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Manufacturing Payrolls Declining Globally: The Untold Story
By Joseph Carson, Senior Vice President and U.S. Economist
October 10, 2003

Factory Jobs Slashed

The popular explanation for the decline in US manufacturing payrolls is that American workers are being categorically replaced by workers in China and other parts of Asia. In truth, factory jobs have been slashed not only in America and Europe, but in Asia as well.

Contrary to popular belief, the global push to relocate facilities to countries with lower production costs has not caused an increase in manufacturing employment in those areas. In fact, since 1995, the reduction of manufacturing jobs in China has been as large as that of any other country.

Merely lowering operating costs is not enough for businesses to survive today. Enormous gains in technology have raised the bar on global competitiveness, punishing firms with outmoded facilities regardless of their location.

These new developments are certainly bullish for both the US and global economies, as manufacturers will need to continue to invest in innovative technologies in order to remain competitive.

A Global Trend.

Our investigation of manufacturing payrolls, we examined data for the world's 20 largest economies. Based on our findings, deterioration in America's manufact uring employment is not unique but reflects a global shift in factory payrolls. Indeed, though American manufacturers undoubtedly have relocated in search of lower overhead, factory jobs are still disappearing in the majority of developed and developing countries.

Of the 20 largest economies, only five showed an increase in manufacturing employment between 1995 and 2002.

• But three of the five-Canada, Mexico and Spain-appear to have benefited from regional trade pacts or currency agreements that triggered a relative shift in manufacturing payroll patterns, rather than an increase in payrolls.
• The remaining two, Taiwan and the Philippines, showed a noticeable rise in manufacturing in the seven-year period. But taken together, their net job gains amounted to only 300,000-sizeable for those two economies, but still relatively small on a global scale.

According to our analysis, between 1995 and 2002 roughly 22 million jobs were lost globally, a decline of 11%. Yet over the same period, global industrial production jumped more than 30%*-a remarkable gain in productivity. Losses in the US of 2 million jobs over the same period matched the global average of 11%.

China's Job Losses.

One of our more interesting findings is that, taken on its own, China's job losses are double the average of the remaining 17 countries* for the same seven-year period. Manufacturing employment in the 17 largest economies other than China fell a little more than 7%, from 96 million in 1995 to 89 million in 2002. In contrast, China's fell a whopping 15% in the period, from 98 million in 1995 to 83 million in 2002.

Notwithstanding the continuous influx of foreign investment and new employment, China has been unable to escape the drive toward productivity enhancement and the resultant downsizing of the manufacturing workforce. In 2002 alone, although nearly 2 million factory jobs were created, China's manufacturing employment level for the year was below 1998 and far below 1995.

Global competition has forced domestic firms to relocate offshore in order to remain competitive. But in a recent survey of domestic corrugated box makers, 40% indicated that the relocation of domestic manufacturing plants to overseas locations has caused a reduction in revenues in this cycle.

Conclusion.

Thus, the "giant sucking sound" being heard today is not just in the US, but across the globe. Competitive pressures felt by firms in developed countries are now affecting less efficient firms located in Asia, despite the lower production costs.

We don't see the pressure stopping anytime soon.

Joseph Carson is a Senior Vice President in Alliance Capital's Global Economic Research department. His primary responsibility is U.S. economic and interest-rate analysis.