Tuesday, January 3, 2017

Will the Job Outlook be Great Again? (Part 1)

As a new presidential administration approaches, you may be wondering about the impact that the change in leadership will have on job prospects in the United States. I don’t claim to have a crystal ball, but I believe I can glean useful insights from what economists are saying and from past employment trends. And, in fact, I have a record of forecasting trends brought in by a previous sea change.

Eight years ago, when a major recession was looming and I was working for JIST Publishing, my editor—Susan Pines—assigned me to write a book that eventually was called 150 Best Recession-Proof Jobs. The book came out just as the full force of the Great Recession came crashing down on the U.S. economy. Thanks to this good timing, the book was so newsworthy that I was being interviewed on television approximately once a week for a month and more. (A lot of credit goes to JIST’s crackerjack publicist at the time, Selena Dehne.)

I selected the occupations that I featured as “recession-proof” by mathematically comparing the past ups and downs in the gross domestic product with the ups and downs in the workforce size of each occupation. Thus I was able to identify occupations that were least impacted by past downturns. The main limitation of this approach is that each recession is different from previous recessions. For example, the Great Recession was caused by a sudden drop in the value of real estate after a long bubble of overbuilding, so certain industries related to real estate—especially construction—suffered more than they did in previous downturns. Nevertheless, over the following several years my predictions were more often confirmed than disconfirmed.

The pending change in administrations presents a similar problem for those who would forecast employment trends. It might seem sensible to look at the employment effects of past transitions when a Democrat was succeeded by a Republican. However, each such transition, like each recession, is different in many ways. The year 2017 can’t be expected to repeat 2001 precisely. For example, while the last part of Barack Obama’s administration has seen a long streak of growth, it is not comparable to the technology bubble that ended Bill Clinton’s second term. And Donald J. Trump is not as conventional a Republican as George W. Bush.

In fact, it’s difficult to tell what kind of Republican—indeed, what kind of politician—Trump is. His policy pronouncements tend to lack specifics and frequently change depending on his audience. Some of the policy goals he has stated at various times run counter to the stated goals of Congressional leaders of his own party, raising the question of who will prevail if he tries to bend Congress to his will.

Because of these uncertainties, I am basing my forecasts on Trump’s general goals, plus an analysis of possible policies that he might or might not employ in pursuit of these goals. And I am organizing my forecasts by industries. In this blog, Part 1, I discuss only manufacturing.

Manufacturing Jobs. One of Trump’s most consistent messages has been his desire to bring manufacturing jobs back to the United States. What’s often overlooked in his rhetoric is that manufacturing output in the United States is now at nearly an all-time high. The kind of manufacturing that is now done here uses highly automated processes and employs a comparatively small workforce of highly skilled technicians. (Since recovering from the Great Recession by 2015, the number of employees has leveled off at about 12.3 million.) Most low-skill manufacturing tasks are performed either here by robots or overseas by low-paid workers, such as the ones who are making the garments branded with Trump’s name and his daughter’s.

That leaves the next president with these policy choices:

