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Technology Ate Your Job

Let's talk for a second about manufacturing.

It seems that everyone now bewailsthe decline in America's manufacturing base over the past half-century. You don't need to cite figures; you can just say our manufacturing jobs have been shipped to China/Mexico/India, and leave it at that.

But this is only half the story. Manufacturing jobs have definitely dwindled miserably. But the actual manufacturing of stuff is another story entirely.

Since peaking in 1979, total U.S. manufacturing positions have fallen by 40% -- a loss of some 8 million jobs. Real (inflation-adjusted) manufacturing output, however, has increased 75%.

Sources: Federal Reserve, Bureau of Labor Statistics, author's calculations.

What's going on here?                                          

I've mentioned before that the disconnect between manufacturing jobs and manufacturing mostly owes to productivity. Advances in manufacturing technology have allowed companies to produce more stuff with fewer workers, using machines to complete tasks once done by hand. Your jobs aren't just being shipped to China. They're being replaced by robots.

Binyamin Appelbaum of The New York Times provides a great example of how this shift has affected U.S. Steel (NYSE: X  ) :

In 1950, the United States Steel Corporation employed 30,000 workers at its plant in Gary, Ind. Today that factory employs only 5,000 workers. But they produce more steel: 7.5 million tons a year now, compared with 6 million tons then.

This is technology eating jobs.

Another Times article, this one by Thomas Friedman, puts another twist on technology's impact on the job market:

Facebook is now valued near $100 billion, Twitter at $8 billion, Groupon at $30 billion, Zynga at $20 billion and LinkedIn at $8 billion. These are the fastest-growing Internet/social networking companies in the world, and here's what's scary: You could easily fit all their employees together into the 20,000 seats in Madison Square Garden, and still have room for grandma. They just don't employ a lot of people, relative to their valuations, and while they're all hiring today, they are largely looking for talented engineers.

Is this a bad thing? I don't think so. For one, there are tech companies like Microsoft (Nasdaq: MSFT  ) , Intel (Nasdaq: INTC  ) , and Oracle (Nasdaq: ORCL  ) that collectively employ hundreds of thousands of people. More importantly, change is just what economies do. Today's laid-off factory workers were once replacing farmers, buggy makers, and inefficient micro-smiths. Nostalgia about the past usually overlooks advancement. Change, especially when driven by technological breakthroughs, is a wonderful thing.

But there's a broader point to make about the trade-off between capital and labor. When economies grow, the benefits of that growth are split between two groups: capital (investors), and labor (workers). Fifty years ago, the benefits were skewed toward labor. 

Growing demand for goods meant more factory jobs -- fueled largely by America's status as the only major nation not reduced to rubble after World War II. Jobs were not only plentiful, but came with real wage gains as well. Capital (investors) did well too, but the real winners of the 1950s and '60s were workers. During the 1960s, disposable income increased faster than stocks.

That trend began shifting in the 1970s as the balance moved toward capital. Productivity -- one of the most important measures of any economy's growth -- still boomed, but the benefits favored investors, and in many cases came at the direct detriment of labor. Rising productivity in the 1950s meant the 30,000 workers of U.S. Steel's Indiana plant got raises. After the 1970s, it meant they got laid off, while its shareholders benefited by producing more steel with fewer workers. That trade-off between labor and capital has been exceptionally skewed over the past two decades. If you have capital, and can invest in Facebook or own a hedge fund, things have scarcely been better. If you're an average worker, things have scarcely been worse.

The question is how long that can last. Like all markets, the trade-off between labor and capital moves in cycles. In Ford's (NYSE: F  ) early days, founder Henry Ford provided what at the time were high wages because he reasoned that maximizing sales meant workers would have to be able to afford the cars they were making. There comes a point where capital can't prosper if labor is broke, and so the cycle shifts.

But we haven't yet hit that boundary, and globalization makes doing so all the more difficult. When will the tide turn? Share your thoughts in the comment section below.

Fool contributor Morgan Housel owns shares of Microsoft. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Microsoft and Ford Motor. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Microsoft, Intel, and Ford Motor. They have also recommended creating a diagonal call position in Microsoft and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2011, at 1:19 PM, islandertrader07 wrote:

    Great article.

    Politicians should be focusing on improving the American education system, not trying to bring manufacturing jobs to the US. This is the natural evolution of an economy. People must evolve with it, or be left in the dust.

  • Report this Comment On July 14, 2011, at 1:45 PM, wenboy wrote:

    Totally agree with islander. The only things that the rest of the world want and need from US are the high-tech products - software, phones, airplanes and computers, chips. Obviously the politicians are too stupid to realize that these companies has to hire a lot of foreign engineers each year to keep the company running... There are just simply not enough talents domistically. All the local talents are being drawn to he wall street to screw-up the average joes . And also, does the world really needs another financial crisis?

