While job losses slowed in most sectors, manufacturing lost more jobs in May than in April. The outlook for the sector and its workers is dark
Job announcements this week by two big U.S. companies provide a snapshot of the current state of U.S. employment. First General Motors, now in bankruptcy, said it would close or idle 14 plants across the country, putting as many as 20,000 out of work. Several days later, mega-retailer Wal-Mart (WMT) announced plans to create 22,000 jobs in 2009—including cashiers, sales associates, and pharmacists—to staff new and expanded stores.
The juxtaposition of these messages—from the country's formerly largest employer, GM, and its successor, Wal-Mart—sparked questions about how rapidly the economy is shedding well-paid jobs and to what extent they can be replaced. The U.S. Labor Dept.'s May jobs report, released June 5, provides more fodder for the debate. It showed that while job losses slowed in most private-sector industries, including retail, manufacturing employment fell at an accelerating pace—by 156,000 jobs in May, compared with April's loss of 149,000 jobs.
So while the stock market was buoyed by May's less-than-expected overall job losses, many saw the report as grim. "The concern is that we're replacing $25-an-hour jobs with $12-an-hour jobs," says Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland. Morici says this trend has been going on for decades in the U.S., but that "the recession is exacerbating this weakness in the economy."
How Many Well-Paying Jobs Persist?
There are many reasons the U.S. manufacturing sector has been in decline. In GM's case, the cuts reflect the long slide in the company's sales and market share. Job automation and competition from countries with lower wage rates contribute to the general problem. And economists such as Morici also cite the low valuation of China's currency, which makes it much cheaper to produce goods in China than in the U.S. "Manufacturing, including the auto sector, has been clobbered by China's [monetary] policy," says Morici, who is critical of President Barack Obama's policy toward that country. "The U.S. is appeasing, not challenging China."
Tig Gilliam, CEO of the North American group of temporary-help giant Adecco (ADEN.VX), disputes the notion that just because the service sector is doing better than manufacturing, growth will come only in low-wage jobs. "Some of the strongest industries for job growth are bookkeeping, finance, health care, and education," he says. "They're not all graduate-degree jobs, but they're well-paying jobs."
But even if the pay for newly created jobs could compare with the $28 an hour that laid-off GM workers make, it's not clear that those thrown out of work have the skills or training needed to fill them. The number of "discouraged workers"—those who have given up looking for work because they don't believe a job is available for them—has nearly doubled in the past year. The number of long-term unemployed (jobless at least 27 weeks) increased by 268,000 in May, to 3.9 million. That number has tripled since the beginning of the recession, indicating that there may be a mismatch between open positions and workers' skill sets, geographical location, or desired rate of pay.
So for now, manufacturing continues to decline and net job creation remains a distant dream. "We're losing our middle class now," says Andrew Stettner, deputy director of the National Employment Law Project, or NELP, a low-wage worker advocacy organization. "Will those who lose middle-class jobs go back to middle-class jobs? That's the big question."
Big Ripples from GM and Chrysler Cuts
The manufacturing sector stood out from what was otherwise an improving jobs picture in May. Other battered industries halved their April job losses, including construction (with 59,000 jobs lost in May) and retail (18,000 cut). Three durable-goods industries accounted for about half of the overall loss in U.S. factory employment in May: motor vehicles and parts (a drop of 30,000 jobs), machinery (down 26,000), and fabricated metal products (19,000 lost). Since its most recent peak in February 2000, employment in motor vehicles and parts has fallen by about 50%.
"Manufacturing job losses are likely to continue at an alarming rate as the ripple effects of GM's and Chrysler's restructurings are felt throughout the supply chain," says Scott Paul, executive director of the Alliance for American Manufacturing, a lobbying group.
The manufacturing work week was also down by 0.2 hours—twice the drop for all production and nonsupervisory workers during the month. In April and May, average hourly wages grew by just 0.1%, to a seasonally adjusted $18.54, but wages for manufacturing workers actually fell 0.1%.
The manufacturing sector's decline has a disproportionate impact on less educated workers, who already face an unemployment rate significantly higher than that of college graduates.
"The concern is for workers that have only a high school degree or less," says NELP's Stettner. "We're losing lots of good jobs for people with that level of education. Unless the manufacturing sector recovers—or we somehow upgrade the level of jobs in the service sector—the job market will become even more unequal."