There has been much speculation recently as to the ability of US manufacturing to create jobs – particularly in view of increased automation displacing workers. The Reshoring Initiative recognizes the automation trend and that returning jobs will be, on average, higher skilled and fewer than when the work was lost to offshore. So, how should companies and policy makers plan for increased automation and what will be the impact on jobs? To help find some answers, let’s review what we know.
The impact of automation on jobs is exaggerated thus far. For the last two decades automation has replaced fewer jobs than were lost to offshoring.
Productivity is actually growing slowly. Productivity growth has been low for the last 10 years, averaging only 1.7 percent, which is 60 percent below the average of the preceding 17 years. We attribute much of the slowdown to decreased capital investment as a result of offshoring.
The US must invest in automation in order to retain and reshore jobs and innovate. Other countries (especially China) are investing heavily in automation, so we either automate or we lose more to offshore automation than we would to domestic automation. Despite the fact that automation will continue to eliminate some low and mid-skill jobs, it decreases cost and restores competitive advantage, making more reshoring possible. More reshoring and less offshoring means more manufacturing jobs.
Automation helps developed countries more than developing countries. Automation reduces the labor hours required to produce goods and shifts the mix toward higher skilled workers. Compared to China, the wage gap is smaller at higher skill levels. Additionally, automation can actually be more costly in China because machinery is subject to their Value Added Tax.
Balancing the trade deficit can bring jobs back faster than automation can take them away. Balancing the trade deficit will bring back 3.3 to 4.6 million manufacturing jobs at the current level of US productivity. That’s about 30 percent of our current manufacturing workforce.
Conclusion: Automation is not a problem. It is an important part of the solution. Companies should stay focused on creating flexible, sustainable business models, making decisions and selling based on total cost analysis and on using automation to close remaining total cost gaps.