Level The Playing Field For American Manufacturing

Level The Playing Field For American Manufacturing

September 4, 2012
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The manufacturing sector once offered a large supply of stable, middle-class jobs to American workers. Yet middle-income manufacturing jobs have been disappearing from the United States for the past 30 years. While technological innovation has played a much-recognized role in the erosion of the nation’s manufacturing base, policy failures also contributed to the disappearance of industrial jobs. Leveling the playing field for domestic manufacturing will ensure that the U.S. can compete on a global scale for the decent-paying jobs that will help to support the next generation of middle-class Americans.

From 1980 to 2005, low-skill jobs and high-skill jobs alike grew by nearly 30 percent, while the share of employment represented by middle-skill, middle-wage jobs dropped by nearly 12 percent.1 To put this story another way, the U.S. labor market has changed qualitatively over the last 30 years, marking a virtual disappearance of the jobs in sales, office administration, production, and operations that built the middle class in the mid-20th century. In exchange, there has been a rapid rise in low-skill positions in protective services, personal care, and maintenance, along with a spike in the employment of high-skill managerial and professional positions. As the labor market has polarized in this manner, the middle class has shrunk considerably.

There are two sets of possible responses to the disappearance of middle-skill, middle-wage jobs. First, as we have already stated, it is crucial to improve the pay and benefits offered for low-skill jobs: to this end, we call for raising the minimum wage and strengthening the power of Americans to collectively bargain for higher wages by forming a union. At the same time, we have called for aggressive investment in job training and human development more broadly, which will ensure that every American who works hard and plays by the rules will have the chance to develop the skills required for higher-paying positions.

But these interventions will not, by themselves, protect Americans from the economic vulnerability created by exposure to cheap overseas products. While many economists hold to the traditional theory that increased trade invariably generates greater gains across the board, recent analyses reveal a much different picture – indeed, according to David Autor of MIT, between one-third and two-thirds of the gains from international trade are wiped out by the subsequent increase in unemployment, wage depression, and hikes in public safety net payments.2 The facts could not be clearer: a $1,000 per worker increase in import exposure in a single locality results in a 0.77 percent reduction in the employment to population ratio (about three quarters of which is due to losses in manufacturing). This shock, moreover, is absorbed disproportionately by lower-skill workers, whose employment to population ratio actually declines by 1.1 percent, while that of higher-skill workers declines by 0.42 percent.

Given the subsequent rise in payments of disability and Social Security in localities exposed to imports from overseas, it is crucial to sustain not only Trade Adjustment Assistance for workers affected by overseas imports (manufacturing and service sectors alike) but also ensure that unemployment insurance and SNAP benefits remain available for the long-term jobless.3 These safety net programs have a proven record of preventing middle class families affected by international trade, and economic dislocation more generally, from sliding into poverty.4

Strengthen Buy American rules based on the “Invest in American Jobs Act of 2011” (H.R. 3533).8

  • Strengthen existing Buy America requirements for investments in highway, bridge, public transit, rail, and aviation infrastructure and equipment to ensure that all of the steel, iron, and manufactured goods used in these projects are produced in the United States.
  • Apply Buy America requirements to other transportation and infrastructure investment, including rail infrastructure grants, loans, and loan guarantees, Clean Water State Revolving Fund grants, and Economic Development Administration (EDA) grants. 
  • Require Federal agencies to justify any proposed waiver of the Buy America requirements and ensures that the American public has notice of and an opportunity to comment on any proposed waiver prior to it taking effect.

End wasteful tax breaks that encourage offshoring.9

  • Remove deductions offered in the tax code for transporting operations to overseas facilities.
  • End tax breaks that allow companies to shift profits earned from American-made patents overseas.

Affirm Trade Adjustment Assistance, Unemployment Insurance, and SNAP Benefits for Workers Affected by Exposure to International Trade.

  • Ensure that social safety net programs like SNAP and Unemployment Insurance are understood as important features of U.S. trade policy and are enhanced, along with Trade Adjustment Assistance, as a condition of any new free trade deal.

