In a talk I attended the other night, Larry Summers mentioned that manufacturing employment in China peaked in 1996. I found this hard to believe, so did a little Googling. Lesson #1: don’t doubt Larry Summers’s command of the facts.
Lesson #2: companies all over the world are automating rapidly. Even though hourly manufacturing labor costs in China are only 4% of those in the US, it’s still attractive for Chinese factories to replace people with technology over time. This allows them to turn out more stuff with fewer people. How much more, and how many fewer? Take a look:
China’s manufacturing output was over 70% greater in 2008 than it was in 1996. Over the same period, manufacturing employment in the country declined by more than 25%.
Obviously, this is not because of outsourcing (companies outsource to China, not from China). It’s because technology is now so cheap, useful, and universally available that when more and more Chinese companies upgrade an old factory or build a new one, they don’t fill it up with cheap labor. They fill it up with hardware and software, just like we do in the US.
An earlier post showed what’s been happening to US manufacturing and employment over time: output goes up, while the number of jobs goes down. Thanks to a tip from Summers, I now see that exactly the same thing’s been happening in China, the world’s other manufacturing powerhouse.
Anyone want to suggest another plausible explanation (beside automation and the resulting productivity growth) for what’s going on in these two countries simultaneously? Anyone predict that either of these trends is going to reverse itself in either country? Anyone think anything different is going to happen as automation spreads to more and more industries?
If so, I’d love to hear about it.