Is the Future Non-Factory Jobs? (One Way to Understand the Jobs Numbers for Manufacturing)

Each month bls.gov releases the new jobs numbers. "The economy created 130,000 jobs last month." The technical title for this jobs number report includes the phrase, "nonfarm." Farming is such an insignificant and volatile portion of the nation's workforce that it is excluded from the official record of new jobs created or destroyed.

Once upon a time, farming was hugely important. Now it is not. We may eventually say something similar about manufacturing jobs.

The other day in the airport, I struck up a conversation with a guy from Wisconsin. He told me that his dad was one of 11 and his mom was one of 4. All 15 of that generation (we're talking about folks who started careers in the 1950s) were dairy farmers. There were 64 cousins in his generation. Of those, only one is a dairy farmer and he's going bankrupt. (This cousin has only hundreds of cows; the dairies that are surviving are big businesses with thousands of cows.) Nobody in that group of cousins is encouraging their children to prepare for life as dairy farmers.

Manufacturing jobs as a percentage of the total workforce are now where farm jobs were in 1963: 8.4%, suggesting that manufacturing is running about 60 years behind farming. Defining factory jobs is harder than defining farming jobs, though. I've seen a note at BLS.gov to the effect that an increasing number of jobs in manufacturing fall into the category of knowledge work. Programmers for the robots and process design experts are among the folks who now fall into the category of manufacturing; a decreasing percentage of the folks in manufacturing are not working on production lines as we classically envision it from pictures of the 1950s. They are as much a part of the information economy as are the programmers and analysts sitting in cubicles for software or service companies.

Of late I've seen an uptick in our consulting for projects that are production line transfers. The vast majority of our work is with companies developing new products. These production line transfers have literally gone from zero percent of what we do to about 10%.  What does it mean to transfer a production line? A factory line in, say, Pennsylvania is being transferred to Monterrey, Mexico. The savings are huge and irresistible and when the transfer is done, the US has fewer manufacturing jobs.

Trump has defined his presidency in large part by two things: radically slowing immigration and bringing back factory jobs. Immigration has dropped under his watch. Initially, factory jobs rose as well but there is a problem with that.

His sudden imposition of tariffs made domestic sources more favorable and seemed to have raised the percentage of jobs created in manufacturing to meet this uptick in demand. The problem is, though, that supply chains are complicated. If I bought cheaper steel from China to manufacture a car, say, a tariff on Chinese goods may cause me to shift over to an American supplier of steel within a month or so. Short-term, that would raise the number of manufacturing jobs. But given that ultimately I need to compete on the global market, this need to pay more for a key input might cause me to make a more dramatic change over the next year; I may shift my entire production line out of the US to where tariffs don't distort input costs and threaten my profit margins. Short-term, the tariffs may raise manufacturing in the US; longer-term, they may drive it out. And that seems to be what is happening.

When Trump was sworn in, manufacturing was 8.4% of the total workforce. As a percentage of new jobs created in the prior 12 months, that rose above 10%. For nearly a year. During the last twelve months, though, it has dropped to about 2%. During the last twelve months, manufacturing jobs as a percentage of new jobs created is about one-quarter of what it was when he took office.

This is not something to celebrate or to mourn. This is simply a fact. Once upon a time we were in an agricultural economy and children grew up expecting to work on farms. Decades later, that expectation shifted from farms to factories. A good society prepares its children for jobs that will keep them employed at good wages, though, and cares less about whether they will work on farms in factories or in cubicles or in the home office than if they are making good wages. A bad society forces traditions on its children and tries to prepare their children for jobs that were suitable for their grandparents but not for them.  It's not an agricultural or industrial economy any longer.

It is true that there are problems with the information economy and some evidence that we're getting diminishing returns from encouraging more children to get college degrees to prepare for work. That said, children are much more likely to grow up to work on a laptop than they are in a factory or on a farm. Promising to bring back factory jobs is like promising to make your skin look younger; it may work for a time but the long-term trend is against you.

Contrasting the Districts that Supported and Opposed Trump: It Comes Down to a Divide Between Industrial vs. Information Economies

Nerd that I am, I collected some data on the 15 congressional districts where Trump won the largest percentage of votes and the 15 districts where he won the lowest percentage of votes. 30 districts out of the 535 lets us look at the contrast by looking at extremes.

