Can Manufacturing Still be a Driver of

Transcription

1 Can Manufacturing Still be a Driver of Inclusive Growth? Robert Z Lawrence Albert L Williams Professor of Trade and Investment Harvard Kennedy School Senior Fellow, MasterCard Center for Inclusive Growth Non-Resident Senior Fellow The Peterson Institute. Research Associate, National Bureau of Economic Research. Presentation at INCLUSIVE GROWTH: GLOBAL AND EUROPEAN LESSONS FOR SPAIN MADRID MAY 31 ST 2017

2 Agenda. Introduction: Why Manufacturing Employment matters Part1: Deindustrialization in Developed Economies. Part 2: Premature Deindustrialization in Emerging Economies.

3 US Manufacturing employment since 2000 down almost 6 million

4 Devastating Consequences. Manufacturing jobs were important especially for lesseducated men in the USA. Deindustrialization said to be key in black urban problems and very important in providing jobs in many Midwestern cities. MasterCard Presentation

5 For Many the explanation is trade. Especially with Mexico and China Ratio to GDP (current dollars) 0.07 US merchandise imports, Industrial Non-OPEC other OPEC = Organization of Petroleum Exporting Countries Source: Bureau of Economic Analysis

6 Older White Men Are the Most Negative on Free Trade Deals Free trade agreements between the U.S. and other countries have been a for the United States Good thing Bad thing % % TOTAL Population White men Note: Whites include only those who are not Hispanic. Source: Pew Research Center Survey, March 17-27, June 12,

7 Trump Supporters Viewed FTAs as Bad for U.S. Registered voters who say free trade agreements have been a for the United States Bad thing Good thing All voters 43% 47% Rep/Lean Rep Dem/Lean Dem Among Republicans/Lean Rep, support... Trump Cruz Kasich Among Democrats/Lean Dem, support... Clinton Sanders Note: Based on registered voters. Don t know responses not shown. Source: Pew Research Center Survey, March 17-27, June 12,

8 Trump Supporters Said They Have Been Harmed by Free Trade Registered voters who say free trade agreements have the financial situation of their family All voters Definitely/ Probably hurt 39% Definitely/ Probably helped 42% Rep/Lean Rep Dem/Lean Dem Among Republicans/Lean Rep, support... Trump Cruz Kasich Among Democrats/Lean Dem, support... Clinton Sanders Note: Based on registered voters. Don t know responses not shown Source: Pew Research Center Survey, March 17-27, June 12,

9 Yet the Trend in US manufacturing share of employment has not changed. share 0.35 Manufacturing share in establishment employment, Share Fitted trendline Forecast 0 Source: Bureau of Labor Statistics

10 But others point to technology: especially automation

11 index (1995 = 1) Rapid productivity growth is reflected in prices Measures of relative manufacturing productivity and prices, Productivity relative to GDP Price of goods relative to GDP (inverse)

12 Log Scale (2010 = 0) Spending on goods relative to services: Prices fall but Quantities rise slowly (Demand is inelastic) 1.2 US spending on goods relative to services, Prices Quantities Values Declining shares of nominal spending on goods relative to services

13 Consumption Spending Share on Goods by Quintile (Income elasticity < 1) Poorest Richest Source: Boppart (2014) Econometrica

14 So the explanation is technology interacting with demand. Share of Goods in US Consumption Spending Source: Boppart. (2014)

15 Exception proves the Rule! Since 2010.Slower productivity, less employment loss in manufacturing

16 US not unusual! Decline in manufacturing share of employment is similar across advanced economies Share of employment in manufacturing, (percent) Country Change (1) (2) (3) (4) (4) - (1) United States Canada Australia Japan France Germany Italy Netherlands Sweden Source: Bureau of Labor Statistics.

17 Consumption Shares in Goods: Falling In all industrial countries Manufacturing and Services are complements. Cheaper manufactured goods increases demand for services!

