[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 102-000 deg.
ROUNDTABLE ON PRODUCTIVITY: ARE WE MAKING AS MUCH PROGRESS AS WE THINK
WE ARE?
=======================================================================
ROUNDTABLE
before the
SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, FEBRUARY 4, 2004
__________
Serial No. 108-F
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
______
U.S. GOVERNMENT PRINTING OFFICE
97-776 PDF WASHINGTON : 2004
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania ENI FALEOMAVAEGA, American Samoa
JIM DeMINT, South Carolina DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia GRACE NAPOLITANO, California
TODD AKIN, Missouri ANIBAL ACEVEDO-VILA, Puerto Rico
SHELLEY MOORE CAPITO, West Virginia ED CASE, Hawaii
BILL SHUSTER, Pennsylvania MADELEINE BORDALLO, Guam
MARILYN MUSGRAVE, Colorado DENISE MAJETTE, Georgia
TRENT FRANKS, Arizona JIM MARSHALL, Georgia
JIM GERLACH, Pennsylvania MICHAEL MICHAUD, Maine
JEB BRADLEY, New Hampshire LINDA SANCHEZ, California
BOB BEAUPREZ, Colorado BRAD MILLER, North Carolina
CHRIS CHOCOLA, Indiana [VACANCY]
STEVE KING, Iowa [VACANCY]
THADDEUS McCOTTER, Michigan
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Policy Director
Michael Day, Minority Staff Director
SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS
PATRICK J. TOOMEY, Pennsylvania [RANKING MEMBER IS VACANT]
Chairman JUANITA MILLENDER-McDONALD,
STEVE CHABOT, Ohio California
MARILYN N. MUSGRAVE, Colorado ENI F. H. FALEOMAVAEGA, American
JIM GERLACH, Pennsylvania Samoa
BOB BEAUPREZ, Colorado DANNY K. DAVIS, Illinois
TRENT FRANKS, Arizona DENISE L. MAJETTE, Georgia
JIM DeMINT, South Carolina JIM MARSHALL, Georgia
CHRIS CHOCOLA, Indiana MICHAEL H. MICHAUD, Maine
Joe Hartz, Professional Staff
(ii)
C O N T E N T S
----------
Participants
Page
Manser, Ms. Marilyn, Ph.D., Associate Commissioner, Office of
Productivity and Technology, Bureau of Labor and Statistics 3
Cooper, Ms. Kathleen, Ph.D., Undersecretary for Economic
Affairs, Department of Commerce............................ 8
Price, Mr. Lee, Research Director, Economic Policy Institute. 8
Tonelson, Mr. Alan, Research Fellow, U.S. Business and
Industry Council........................................... 10
Lee, Ms. Thea, Assistant Director for International
Economics, Public Policy Department, AFL-CIO............... 11
Yudken, Mr. Joel, Ph.D., Sectoral Economist and Technology
Policy Analyst, Public Policy Department, AFL-CIO.......... 13
Rosenblum, Mr. Larry, Chief, Division of Major Sector
Productivity, Bureau of Labor and Statistics............... 14
Huether, Mr. David, Chief Economist, National Association of
Manufacturers.............................................. 15
Beach, Mr. William, Director, Center for Data Analysis, The
Heritage Foundation........................................ 17
Marron, Mr. Donald, Ph.D., Executive Director & Chief
Economist, Joint Economic Committee........................ 18
Duesterberg, Mr. Thomas, Ph.D., President & CEO,
Manufacturers Alliance..................................... 19
Kosters, Mr. Marvin, Ph.D., Director, Economic Policy
Studies, American Enterprise Institute..................... 21
Utgoff, Ms. Kathleen, Ph.D., Commissioner, Bureau of Labor
and Statistics............................................. 21
(iii)
ROUNDTABLE ON PRODUCTIVITY: ARE WE MAKING AS MUCH PROGRESS AS WE THINK
WE ARE?
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WEDNESDAY, FEBRUARY 4, 2004
House of Representatives,
Committee on Small Business
Washington, D.C.
The committee met, pursuant to call, at 2:09 p.m. in Room
2360, Rayburn House Office Building, Hon. Donald Manzullo
[chairman of the committee] presiding.
Present: Representatives Manzullo, Kelly, Gerlach and
Velazquez.
Chairman Manzullo. First I would like to thank the
participants for coming today to this round table, even though
it is square. This is really a continuation of a long, formal
discussion we had a couple of months ago.
This is a major issue that I am not sure many folks really
understand, the issue of productivity. When the government
releases its productivity numbers, we tend to have a very high
level macro understanding of what the numbers are supposed to
mean. We need the government to define and explain
``productivity'' and how it is calculated.