  • Report this Comment On July 14, 2011, at 1:48 PM, vamagguy wrote:

    This is a good article, but it doesn't tell the whole story. As the economy shifted from blue-collar to white-collar jobs, lots of these white-collar jobs were outsourced. Engineers and staff in India, Israel, China, Japan, Hong Kong and elsewhere now do jobs that were once done by Americans. The income that Americans would have made and spent in local businesses is now spent in those countries.

    Further, the productivity explanation only goes so far. There are virtually no garment and shoe manufacturers in the US, where there once were many. What's the productivity in a manufacturing sector that has *no* employees? The executives at these companies still enjoy good jobs and pay, but they no longer have American employees. It may have been smart for business, but it's pretty mean-spirited to your neighbors.

    The great captains of industry always understood that markets, capital and labor were related, and they made their fortunes by finding the sweet spot among the three. We can sell out labor and support nice executive jobs in the short term, but if there are no laborers earning a living to buy your products, you eventually cut your market off at its knees.

  • Report this Comment On July 14, 2011, at 1:50 PM, techy46 wrote:

    "Change, especially when driven by technological breakthroughs, is a wonderful thing." Only true if an increasing percentage of the population are benefited by that change. As Kirk told Spook, they're still using money and we need to get some. If technology drives the concentration of capital to fewer winners how do you continue to distribute goods and services to the losers? Increased taxes on the winners? Free goods and services for everyone? Let the losers suffer? Interesting question for capitalists and socialists.

  • Report this Comment On July 14, 2011, at 2:57 PM, DJDynamicNC wrote:

    Socialism does address the problems that arise from capital/labour disparity quite nicely, and also many of those problems arising from technological advance.

    Just thought I'd point that out.

  • Report this Comment On July 14, 2011, at 6:50 PM, techy46 wrote:

    Yes, I'm aware of how socialism addresses such disparties but I'm not sure the rest of the public will appreciate such advances.

    Thanks for pointing it out.

  • Report this Comment On July 17, 2011, at 4:24 PM, Wood1024 wrote:

    The words in this article could only be uttered by someone who knows very little about economics or the history of human progress. If you reflect most of us can come up with this glaringly obvious counterfactuals: we obviously use a lot more labor-saving technology today than in previous generations, and yet we also employ far more people. Therefore, increased technology does not lead to decreased national employment. If you do more than just think for a second — if you read an economic history book, for instance — you discover that increased technology doesn’t even necessarily lead to decreased employment in the industry being automated! The most classic example is the 19th century British textile industry. The so-called “Luddites” smashed automated looms fearing that they would lead to rampant unemployment in their industry. However, as the new technology proliferated, textile industry employment rose. Among other reasons, increased efficiency drastically lowered the prices of textile goods, that shot demand through the roof, and to meet the new demand new workers were required to operate and maintain the new machinery. There are many other examples that can be cited.

  • Report this Comment On July 17, 2011, at 4:39 PM, cmfhousel wrote:

    ^ It seems your examples are perfectly in line with this article's views. How does that mesh with the first sentence of your comment, that I'm "someone who knows very little about economics or the history of human progress?"

  • Report this Comment On July 17, 2011, at 6:02 PM, whereaminow wrote:

    The disparity of incomes produced by technology is a wonderful thing that should be embraced. Labor IS capital, in economic terms, and even the word labor is deceiving. Labor from you is different than labor from me, and our labor is different from our two socialist commentors. Labor is not a homogenous entity nor is it a class of people with the same interests. It is an accounting term to describe an aggregate of many unique contributions to the market made by individuals.

    In a free society, incomes would tend to the widest possible distribution. This is because everyone's contribution to the market is unique and changing. If you remove force and violence from the market place - corporate welfare and union welfare - you would see a market that always tends toward wider distributions, longer and more efficient structures of production, higher standards of living for all parties, and an ever more sophisticated pool of available workers.

    Reducing this income gap through violence only slows the progress of the market, whether you are for rewarding big business through subsidies and money printing, or big unions through compulsory higher wages and exclusion of non-union competition.

    Furthermore, increases in worker sophistication in other nations, which leads them to produce things Americans used to produce (remember the piano industry?) makes Americans wealthier by providing them with less expensive products, granted that American workers are willing to become more sophisticated themselves in order to move up the techonological ladder. Lobbying for auto company bailouts to save dying industries so that laborers can keep jobs that no longer serve consumer wants would be the opposite approach.

    As I said, I notice that two socialists have chimed in to promise us once again that they have all the answers.

    I am certain that they are capable of answering the Economic Calculation Problem of the Socialist Commonwealth. Specifically, I'd like to hear their explanation of how prices are formed for both consumer goods and higher order, capital-intensive goods. If they can offer answers to these questions, we'll start looking at more serious critiques contained in the problem. Perhaps then we will find out if they have all of these problems worked out, as they claim.

    David in Qatar

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