·         He might impose high tariffs that make it uneconomical for offshore manufacturers (whether American-owned or otherwise) to export to the U.S.  market—a policy that Trump has explicitly endorsed at times. But the policy could backfire. To the extent that imposing or raising tariffs is feasible under existing trade agreements, it would encourage other nations to retaliate with their own tariffs, reducing exports of our own manufactured goods and increasing the costs of the supply chain—imported parts and raw materials that U.S. manufacturers use. Also, once American manufacturers are protected from foreign competition and start hiring low-skill American workers, they will not be able to pay the rock-bottom wages that third-world workers earn. So, although many jobs will open in manufacturing, consumers will find American-made manufactured goods costing a lot more than the cheap foreign-made goods that now fill the shelves at Walmart. In summary, this policy would hurt high-skill manufacturing workers and create an economy where the low-skill manufacturing workers might have no more purchasing power than is now possible from work in service industries. And, finally, almost all Republican lawmakers, as well as many Democrats, are committed to tariff-free trade (although Republican voters have become more hostile to it), so this policy stands little chance of getting through Congress.
·         He might mandate that American-made products and components be used when federal funds are expended. He hinted at this policy at the third presidential debate with Hillary Clinton when he said that he had used Chinese steel in one of his building projects because Congress had done nothing to stop him. It seems unlikely, however, that Congress would go along with this policy. Congressional leadership has not changed since House Republicans defeated an amendment to impose just such a mandate on infrastructure projects for the nation’s waterways.
·         He might offer tax breaks to American manufacturers so that their operations here are more profitable. Trump actually tried this approach in October when he persuaded Indiana to give tax breaks to the Carrier division of United Technologies as a way of preventing jobs from being shifted to Mexico. However, Carrier has indicated that it intends to use the resulting savings to increase the company’s use of automation—thus subsequently cutting more low-skill manufacturing jobs. Cutting labor costs produces savings that are more dependable than easily-reversible tax breaks. So tax cuts seem unlikely to be an effective solution.
·         He might reduce federal regulations on manufacturers that add to the costs of doing business in the United States. (I am not saying I favor this policy, but it is one that is sometimes proposed.) For example, it has been argued that the main reason Carrier wanted to relocate jobs to Mexico was regulations, not wages, and Trump is in agreement with Republican leadership in Congress on the need to reduce regulations on industry. It is not clear that Trump can get enough cooperation from Congress to make sufficient reductions in regulations to bring a true renaissance of manufacturing. And for some regulations (e.g., on the formaldehyde levels in plywood), the way to reduce competition by offshore manufacturers is to apply the same regulations to imports that are imposed on goods manufactured here, rather than rolling back regulations.
·         He might accept the reality that low-skill manufacturing jobs are gone for good and instead focus on preparing (or retraining) workers for high-skill jobs in the industry. One way to accomplish this is to make community college as free of charge as high school. This is what President Obama proposed and that became the America’s College Promise Act of 2015, but Congress sent the bill to die in committee. I have been unable to find any statement from Trump himself about this proposal, but Trump’s campaign co-chair Sam Clovis, in an article in Inside Higher Education, stated that the campaign rejected the call for free community college.
·         A related policy to encourage manufacturing would be to find a way to increase the number of manufacturing engineers working here. According to Walter Isaacson’s biography of Steve Jobs, the Apple  CEO once told President Obama that Apple’s suppliers in China are able to employ 700,000 factory workers because they have ”30,000 engineers on-site to support those workers. ‘You can’t find that many in America to hire.’” The skill level that Jobs was referring to seems to have been closer to engineering technicians than to what we normally think of as engineers. So, again, increased funding of community colleges and technology schools would be a way to achieve this goal, but that was not a priority of the Trump campaign. Alternatively (or additionally), a reformed immigration system might welcome engineers and engineering technicians trained abroad or coming from abroad for training here. Trump has both welcomed and rejected immigration of high-skill workers at various times. Congressional leadership has generally favored it despite the reluctance of many Republicans and therefore has sometimes had to find underhanded ways to encourage it. Therefore, it is difficult to predict whether or not this policy will be pursued in the coming administration.
·         Yet another way to create a high-skilled manufacturing workforce is to encourage unions to partner with manufacturers on forming apprenticeship programs. Although Trump starred in a TV series called “The Apprentice,” I have not been able to find any statements from his campaign about his attitude toward actual apprenticeships, with the meaningless exception of a tweet he issued in October: “Did Hillary just say she wants more Apprenticeships? I created The Apprentice!” Judging by Trump’s past record as an employer, his attacks on an Indiana union leader, and his appointment of a foe of unions for Labor Secretary, he seems no friend of unions, and Congress certainly has not encouraged them, so this last outcome seems unlikely.
In conclusion, then, I do not expect the Trump administration to deliver on its promise of a renaissance in low-skill manufacturing jobs. I expect employment in these jobs to remain at its current low level—or worsen if there is an economic downturn.


  1. "another way to create a high-skilled manufacturing workforce is to encourage unions to partner with manufacturers on forming apprenticeship programs" - most of the time after-graduates don't really know what they want to with their life and what job they want to acquire

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