A common argument is that productivity increases are
primarily due to improvements in technology and more efficient
process. To a great extent that is true, and while we accept
that principle, sources in the tooling industry indicate that
only about one-quarter of the total productivity increases can
be attributed to new machinery and faster processes. The more
efficient processes is a code for offshoring of labor.
When I hear about an increase in productivity, I also hear
about companies that are moving operations overseas, both
manufacturing and white collar jobs associated thereto. There
seems to be a link, so it begs the question what do the
official indicators of productivity really mean, and what
factors are included in making that determination.
I think our productivity is going to be increased by
somebody turning the air conditioning on here. I do not know
quite what is going on.
We need to know this in light of what we are seeking with a
lack of jobs across the skilled spectrum.
I will ask the government panelists to go first and
describe how they come up with this data and how it is used.
Then we will open up the floor for discussion. This is intended
to be an open, free flowing discussion, but to maintain order
if you could just raise your hand and wait until I call on you
before making your comments?
We obviously are joined by our Ranking Minority Member
here, Congressman Velazquez, and also by my Illinois neighbor,
Bill Lipinski. If the two of you want to have a brief opening
statement, then we could get right into the meat of the topic.
Ms. Velazquez. I do not have an opening statement.
Chairman Manzullo. Okay. Bill, did you have anything you
wanted to say?
Mr. Lipinski. I just want to say I appreciate very much,
Chairman Marzullo and Ranking Member--
Chairman Manzullo. It is Manzullo. Marzullo was the
alderman from Chicago.
Mr. Lipinski. Well, the problem really is is that all these
years you have been pronouncing it and spelling it incorrectly.
If it was Vito Marzullo, that has to be the way because Vito
never made a single mistake in his entire life.
Getting back to what I was saying before I was so rudely
interrupted and corrected there by the Chairman, I simply want
to say that I appreciate very, very much what Don Manzullo is
doing in this area and what Ranking Member Velazquez is doing
in this area. I think it is an enormously important subject. It
is something that has to be addressed. Unfortunately, I do not
think it is being addressed by enough people in this country.
I am trying to do as much as possible in this area, but
certainly the Chairman and the Ranking Member of this committee
are in a much greater position than I to really accomplish
something, so I salute you. I congratulate you. I thank you
very, very much for holding this round table and all the other
work that you have done pertaining to American manufacturing.
Chairman Manzullo. Thank you, Congressman Lipinski.
Congressman Kelly, did you have an opening remark?
Ms. Kelly. I have no statement.
Chairman Manzullo. Okay. Thank you.
The first presentation would be from BLS, Bureau of Labor
Statistics. Who would be speaking? Marilyn? Okay. Go ahead.
STATEMENT OF MARILYN MANSER, BUREAU OF LABOR AND STATISTICS
Ms. Manser. I want to begin to thanking Congressman
Manzullo and the committee for inviting us to this round table.
Ms. Kelly. Could you please pull that microphone closer to
you? You are not being picked up.
Chairman Manzullo. Thank you, Sue.
Ms. Manser. Now can you hear me?
Chairman Manzullo. Much better.
Ms. Manser. I want to thank Congressman Manzullo and the
other Members of the committee for inviting us to this round
table today. The measure of productivity and the interpretation
of what the productivity numbers are telling us is certainly an
important issue today.
We have a handout that I am pretty sure everyone here at
the table has at least. I do not know if everyone in the room
has one. I will be talking through that handout.
Chairman Manzullo. Could you hold that up? Is it this?
Ms. Manser. It is Manufacturing Productivity Measurement.
Chairman Manzullo. Thank you.
Ms. Manser. I want to begin with just a little bit of
perspective on the productivity picture. Productivity growth
during the recession from the first quarter of 2001 through the
fourth quarter of 2001, as well as productivity growth during
the first seven quarters since the trough, has been higher than
previous comparable periods.
Explanations for these facts we think should cover the
entire period starting with 1990 because in fact we really saw
an upswing in productivity growth starting in 1990 compared to
the preceding period.
In terms of manufacturing, we also see a strong
acceleration of productivity growth during the 1990s, and that
strong acceleration has continued during the last recession and
the current recovery. To summarize what I am going to be
showing with some of our data, the rate of outsourcing of goods
and services for manufacturing was steady during the 20 years
ending in 2000 and as a result does not appear to be
responsible for the productivity speed up during that period.
Now, by outsourcing for manufacturing to other sectors we
are including both outsourcing from the manufacturing sector to
businesses in other sectors of the U.S. economy, as well as
offshoring because we cannot separate those two kinds of
effects in the data, but they have the same sort of impact on
the measures.
We produce a family a productivity measures. There are
three key measures of productivity that one can look at. I
talked about these when we met with Congressman Manzullo and
some of the others here today in December, and I will be
talking about what the data show in a minute.
