Sunday, March 19, 2017

The Myth and Reality of Manufacturing in America

That's the title of a small pamphlet on manufacturing by Michael J. Hicks and Srikant Devaraj which argues that "Almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth..."

However, the accounting exercise they conduct to get that number contains a conceptual flaw. Namely, they start at 2000, and ignore the role of productivity growth before that. Productivity growth, if anything, fell after 2000. So, if one does a counterfactual job simulation from 1987 to 2000, one could say that without productivity growth, employment in the manufacturing sector would have increased 60%. In their exercise from 2000, they claim that, absent productivity growth, manufacturing employment would have declined just 12%. But the big question here is why did the "no productivity growth" counterfactual suddenly stop growing after 2000? What explains the difference in the trend? This is something they can't answer, since they decide not to look before 2000.

Yet, somehow this pamphlet keeps getting cited by major news outlets. 

An indication of the level of care in this article is that they cite "Acemoglu" as "Ocemoglu". Someone corrected this in the References, but left the citation in alphabetical order where the O should be. 

1 comment:

  1. The real counterfactual they should be looking at is what US mfg output would be if there was no trade deficit. As long as output keeps pace with productivity, there is no job loss. By Hicks's own figure of $150K/mfg job, an $800B goods trade deficit = over 5 million jobs lost (not counting multiplier effects). IOW, trade deficit can account for practically all the job losses.


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