Good morning everybody and welcome to the Economic Policy institute. Thanks for joining us today. Delighted to kick off the new hour and important and provocative panel on manufacturing employment. And weve invited susan house mann Vice President to present her manufacturing and employment data. And this debate is not new. In fact, Larry Michelle from the Economic Policy former president and now distinguished fellow raised similar concerns back in 1989. But this debate has raged and it has been an important under ping of policy debates that have to do with trade and automation and how we address issues or concerns around the Manufacturing Sector, the health of the Manufacturing Sector, and what policies might be needed. So im going to introduce the entire panel right now lets susan present her research, and we have carolyn friend to comment. And from university had hoped to join us here today but was presented from weather for traveling. So Larry Michelle will read his prepared remark. So Susan Houseman is the Vice President of Employment Research and recognized expert on temporary Health Employment as well as manufacturing employment in which shes done a lot of research. Delighted to be joined by carolyn friend from the car line institute. Car line has been a senior fellow at the Peterson Institute since may 2013 but currently on leave for Public Service as director of Investment Climate at the world bank. So delighted she could make time to join us today and pleased to have her. And as i said Michael Hicks director of fall State University unable to join us but we hope to have ongoing dialogue with professor hicks in the posse vent blogs that we will have. And, finally, we are delighted to have our own josh bivens Research Director to also overcome tarry. This is an area that josh has spent a lot of time and research looking into. And so without further adieu, ill have sue Hasan Houseman prt her research. Please welcome susan. Thank you very much. And also larry for organizing this forum. And inviting me to come. All right. I think im all set. So topic of today of our forum is understanding the precipitous and unprecedented historically decline of u. S. Manufacturing in the year 2,000. This chart that im going to is that right with today, blue line shows manufacturing employment. The light gray line shows factories, number of establishments in manufacturing of the since the late 1940s to present. And what you can see is that manufacturing employment Rose Steadily with some fluctuations around the Business Cycle until the late 1970s when it took a significant drop in 1980s those job laws concentrated in steel and textiles. After that, it was quite stable for a long period of time. And then end of late 90s, 2,000, collapsed. We saw short period of time 2,000 to 2007 drop in manufacturing employment of 20 . For the First Time Ever manufacturing employment did not recover from the recession. Just kept going down. It took another big hit in the Great Recession. And today it spans nearly 5 million jobs lower than it was at Business Cycle peak in 2,000. And almost 30 decline. There was a parallel decline in the number of factories operating in the United States over this period by about 20 . So this, as thee amentioned cause d debate about what it was. A lot of what ill spend my talk on is what i view as a widespre widespread misinterpretation of basic data that led us in the wrong direction. And ill quickly review some of the research. So this chart shows manufacturing share of private industry employment and gdp. Against since late 40s. And what you can see thats been rather declining rather steadily. And manufacturings output share in the private sector has been trending downward pretty much along with employment. This picture portrays sector that has not been particularly strong in the United States for a long time. But somewhat paradoxically if you look at real growth, thats inflation adjusted, thats the bottom graph, what you see is that manufacturing real output growth, has been more or less keeping pace with that in the private sector. So how do we reconcile this paradox . Prevailing view is the following. This graph puts those two charts together. Big x. One going in one way. On the one share is declining. On the other hand, its been more or less keeping output growth inflation adjusted has been keeping pace with lt private sector. That in the private sector. Well, it has to be the case that prices of domestic manufactured goods have been following relative to services prices. That sort of drops out of that. Secondly, productivity growth is much higher. Flou, productivity growth per se doesnt cause employment, relative employment declines. Cant explain that share. So you need Something Else. And this is where the story, the prevailing view is quite important. It says consumer demands for manufacture product has been limited. Even though the relative prices has been dropping, consumers hasnt been going in and buying enough more to pop it up. And, therefore, its share of both employment and output have been falling. So the prevailing view, what im going to say kind of in conclusion, is that rapid productivity growth explains the decline in employment share. Rapid productivity growth in particular in the form of automation. If you are not so inclined, you can skip this equation. But basically what it says, there is little counting identity going on here. That we define productivity as output per worker and labor hour. And it falls out that the difference in the rates of growth of employment in manufacturing versus the economy overall just equal the differences in the rates of outgrow outgrowth. Well, if its been the same versus the over all economy, tha than