Yet Another Reason Why Manufacturing Jobs Matter . . . And Can be Hard to Create

This from Harvard economist Dani Rodrik:  His cross national comparisons suggest that, unlike other sectors, manufacturing in developing economies will eventually see its labor productivity rise to converge with the manufacturing labor productivity of developed economies.  Why does he thinks this happens?

These industries produce tradable goods and can be rapidly integrated into global production networks, facilitating technology transfer and absorption. Even when they produce just for the home market, they operate under competitive threat from efficient suppliers from abroad, requiring that they upgrade their operations and remain efficient. Traditional agriculture, many nontradable services, and especially informal economic activities do not share these characteristics.

While Rodrik’s work is based upon transnational comparisons, it does generally suggest that economies that can expand employment in traded manufacturing sectors are going to be better able to generate wealth for themselves.  The trick–as Rodrik points out–is that the flip side of these sectors’ high rates of productivity growth is that the productivity growth itself will suppress employment growth in these sectors.  Thus for developing economies (even those here at home), it becomes a tricky matter to get more and more of your workforce into those more productive sectors, since they are likely to be the sectors producing the fewest jobs per unit of output sold.

You can read a summary of Rodrik’s work here.  And you thought economic development was easy. . .

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