The biggest difference is the ratio of folks with Bachelor's degrees or higher to the folks employed in manufacturing. (I still don't know of a simpler proxy for knowledge worker than a Bachelor's degree.)

In the least Trumpian districts, the ratio of folks with college degrees to folks working in manufacturing is 6 to 1. These are districts in the information economy. Not only are they more likely to be knowledge workers than factory workers but they create more jobs. There are 43 jobs for every 100 people living in such districts, 1.5X as many as found in the most Trumpian districts. The information economy is still growing even as the industrial economy shrinks. This not only explains the fact that districts in the information economy have more jobs but likely explains why they're 4 years younger, on average. The regions creating the most jobs are going to attract more people starting their careers.

In the most Trumpian districts, people are 3X more likely to work in manufacturing and household income is $22k lower. These are related. Generally, folks with a degree make about $22k more than folks without one.

Trump is the warrior chief for the folks in the waning industrial economy. It is just one of the ways that he is the opposite of Lincoln, the GOP's first president. In 1860, the industrial economy was cutting edge. Today it is on the wane, being eclipsed by the information economy just as the industrial economy eclipsed the agricultural economy during the time of the first Republican presidents. 

Economic Goods to Do - a new definition of progress

The traditional definition of economic goods is a definition of stuff - cars, loaves of bread, clothes, and gadgets for which people will pay. Goods to have. A more comprehensive definition of goods will include goods to do - work so gratifying to people that they will give up pay to do it. People taking a job that pays $10,000 or $100,000 less than they might otherwise make are choosing goods to do over goods to have. Such a choice might signal progress.

Studies have indicated that once per capita income hits about $20,000 a year, more money does little to increase happiness. (This is not completely true. If you make more money than other people, you feel happier. This has to do with status rather than the happiness you get from being able to afford more stuff.) After about $20,000, income goes up but happiness stays about the same. This suggests that the economic assumptions of the last century might not hold in the 21st century.

L. Frank Baum is well known for creating the Wizard of Oz. He is less known for pioneering window displays in department stores. Shopping as entertainment is a relatively new phenomenon - it has only emerged in the last 100 to 150 years. In the late 1800s, department stores hired gawkers to stand on the sidewalk outside of stores, staring into the display windows. These gawkers helped to change social norms that frowned on looking into windows as evidence of bad manners. The idea was to entice window shoppers into the store, luring them into a strange and wondrous new world, like Dorothy drawn to see the Wizard of Oz.

Shortly after the Civil War, manufacturers had figured out how to make lots of product. In the late 1800s, the new puzzle was how to sell lots of product. To do that, retailers used display windows, advertising on radio and TV, distribution channels, interstate highways, catalogs, and department stores. During the last century, companies have focused on managing our attention as consumers - using advertisements to get us to buy. The result is an increase in GDP and satisfaction. But that path to progress seems to offer less promise in this century than the last. Ice cream makes you happier, but not if you’ve already had three scoops. We already have lots of stuff. Getting more stuff early in this century is unlikely to make us as excited as it did early in the last century.

Economic progress can no longer exclusively focus on economic goods to have. Philosophers argue for the importance of three kinds of goods: goods to have, goods to do, and goods to be. To date, economic goods have generally been assumed to mean economic goods to have.

Studies of happiness indicate that goods to have make less difference than goods to do. Engagement in activity - what psychologists call flow - does more to increase happiness than getting more stuff. This suggests that economic progress will increasingly require us to pay increasing attention to economic goods to do. Companies will need to focus on our attention as producers, at how engaged we are in our work, in order to make as much progress in this century as they have in the last. It is not so much “do what you love and the money will follow.” Rather, it is more like, “Once you have a certain amount of money, no things will bring you as much joy as doing what you love.”

Economic progress has meant more economic goods to have for a century. For the sake of our happiness and our planet, it is time to begin shifting the emphasis to economic goods to do. It isn't stuff we need - it is engagement. Making this shift to a new kind of economic good will require a significant change in how work is defined. It will also lead to great progress.