MICHAEL HICKS: Carrier illustrates the big economic shifts of our time
The final layoffs at the Carrier Indianapolis plant provide a moment to reflect on three trends that are remaking much of the American economy. I start with the least impactful of these and move on to the big disrupters.
A little over two years ago, at the height of the 2016 presidential campaign, Carrier threatened to close plants in Indianapolis and Huntington, relocating this production to Mexico. They argued that total costs from regulation and labor were too much to bear and that they needed a less expensive place to do business. Whether or not this is true is a matter of speculation, but it is certain that some manufacturing jobs have been lost to trade.
Estimates of trade-related manufacturing job losses since NAFTA range from just over 10 percent to just under a third of all lost jobs. That’s between 750,000 and 1.5 million jobs, but to place that into perspective, the US has gained 36 million jobs since NAFTA. So, something else is at work, and nowhere better exemplifies this than the Carrier decision to stay in the US and heavily automate its production.
Since NAFTA passed, the US has lost some 5 million factory jobs, even as inflation-adjusted production peaked towards the end of 2017. So, most job losses were due to productivity gains that came from better computerization, more automation, more effective use of workers, better-educated workers and other workplace improvements. Trade may have played a role in accelerating these changes, but the job killer in factories wasn’t trade, but innovation.
For nearly all of us, trade and innovation boosts productivity, earnings and other things we value. This is true both in the workplace and in our leisure activities. This is especially true for those of us whose work is complemented by mechanization and computers, where this innovation has radically changed what we do. For most Carrier workers, this technology is a substitute, not a compliment for what they do. Hence, the machines eliminate some labor and shift the skill and educational requirements of the surviving jobs. This can result in tough job prospects for many.
These economic forces are inexorable. To be sure policy plays some minor role, but it is minor. Trade deals, especially NAFTA, typically make it easier to sell US-made goods in foreign markets. And yes, we subsidize capital investment so heavily that it is surely speeding up automation. But, any fix to a trade deal is likely to speed up automation related job losses. Workplace innovation isn’t going away, and neither is trade. But, there’s a paradox here. Thus far, pure automation-related job losses may be a smallish part of the overall shift in employment. We can see the robots everywhere, but they’ve barely begun to alter employment patterns. There’s something else at work, which imposes even more relentless change in American communities.
The pace of urbanization is increasing. Since 2001, cumulative economic growth in urban places has been nearly seven times that of rural America. More starkly, just the increased growth in urban economy since 2001 is more than twice the total size of the rural economies. The reason for this is that urban places yield far better economic outcomes for most workers, including those with lower levels of educational attainment. The economic rationale for urbanization will have to wait for another column, but its reality and the incessant pace is altering economies across the nation. Urbanization also favors the shift towards a more automated workplace for a variety of small reasons, like power supply and internet access. But, the big reason is access to workers, and that takes us back to Carrier.
Later this year, Carrier will idle its plant in Huntington, Ind. For those of you have not been there, I can recommend a visit. It is a pleasant small town with schools consistently performing modestly above average in both achievement and academic growth. What it lacks is an abundance of workers, especially those with the educational attainment needed to work in a new automated work environment. Skilled people are the salient feature of urban places, and the lack of them, more than anything else motivated Carrier’s decision to relocate production to Indianapolis, where such workers are relatively abundant.
The point of this narrative is that the economic disruption that so many communities are experiencing is the result of economic forces that none of us can or would choose to control. Rapid innovation, which will almost certainly displace more rather than fewer jobs in coming years, and the urgent relocation to large urban areas are causing all the commotion. Communities and households who adapt to those realities will thrive; those who do not adapt will not thrive. All the discussion about trade and NAFTA is simply wasted hot air.