While it is important to strengthen the safety net for Americans harmed by imports from low-wage countries, it is also possible to work more proactively to limit the damage caused by international trade. The most logical step here is to level the playing field for domestic manufacturing. Despite the odds, the American manufacturing sector has experienced a modest rebound as of late: over the past two years, as many as 330,000 manufacturing jobs have been created in the United States. Of course, this comes after 7.5 million manufacturing positions have been lost over the last 30 years, but there is reason to believe that smart policy can strengthen domestic industry and offer the middle class new options for middle-skill, middle-wage jobs.5

The U.S. tax code offers tax breaks that do not serve the interests of working Americans, allowing companies to deduct from their taxable income the cost of moving operations overseas – this, along with tax loopholes that allow U.S. companies to shelter profits overseas from intangible property such as patents, make it unnecessarily difficult for domestic manufacturing to thrive. Eliminating tax exemptions for U.S. companies to shelter profits on intangible property overseas would alone save the U.S. $23 billion and would also ensure that companies do not incur wasteful costs for choosing to remain at home and employ American workers.

Lastly, the U.S. government has the opportunity to take the lead by encouraging consumers to purchase domestic products by strengthening already existing Buy American laws and by toughening reporting requirements to ensure that public tax dollars are spent on American-made goods, where possible. A fully-robust Buy America provision would increase manufacturing jobs by as much as 33 percent;6 moreover, recent polling reveals that fully 91 percent of voters support restrictions on public taxpayer dollars being spent strictly on domestic-produced goods – indeed, 89 percent of self-identified Tea Party members support this provision along with 94 percent of Democrats.7

In order to rebuild the American middle class, it will be necessary to create the conditions for middle-skill, middle-wage jobs to thrive again – this can be achieved in part by leveling the playing field for the domestic manufacturing industry that once provided these jobs in abundance.

ENDNOTES

 

  1. David Auto, “The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings,” Center for American Progress (April 2010). http://econ-www.mit.edu/files/5554

  2. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” Working Paper, August 2011, Accessed March 4, 2012. http://econ-www.mit.edu/files/6613

  3. “Overview of 2011 Trade Adjustment Assistance Reauthorization,” National Employment Law Project (October 2011). http://www.nelp.org/page/-/EDI/2011/ TAA_2011_Leg_Update_FINAL.pdf?nocdn=1

  4. “Barriers Facing the Long-Term Unemployed,” National Employment Law Project (December 2011). http://www.nelp.org/page/-/UI/2011/Owens_Testimony_ Barriers_Unemployed_12-2011.pdf?nocdn=1

  5. Annie Lowrey, “White House Offers Plan to Lure Jobs to America,” New York Times Online, February 2, 2012, Accessed March 4, 2012. http://www.nytimes. com/2012/02/03/business/economy/a-lure-to-keep-jobs-made-in-america.html?_r=1

  6. James Heintz, Robert Pollin, and Heidi Garrett-Peltier, “How Infrastructure Investments Support the U.S. Economy: Employment, Productivity, and Growth,” Political Economy Research Institute (January 2009). http://americanmanufacturing.org/files/peri_aam_finaljan16_new.pdf

  7. Ayres McHenry, “National Survey: American Manufacturing,” AmericanManufacturing.org (June 2011). http://americanmanufacturing.org/files/AAM%20Poll%20 Toplines%202011_0.pdf

  8. “Rahall Unveils Major Proposal to Create American Jobs,” The House Committee on Transportation and Infrastructure (December 2011). http://democrats. transportation.house.gov/press-release/rahall-unveils-major-proposal-create-american-jobs

  9. White House Office of the Press Secretary, “Fact Sheet: President Obama’s Blueprint to Support U.S. Manufacturing Jobs, Discourage Outsourcing, and Encourage Insourcing,” White House Website (January 2012). http://www.whitehouse.gov/the-press-office/2012/01/25/fact-sheet-preside... manufacturing-jobs-dis

  10. American Association of Manufacturers 2011 National Survey of Likely Voters on Manufacturing and America’s Global Economic Standing.” The Mellman Group, Inc. & Ayres McHenry. (2011) http://americanmanufacturing.org/content/2011-aam-bipartisan-national-po...