“When the job market peaked in 2008 on the eve of the financial crisis, the manufacturing sector had already shed 5 million workers since the decade began,” said John Bougearel, a market analyst and trader, in an article on the website, naked capitalism.
About one-third of U.S. manufacturing jobs were lost through outsourcing between 2000 and 2008, not including associated jobs. Ripple effects also come into play when the supply chains needed in the production of certain goods are no longer needed.
Manufacturing Jobs at a Glance
While the manufacturing sector gained 164,000 jobs between November 2010 and April of this year, it remained stagnant in the subsequent months. Although fabricated metal products experienced a job gain, other manufacturing areas, including the wood sector, suffered job losses, offsetting the gains, according to the July 8 Bureau of Labor Statistics (BLS) report.
The BLS monthly diffusion index was around 50, below the 52.5 level it held at the beginning of this year, with an index of 50 representing an increase and not decrease in job creation.
At the same time, overtime and regular hours worked on manufacturing jobs decreased by a small fraction, that is, less than 1 hour.
Some companies are bringing limited production capacity back into the United States. The Boeing Co. announced at the end of 2010 that it would be opening an assembly plant in North Charleston, S.C., promising to add jobs instead of retrenching.
“Construction of the factory is nearly complete and the company has hired more than 1,000 new workers. Final assembly of the first airplane is slated to begin in July,” announced Boeing in an April press release.
Playing the Outsourcing Game
“If Apple moved its assembly line to the United States and created domestic jobs but didn’t raise the cost of the iPhone, the company would still turn a 50 percent profit on every one it sold,” said Bougearel in his article on the naked capitalism website.
Apple Inc. adds $2 billion to the U.S. annual trade deficit by producing the iPhone in Asian countries, with the majority being produced in China and the rest in Taiwan and Singapore.
General Motors Corp. (GM), after receiving taxpayer funds to escape bankruptcy, announced in 2009 that it would “shift more production of vehicles bound for the U.S. market to China,” with 2011 the first year when it would bring Chinese made cars to the U.S., according to an article on the Economic Populist website.
At the same time, GM announced that it would close three U.S. plants by 2014, starting a domino effect by putting suppliers, dealers, and a slew of other firms out of business, resulting in the loss of thousands of more U.S. jobs.
Outsourcing Effects on Economy
“Eliminating jobs from a country impacts its economy and the buying power of consumers,” according to an article on the wiseGEEK website.
The economic effect of outsourcing manufacturing jobs might not be immediately apparent, but historical evidence indicates that many areas where jobs were outsourced suffered long-term economic deprivation. People could land only lower paying jobs, reducing their buying power.
Economists decrying outsourcing point to the auto industry where such practice was instrumental in impoverishing many U.S. localities. Loss in local and federal income taxes helped fuel the U.S. budget deficit as more and more funds had to be allocated for people on the unemployment or welfare lines, instead of to research and other activities that would have helped the United States maintain a competitive edge.
“Manufacturing jobs have by far the greatest impact on national economy, in terms of losing skills and the time taken to retrain such a force,” suggested an article on the Directory Journal, a business journal website.
The aforementioned was a heavy blow for the U.S. labor force, but outsourcing manufacturing jobs had a far more detrimental long-term effect on U.S. manufacturing infrastructure.
“Another thing is the loss of industrial infrastructure with the closing down of U.S. factories and then exporting of capital abroad. This money is then not available for U.S. economic expansion,” reminds the Directory Journal.
American corporations, including their stockholders, must scale back their earnings expectations and view outsourcing from its long-term effect on the knowledge base lost. An existing manufacturing base fosters innovation, improvement of existing products, and the development of new products.
Experts suggest that with manufacturing moving offshore, the corporation is also outsourcing its ability to improve the products. Instead, one relinquishes the “feedback loop that leads to innovation,” said Robert Burgelman, professor at Stanford University, in a Stanford Graduate School of Business publication.
“Abandoning today’s ‘commodity’ manufacturing can lock you out of tomorrow’s emerging industry,” said Andy Grove, former chief executive at Intel Corp., in the Stanford publication.
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