Factory Employment Is Falling World-Wide
Study of 20 Big Economies Finds 22 Million Jobs Lost;
Even China Shows Decline
THE WALL STREET JOURNAL - October 20, 2003

By JON E. HILSENRATH and REBECCA BUCKMAN

The U.S. manufacturing sector has gone through 38 grueling months of declining employment, but a new report shows that factory-job woes aren't just an American problem. From Brazil to Russia and yes, even to China, manufacturing jobs are disappearing around the globe.

Economists at Alliance Capital Management LP in New York looked at employment trends in 20 large economies and found that from 1995 to 2002, more than 22 million jobs in the manufacturing sector were eliminated, a decline of more than 11%.

Contrary to conventional U.S. beliefs, the research found that American manufacturing workers weren't the biggest losers. The U.S. lost about two million manufacturing jobs in the 1995-2002 period, an 11% drop. But Brazil had a 20% decline. Japan's factory work force shed 16% of its jobs, while China's was down 15%.

Joseph Carson, director of global economic research at Alliance, says the reasons for the declines are similar across the globe: Gains in technology and competitive pressure have forced factories to become more efficient, allowing them to boost output with far fewer workers. Indeed, even as manufacturing employment declined, says Mr. Carson, global industrial output rose more than 30%.

At the same time, countries everywhere -- including developing countries like China -- are struggling to reduce excess capacity. "We've got too many steel plants in the world, too many auto companies," says Bill Belchere, chief economist for Asia at J.P. Morgan Chase in Hong Kong. "There's going to be a further shakeout as we move forward."

The job losses in the U.S. have become a hot-button political issue in Washington. Some U.S. manufacturers and labor unions complain that American manufacturing jobs are fleeing to low-cost Asian countries, like China, which is keeping its currency cheap to make exports inexpensive. While there's no doubt some U.S. jobs are moving to China, India and some other low-cost countries abroad, Mr. Carson says that isn't the entire story.

"The argument that politicians are throwing out there is that we are losing jobs and nobody else is, and that is wrong," says Mr. Carson. "What I found is that the loss of manufacturing jobs that we have seen in the U.S. is not unique. It is part of a global trend that began many years ago."

Jerry Jasinowski, president of the National Association of Manufacturers, which has been lobbying the Bush administration for support, says he doesn't accept the results of the Alliance study. He notes that the job losses in the U.S. in just the past three years have been especially pronounced -- matching losses, in percentage terms, that were recorded during the sharp recession of 1982. Moreover, these losses have come at a time when manufacturing employment in China has begun to rise again after dropping sharply in the late 1990s. "I don't think it is terribly relevant to take aggregate employment loss numbers for the whole globe and compare the loss on a global basis with the United States, and say, ' Hey everything is all right,' " he says.

Yet other economists are also looking at global trends and coming to conclusions similar to Mr. Carson's. Economists at the Organization for Economic Cooperation and Development, for instance, found that manufacturing employment was down 9% from 1990 to 2001 in the U.S. and among OECD countries outside the U.S. Like Mr. Carson, they link the decline to improvements in productivity. They add that while overall employment has been declining, developed countries are shifting their remaining output to higher-value products, such as high-tech ones.

Glenn Hubbard, who resigned as chairman of President Bush's Council of Economic Advisers earlier this year, has also been making these points in presentations on the economic outlook. "It does seem like people are thinking about this as a purely American phenomenon," says Mr. Hubbard, "but there is something bigger going on." He likens the trend to the global decline of agricultural employment in the last century as that sector became more productive. From 1910 to 1990, agricultural employment in the U.S. fell to 2.5% of total employment from 32%; in the U.K., it fell to 2% from 11%, and in Germany, it fell to 3% from 34%, according to statistics provided by Douglas Irwin, a Dartmouth-based economic historian.

Rather than making efforts to protect the manufacturing sector, Mr. Hubbard says the Bush administration should be pushing harder for measures that would ease the transition of workers into the service sector, such as advancing "re-employment accounts" that provide workers with cash to use toward retraining.

Perhaps the most surprising result of these latest studies is the manufacturing employment trends in China. Since 2000, manufacturing payrolls in China are up about 2.5 million, even as the rest of the world has suffered. But looked at over a longer time horizon, employment in China's manufacturing sector is down sharply. From 1995 to 2002, manufacturing employment has fallen to 83 million from 98 million, a 15% drop that outpaces many of the declines elsewhere in the world.

It isn't difficult to figure out why. China remains burdened with a massive and unproductive state sector that will take years to restructure. Even as foreign direct investment pours into the country's newer plants, millions of workers at inefficient state plants have to find new work, a source of potentially destabilizing unrest in the country and massive internal migrations.

J.P. Morgan's Mr. Belchere says job losses across Asia show that countries are moving rapidly in their evolution from agricultural to manufacturing and, now, to higher-tech and service-oriented economies. "This is the nature of the developing world," Mr. Belchere says. "Job creation will be in the services sector" in the future.

Factory workers aren't suffering everywhere. Canada and Spain saw strong growth in factory jobs in the 1995-2002 period, although off a relatively small base. Mexico had large increases in factory jobs during the late 1990s, but that trend has started to reverse and Mexico now has just a modest increase in factory jobs when compared with 1995. Mr. Carson says those three economies benefited from regional trade pacts that shifted production in their direction. Mexico was also the beneficiary of a currency devaluation in 1994.