US lags rest of world in growing advanced industry jobs.
The Brookings Institution has revealed the full importance and extent of advanced industries to the US economy in a report titled, “America’s Advanced Industries: What They Are, Where They Are, and Why They Matter.”
The authors state that the advanced industries sector directly employs 12.2 million Americans and, once you factor in both direct and indirect employment, it supports over one-quarter of all U.S. jobs.
In 2013 the average advanced industry worker earned $90,000 in total compensation, nearly twice as much as the average worker in other industries. Even workers with lower levels of education benefit from this wage premium. That’s good news, but advanced industries also have not added new jobs since 1980, despite soaring output. Why not?
Four simple charts from the report show what is really happening.
This chart shows the absolute number of jobs added to the US economy between 2010 and 2013 in various sectors. The key takeaways are that the job numbers are absolute increases and that the blue bars represent manufacturing.
Note that the vast majority of new jobs are in computer system design and management consulting and that the lowest 18 net job creators were all in the manufacturing sector. Only auto parts manufacturing showed any significant job growth over the three year period.
The jobs numbers are weak, but between 1980 and 2013 the report reveals that advanced industry output expanded at a 5.4% annual rate, almost 1/3 faster than economy as a whole. The numbers may seem contradictory, but thanks to advanced automation and a dramatic increase in productivity, manufacturing output is up significantly. In theory, the improved efficiency caused by the productivity boost should trickle through the economy and result in lower overall unemployment and a higher standard of living. This has not happened.
This chart shows how workers with jobs in advanced industries fare income-wise. Historically, advanced industrial average earnings per worker are 20 to 30% higher than the overall average in the US, with the gap progressively widening.
In 2013, the average advanced industries worker earned $90,000 in total compensation, nearly twice as much as the average worker outside the sector. This reflects the disappearance of low skilled assembly line work and its replacement by a smaller number of more sophisticated jobs. These new tasks are mainly designing, building and maintaining the technologies that replaced those line workers, such as industrial robotics.
Although there are fewer workers in advanced industries such as manufacturing overall, those that have jobs are doing significantly better than their predecessors. Over half of those workers do not hold a four-year college degree. For those with employment advanced industries, it is good… There are just too few of those jobs.
Why are there too few of those jobs? This chart shows a major reason. With the exception of the aerospace industry, almost every other manufacturing sector operates at a significant trade deficit with the rest of the world. And the aerospace sector uniquely sells very high value products with very low production volumes, employing relatively few workers per dollar of manufacturing output for export.
What happened? Outsourcing.
Despite a definite increase in reshoring in the US, imports from low-wage jurisdictions such as China still rule in critical high-value sectors such as motor vehicles, computers and communication equipment. Industrial automation is slowly leveling the playing field, at which point innovation will be key as will be proximity to markets. This will require significant demand from the US middle class to purchase this output. Export in the other direction will not help; the emerging Asian middle-class will be well served by domestic manufacturing output.
This chart shows where the US stands relative to other advanced nations on total employment contributed by advanced industries. Nine European economies exceed the US in this critical metric. More importantly, the US has the lowest growth in advanced industry’s share of overall employment. Even Italy, financially a basket case, has higher metrics in this key employment statistic.
The Brookings report notes that after 20 years of offshoring and inconsistent federal policy, the size of the sector’s employment and output as a share of the total U.S. economy, has shrunk. The result is that the United States is losing ground to other countries on advanced industry competitiveness.
”Advanced industries power our national and regional economies, but their pre-eminence is in no way assured—and in fact it’s challenged,” said Muro, Brookings senior fellow and director of policy at the Metropolitan Policy Program. “If we want to reclaim broadly shared opportunity in the United States we are going to need to shore up the global competitiveness of our advanced industries.”
The report makes it clear that advanced industries are both the most important driver of continued US improvements in standard of living and represent a challenged sector which may not survive as a world leader if current trends continue.
Neither the private sector nor government can fix this problem independently. Reinvestment in education and skills training, critical industrial infrastructure and research and development will be essential. In fiscally unstable, austerity-led times however, who will pay for these essential changes remains to be seen.
Charts adapted from Brookings Institution report, “America’s Advanced Industries: What They Are, Where They Are, and Why They Matter.”