Monday, October 22, 2012

Can we stop talking about "manufacturing jobs"?

A lot of people worry about "manufacturing jobs," but the metric is seriously flawed.

Politicians and some financial analysts decry the decline of manufacturing jobs. There has been some decline, but the way these jobs are measured is inherently flawed, as it fails to take into account the change in managerial attitudes towards vertical integration.

Easy to see why with an example:

Ginormous Corp. makes widgets. In the 60s to mid-80s, as it went from being Bob's Homemade Widgets to Ginormous Corp., it added new facilities which had janitorial, accounting, cafeteria, legal, and other support services. All personnel in these support services counted as "manufacturing jobs."

In the mid-80s, Ginormous Corp. figured out (with a little help from Pain & Co and McQuincy & Co consultancies) that these support services were (a) not strategic and (b) internal monopolies. Part (a) meant that they could be outsourced and part (b) strongly suggested they should be outsourced. Let's say that Ginormous Corp. spun out these support services into wholly-owned subsidiaries, with no significant change in overall personnel.

So, all the personnel in janitorial, accounting, cafeteria, legal, and even some of the technical business support went from being in "manufacturing jobs" to being in "service jobs" without any change to what actually is produced and any actual job.

A metric that can change dramatically while the underlying system and processes don't change much is not a good foundation for decision-making. "Manufacturing jobs" is one such metric, as it depends on organizational decisions at least as much as on actual structural changes.

Metrics: useful only when well-understood.

Note: There are many reasons why focusing on manufacturing jobs over service jobs is a bad idea: Old Paul Krugman explains the most relevant, differential productivity increases, here.