I’ve been watching the Republicans go at it in their various debates leading up to the election next year. And I’ve noticed that there’s a lot of fuss being made over this idea that we have to bring back the manufacturing jobs. Everybody wants to bring back the manufacturing jobs. Heck, even Obama wants to bring back the manufacturing jobs! So, you’re probably wondering, what does Sam Starrett think of this? Not that most people are wondering that, mind, but I’d guess if you’re reading this post, then you’re wondering that.
Well, I don’t think much of it. Here’s a little basic economics lesson that most of you probably already have down, but that I doubt any of the candidates(except of course Ron Paul) understand. Manufacturing jobs, like all jobs, congregate in areas where the ratio of the value of the product produced to the cost of producing the product is highest. So, if “American manufacturing jobs are being shipped overseas,” as is so commonly declared(one would think they were being kidnapped from the way the politicos say it), we have to ask ourselves why that’s happening. Is it because “Big Business” is evil and hates America and wants “American jobs” destroyed? Of course not. It’s because America is no longer the place where the value-to-cost ratio is highest for the industry in question.
So why is America no longer that place? Well, to a certain extent, it’s the fault of government regulation and taxation, and I think that that should be stripped away for the most part on general principles anyway. No doubt doing so will lead to the creation of some manufacturing jobs by somewhat lowering the cost of manufacturing in these u.S.
But I don’t think that that is the main reason why manufacturing went overseas. The main reason manufacturing went overseas is that America became a high-wage area. We are, or were, a rich nation with an educated, skilled workforce and a high standard of living compared to, say, China, which is, or was, relatively speaking, a poor nation with an uneducated, unskilled workforce and a low standard of living. Low-wage, low-skilled jobs are moving overseas because relatively skilled American workers are in a better bargaining position and cost more to hire, and of course, there are fewer of them as educated people seek out better, higher-paying jobs.
Now, obviously, some people who can only do manufacturing jobs are out of work, and in large part that’s due to minimum wage laws and other government intervention. No doubt the repeal of such laws will put many of those people back to work, and that’s a good thing. But ultimately, over time, as a nation becomes richer, its lowest-wage jobs will be exported overseas to poorer, lower-wage countries. And despite whatever geopolitical concerns that may create, there’s really no reason to bemoan it from an economic perspective.