“Insourcing” is Reviving US Manufacturing

That’s the claim that Charles Fishman is making in the most recent Atlantic.  He lists a number of contributing factors:

  • Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
  • The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
  • In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
  • American unions are changing their priorities. [General Electric’s] Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
  • U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.

It is worth noting that thanks to automation, labor costs are a smaller and smaller portion of manufacturing costs.  So “insourcing” may not produce the job boom one would expect.  Of course, this scenario collapses if natural gas costs increase or (as we’ve noted earlier) productivity stagnates.  In any case, you can read the full story here.

Tags: , , , , , ,