productivity accounts for all of that. And these accounting identities, you cant take these as inferences based on these, nonetheless, the descriptive evidence seems pretty compelling. And the conclusion has been that p productivity is drawing automation and that has been drawing the downward trend in employment overall. This conclusion is often repeated as fact in mainstream media. Here is a quote from the New York Times by reporter apple palm. From economic perspective, there can be no revival of American Manufacturing because there has been no collapse because of automation there are far fewer factory jobs. But the value of stuff made in america reached a record high in the First Quarter of 2016 after adjusting for inflation. So im calling that correct reconciliation of these apparently disparate trends is measurement issue. Please bear with me. So it turns out that one industry, computer and electronic products, drives manufacturings falling relative prices, robust output growth and extraordinarily productivity growth. Yet the computer industry counts for less than 15 of manufacturing gdp. So how can this happen . Well, the out sized effect, this is one relatively small industry has on the aggregate manufacturing numbers reflects statistical adjustment for computers anselmty conductor price deflators to reflect the dramatic improvements in product quality. Extraordinarily productivity growth in turn in computers, and by extension what we are seeing in the aggregate manufacturing numbers are just picking up basically product improvements. They have very little to do with automati automation per se. Now i want to be clear there is it a consensus that this should adjust for product quality. The problem, my problem is more with that it really rends ends dominating the statistics and gives misleading whats going on in the sector and basically supports a narrative that i this think is not warranted. So lets run through and see how this kind of plays out. Here are prices. Remember, prices in manufacturing have to be rising less quickly than they are in the aggregate sector. This Shows Published numbers. Indeed they indeed they are. Particularly after the late 1970s. But if you take out computers, okay, thats that lower graph, i show in red, the prices for computer and electronic sectors, that was rising until the 1960s and started falling and plummeting. Actually falling, falling very rapidly beginning in the 1980s and 1990s. So when you take that out, which are those other two lines, price for manufacturing and for private sector overall, you can see that those price trends are more or less very, very similar. Relative prices in manufacturing arent really falling relative to the rest of the economy. Here is the real growth in index of real growth in manufacturing versus the private industry. The graph that i showed you earlier. Heres what happens when you take out computers from both private industry and from manufacturing. Manufacturing gdp growth is between 1979 and 2,000, which is just less than half, 45 of the overall private sector growth. Since 2,000, its been 12 . Manufacturing output in 2016, without computers was less than it was in 2007. Nearly a decade later. Now, this graph shows plots. The computer industry index of that. Private sector growth and manufacturing all together. There a there are three lines on this graph. But the other two show up as horizontal lines along the x axis. Growth in this industry is different order of magnitude from everything else, thats why it skews the statistics. Interestingly, and ironically, despite the robust growth in this industry, domestic manufacturing of computer and electronic products has been losing competitiveness as my coauthors document in a paper using proprietary data, the sort of capacity has been rapidly shifting to asia, even as its been driving this robust economy. So another interesting thing to note is that while it is the case the domestic real consumption of manufactured products prior to 2,000 was less of the growth rate was less than for services, thats not been the case since 2,000. Its actually been goirowing faster and thats been consistent with low cost exports increasing demand in this country. Finally, lets think about productivity growth. Productivity Growth Without computers is not much higher or only somewhat higher than that in private industry. Very nice paper by Martin Bailey and bose worth written a few years ago once you took out the computers from 1987 to 2011 period part of the productivity growth was the same in manufacturing as in private industry. Now, look around, if the productivity is the same for most of manufacturing as it is for the private sector, then it can account for none of the relative employment declines. I do want to say that ive done alternative calculations with different data. And i find it doesnt productivity is not the same, but it doesnt count for the slower output growth does again in this accounting sense make up most or account for most of the relative employment declines. The point, though, that i want to make is that there is just no prima fascia evidence for the productivity growth that it caused employment declines in manufacturing. Understanding the causes of what was going on really requires a good look at why output growth for most manufacturing was just plain slower, a lot slower than it has been in the private sector over all. And im not going to weigh in on that per se, but before i move on to some Research Evidence on that topic, i think its useful to just pause and take a look and think about what productivity measures. Another criticism that i have of much of the discussion that takes place over automation is that automation, productivity