18 actual and adjusted manufacturing employment (millions) Manufacturing employment, actual and without trade deficit: different levels, similar decline after 2000: Because of faster productivity bigger trade deficits have lower job content. 25 Manufacturing employment, actual and adjusted for the manufacturing trade deficit, Actual manufacturing employment Employment without trade deficit Edwards and Lawrence (2013)

19 Note: Even countries with large trade surpluses in manufacturing experience declining shares

20 Conclusions: part 1 Trade a small share of overall displacement Most deindustrialization in advanced countries due to the interaction of technological change and inelastic demand in response to declining prices and income growth. Trade surpluses/deficits change level of share but not the trend. Closing the trade deficit would mean more manufacturing jobs but it s like walking up a downward escalator

21 Manufacturing Employment Share is humped shaped relative to GDP (42 countries)

22 Why Hump Shaped? The role of agriculture is crucial Simple explanations for closed economy with constant income and price elasticities. At low levels of income per capita agriculture has a high share in GDP with manufacturing and services sectors small. Force 1: Price and income elasticity of demand for agriculture very low. Productivity and income growth in agriculture increases demand for output and employment in manufactured goods and services. Force2: productivity and income growth in manufacturing, reduces employment in manufacturing and increases demand for output and employment in services. When agriculture is large, Force 1 dominates and manufacturing (and services employment grow). When agriculture small, Force2 dominates. In an open economy trade could mitigate these pressures if price demand elasticity is greater than unity!

23 0 Share of Employment Growth and Structural Change: Really Servicization rather than Industrialization! Employment Share vs. GDP per capita Qudratic Fit, GDP per capita 2015 Manufacturing Agriculture Service Countries: 18 in total. `"ARG"' `"BRA"' `"CHL"' `"CHN"' `"DNK"' `"ESP"' `"FRA"' `"GBR"' `"IDN"' `"IND"' `"ITA"' `"JPN"' `"KOR"' `"MEX"' `"NLD"' `"SWE"' `"USA"' `"ZAF"'

24 Premature Deindustrialization: BRICS Manufacturing Employment Share far Below US and UK at same levels of GDP Per capita 0.35 Share usa uk brazil india safrica china Log GDP Per Capita

25 Examples of peak manufacturing shares dollars) Peak Share Per capita Income (2015 ppp USA percent $17,977 UK percent $ 15,214 South Africa percent $11,776 Brazil percent $11,492 China percent $9,876

26 .05 Share of employment, Manufacturing But Premature Deindustrialization: The curve shifts downward over time At each level of real income the share of manufacturing in employment is lower. It is becoming harder for countries that industrialize later to achieve the employment levels that were achieved earlier. Share of Employment, Manufacutirng emp=gpd+gdp^2+decade_dummy GDP percapita in 2015 $

27 Explanation: Technological Progress and International Diffusion Example: Belgium in 1950 Income $10, Small Car Requires 100 hours labor China in 2010 Income $10, Small Car Requires 15 hours. Downward Shift in Employment: Higher productivity, Inelastic Demand. Leftward Shift: Now More spent on Services.

28 Relative Productivity of Manufacturing: Shifting Upwards Relative Productivity of Manufacutirng rel_prod=gpd+gdp^2+t Downward slope actually reflects changing sector shares in GDP in addition to productivity growth GDP percapita in 2015 $

29 .5 Relative Price Manuf/Total Relative Price of Manufactured Goods: Shifting Downwards Relative Price of Manufacutured Goods to GDP R=gpd+gdp^2+year GDP percapita in 2015 $

30 Trade impacts timing and levels: But the hump remains Africans and Latin American s lower levels, earlier humps. Asians with manufacturing trade surpluses: higher levels. Later humps:

31 Conclusions.: Why Premature Deindustrialization? In many cases, its not trade though globalization in the sense of international diffusion of technology perhaps through FDI and perhaps through embodiment in equipment. But its relatively rapid technological change in manufacturing diffused internationally combined with inelastic demand. And eventually all countries will deindustrialize. Jobs of the Future will increasingly be in services in both developed and developing countries.