in previous years through job-retraining programs for unskilled workers. By re-educating mid-career workers who have fewer and fewer opportunities in their line of work, workers broaden their horizons for employment and no longer are hinged to an industry accelerating towards technological replacement; helping unskilled workers transition from industry to industry makes labor more mobile and accessible, ultimately benefiting firms in non-manufacturing industries by increasing the supply of labor. Although this should theoretically drive wages slightly down, unskilled workers are effectively paying for employment security – a serious concern manifested in the 2016 election season. Arguably, both firms and workers are happy.

            President Trump, instead of promoting these programs, instead has proposed radical fiscal restructuring in the 2018 budget; the proposal trims Labor Department funding by an astronomical $2.5B, amounting to a 21% decrease. Among the initiatives affected are retraining programs for the disabled, elderly, and youth, which are either diminished or fully cut. Funding for mid-career and unemployed retraining programs is shifted to state budgets; this may prove to be especially detrimental, since the states that need the most labor mobility, typically colored red, are likely averse to additional government spending.

Trump has, however, repurposed additional funding to the Reemployment and Eligibility Assessment program, which redirects unemployment insurance applicants to job centers and recruiters; though the program has been shown to be successful and cost-effective in Nevada (entrants found jobs significantly sooner than non-participating unemployed workers), it does not shield workers from the root issue: that specialized labor is being outcompeted by machinery.

            Trump’s proposal was met with uproar: Christine Owens, executive director of the National Employment Law Project, emphasized, “Workers need to develop the skills required to compete in emerging fields and fill many of the high-paying jobs available now and projected for the future”; Tom Perez, former Labor Secretary, denounced the cuts as “a disaster for hardworking Americans struggling to get ahead”.

            Trump’s proposal fails American unskilled workers; instead of scapegoating corporate offshoring, faulting or projecting an image of abysmal American manufacturing, the Trump administration ought to both preserve the right of firms to automate freely and protect workers who otherwise will be left behind. It’s time to stop beating around the bush – if job security is truly your concern, Mr. Trump, budget cuts that marginalize workers are not the answer.