Outsourcing, Efficiency, and Manufacturing

Continuing with the theme of manufacturing, Mark Perry over at Carpe Diem, has a great post on manufacturing.  In particular, this chart I find most interesting.

If you follow the link, you’ll see a chart of real annual manufacturing output per worker.  The gains in productivity of manufacturing workers is amazing: from 1955 to 2010, real output increased 327.5%.  Dr. Perry gives us some more analysis:

The chart above shows the dramatic increases over time in the amount of manufacturing output produced per US worker, which more than doubled in the 42 years between 1955 and 1997 from $40,000 to $85,000, and then more than doubled again in only 13 years between 1997 and 2010 to about $171,000 (all figures are expressed in constant 2014 dollars). Manufacturing output per employee last year of $171,538 established a new all-time record for the productivity of the American factory worker, measured in manufacturing output per factory worker.

I find this amazing.  We’re witnessing a revolution in manufacturing likely not seen since the Industrial Revolution.  It does mean fewer jobs, to be sure, but also greater output, similar to what we saw with agriculture a century ago (98% of US workers were employed by the ag sector at one point, and that was just enough to feed themselves.  That figure is now down to about 2% and we are the world’s bread basket).

Walt Greenway (friend of the blog), summed up the situation very nicely:

It was frustrating and rewarding watching first-hand the change in manufacturing over almost 40 years. From brute strength with 4,000 employees to high-tech automation with 1.000 employees while greatly increasing the tonnage and quality of shipped finished steel daily.

The change involved fewer and much better trained employees working in a safer and more comfortable workplace.

I think Mr. robot can keep the job I hired into in 1973 hanging 180 frames per hour at 50 pounds each from a waist-level conveyor to an overhead moving hook 12-hours-per-day in a poorly heated and non-air conditioned factory. Humans should not be treated like machines.

(There is another point here I’d like to make, but this post is already too long)

If we combine Dr. Perry’s chart with my earlier research on manufacturing, it tells us an interesting story regarding outsourcing: outsourcing does not appear to be the major cause of manufacturing job loss in America.  That is not to say no jobs have been lost because of it, many absolutely have, but it appears efficiency gains is the bigger cause.