growth is often with automation, its assumed that. It measures many different things, including automation. We have already seen, for example, the product improvements in computers and semi conductors caused tremendous productivity growth in that industry. And by extension in the aggregate manufacturing statistics. Thats not automation. Okay. Also, one often sees a rapid increase in productivity during major periods of restructuring as we saw in the early 2000s. That isnt necessarily an automation of whats going on. In fact, one would expect, for example, on account of increased imports, International Pressure from manufacturers in other countries, there was a decline in the number of factories, the first thing that would be pushed out is the most labor intensive, and that will result in mechanical increase, measured productivity growth. So in International Trade can actually cause competition, can cause sort of a sorting out of whats made, change in the production, and lead to increased productivity. Another thing that can be happening is that with kind of globalization, the stages of production that occur here in the United States can just be changing. And the paper that i wrote for this i ga this, i gave some nice case examples from thomas homes, Home Furniture industry. Many was decimated in the early 2000s, many went out of business. And what remained much of what was produced here was fundamentally altered. In the cut and sewing aspects was put out to china. It doesnt have to do tw automation per sae. Its also been found that International Competition may spur investments in automation. And in that case, kind of the direction of causality is a little unclear, because the competition from overseas can spur manufacturers in this country to increase investments and automate faster than they might have already done so. So the bottom line is this, that productivity growth does not per se cause employment declines. The strong argument that automation is primarily responsible for employment declines and relative, both relative and absolute employment declines, is largely based on descriptive evidence. And to really understand whats going on, we need to look at Research Evidence. Thats what im going to very briefly turn to now. There has been a significant and growing body of literature that, in particular, has focused on whats happened with the precipitous decline in employment since the 2000s. Exchange rates, corporate taxes, tariffs, and the like can all effect the relative competitiveness of manufacturing in the United States. And globalization may reduce domestic manufacturing output growth through imports and a lot of the focus has been on sort of looking at the growth of imports, particularly from china. But we should also remember it can also operate through slow export growth in exports. Companies may choose to close factories in the United States and move them to mexico or to ireland or somewhere else. Or they may just choose to expand their production overseas. Much of what multinational companies, when they manufacture overseas, they often are manufacturing primarily for export markets. Some of that may come back to the United States, but by no means all of that. And i mention that because we dont capture that dynamic very well in the statistics. So it can be a bit hard to study. Before i sort of say a few words about the research literature, i really want to emphasize that no single study captures all aspects of globalization and effects on manufacturing employment. There is weaknesses and big holes in the literature. There probably always will be. But collectively the Research Findings point to large adverse effects operating through variety of mechanisms. One of the most cited studies says about 25 of the decline m informing employment can be attributed to the growth of imports from china. A completely different study using a different data and methodology looks specifically at changes in trade policy after 200 causing increase in imports from china and also finds very large adverse employment effects. Interestingly, the sets of authors on these papers have recently looked at the impact on imports from china and on other things, and have concluded they have led to declines in production, investment, and patent activity in the United States. Which can of course over time have spill over effects on employment. The finalal study that ill highlight, and there are others that im not going to cover, i dont have time, looks actually at appreciation of the dollar. A large appreciation of the dollar in the early 2000s on the manufacturing employment and can accoun account, depending on specification, it can account for half or more of the decline in manufacturing employment. The reason i like this paper and think its important, its not just looking at chinese imports, it effectively is capturing imports and exports, the effect of this Exchange Rate appreciation on both. One elevate very interesting findings from this paper also is that the job losses from temporary Exchange Rate appreciation tend to be permanent. That is if an Exchange Rate appreciation induces firms to invest overseas, whatever, you have some cost investments. And when the dollar returns to its original level, its not necessarily going to be the case that those jobs will come back. Okay. So its a different often you hear the story the jobs arent coming back because of aut maigts mag automation. Wi there is another dynamic too. Once you lose it its hard to get it back. Oftentimes, we want to say that, well, if this particular study explains a quarter of the decline in manufacturing employment, three quarters is explained by automation. But that doesnt follow. Okay. And it turns out that s