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A renaissance of America’s manufacturing sector won’t create many jobs, says a Harvard economist

Vaseline 2 months ago

Manufacturing has taken center stage in recent years as the US and China engage in a technology rivalry as companies seek 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 Taiwanese Semiconductor can expand its facilities in Arizona. And last month, the government reached a $19.5 billion financing deal with chip giant Intel for four new U.S. factories.

But data from the US and other global industrial powers show that employment is a different matter, said Dani Rodrik, professor of international political economy at the Harvard Kennedy School.

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

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

And despite an “America first” agenda and a trade war with China, U.S. manufacturing’s share of nonfarm employment has fallen to 8.4% from 8.6% during Donald Trump’s presidency, Rodrik said.

That share has fallen further to 8.2% under Biden, even as the government is handing out billions to companies and the US private sector has committed more than $200 billion to new manufacturing projects after the passage of his Inflation Reduction Act and the CHIPS and Science Act.

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

At TSMC’s new factories in Arizona, for example, the company expects to create 6,000 jobs, which Rodrik estimates would be more than $10 million per job. And even if tens of thousands of additional jobs are created at TSMC’s suppliers, “that’s a paltry gain for employment,” he said.

Similarly, industry’s share of total employment has fallen in Germany and South Korea, Rodrik continued. And in China, factory jobs are already more than declining, both in absolute terms and as a share of total employment.

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

To be fair, the CHIPS Act and similar policies to encourage domestic manufacturing are not necessarily flawed, as they can still stimulate innovation, but “rebuilding the middle class, generating enough good jobs, and reviving Breathing new life into shrinking regions requires a completely different set of measures. policy,” he concludes.

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