If you want to pull out the table I am going to be talking
about and sort of look at it side-by-side, it is two slides
behind the Manufacturing Productivity Measures slides.
Chairman Manzullo. Is that Table 1?
Ms. Manser. That is Table 1.
Chairman Manzullo. This one here?
Ms. Manser. Right.
Chairman Manzullo. Thank you.
Ms. Manser. Okay. So sectoral output per hour is the
measure on the left-hand side of that table. Sectoral output
per hour is defined as the real value of shipments leaving an
industry, including the value of intermediate inputs, divided
by hours at work. This is the measure that we are able to
produce on a current quarterly basis.
Value added output per hour is the measure that is in the
third column here, and value added output per hour is sectoral
output--that is the output measure in the first column--less
the real value of intermediate inputs per hour of work. We have
these data through 2001. The data for 2002 are just
extrapolated based on the sectoral output measure.
Multi-factor productivity is a more comprehensive view, we
think, of productivity. It is the series that is in the middle
of that page. In multi-factor productivity, the output measure
is the same as in the first column, sectoral output, but it
uses a broader measure of inputs.
Rather than comparing output growth to the growth of labor
hours, it compares output growth to the growth of inputs, of
hours worked, capital services, energy, non-energy materials
and purchased business services. Those series presently go only
through 2000. We will be publishing measures through 2001 next
week.
Okay. Now, what is the effect of outsourcing on
manufacturing measures? We get the same output through
outsourcing or offshoring, and we cannot distinguish them, but
what is the effect on the measures?
Well, on sectoral output per hour, and I think this is the
point that some of you may have been concerned about. If there
is offshoring or outsourcing, sectoral output remains
unchanged, assuming the same final good is still being
produced, while hours, measured hours, those hours used here in
the U.S., fall. This could in theory lead to a substantial rise
in productivity as measured by the series. Whether that happens
empirically is a different question, but in theory you could
get that effect.
Value added output per hour is the measure in the third
column, and when we are looking at value added output per hour
or productivity measured that way if there is offshoring or
outsourcing, both the value added output fall and the hours
fall, leading to not much of a change in productivity measured
on that basis.
In fact, the only effects that we really would get in that
type of a productivity measure arise from differing
productivity growth rates of outsourced production from the
remaining production in the U.S. and new production that may
take place; really compositional effects.
In the multi-factor productivity measures, as I already
stated, sectoral output will remain unchanged if there is
outsourcing or offshoring, but in this case the input measure
will also change. Labor hours will fall, but purchases of
outsourced intermediates will rise. In some, this will lead to
a modest effect on measured multi-factor productivity growth
because the productivity of outsourced production may differ
from that of the remaining production.
In practice, as we look at the pattern of productivity
change in these three measures for the period through 2000
where we have data available for all of them, the pattern of
productivity trends and the story we get about strong
productivity growth is the same on all three measures.
In fact, sort of counter to the possibility that the
sectoral output per hour measure could be somewhat overstated
compared to the value added output per hour measure as a result
of growing use of intermediates, that is actually not what we
see in the data through 2000. We actually see the reverse; that
the value added output per hour measure actually grows a little
bit faster than the sectoral output measure, and that is
because output is growing very strongly compared to the growth
of intermediates.
Mr. Price. What accounts for that difference? Why would the
value added not be faster than the shipments made?
Ms. Manser. It is faster. Why? Because intermediates are
not growing as fast as the other components of output growth,
as multi-factor productivity and capital inputs.
Chairman Manzullo. Lee, if you could--
Ms. Manser. Right. I actually will be saying a little bit,
I think maybe make that point a little bit clearer in just a
minute.
Chairman Manzullo. Let me let the folks with the official
stats go first because I want to lay the predicate here and
then open it up for further comment and questions. I have tons
of questions, but I am going to withhold them until we can make
the presentations with the official data and then work from
there.
Ms. Manser. Right. Okay. Before I talk about the data in
the following table, I want to just reiterate and expand a
little bit on the definition of multi-factor productivity. That
is the next page of the handout.
As stated already, multi-factor productivity compares
outputs to inputs. It compares output to input of hours, of
capital services, of intermediate purchases of non-energy
materials, intermediate purchases of energy and intermediate
purchases of business services.
Outsourced and imported inputs are included in the
intermediate inputs, but they cannot be explicitly identified
in the data. Within this framework, we can account for labor
productivity growth as the sum of multi-factor productivity
growth and the contributions of shifts in the mix of inputs.
That is what we see on the next table, which is Table 2.
To walk through this table, let me begin by looking at the
period 1973 to 1990. I might say a little bit about the choice
of periods. These are the periods that analysts of productivity
growth often compare. We are looking at peak to peak changes.
1973 was a business cycle peak, as was 1990.
1995 was not a business cycle peak, but we often like to
look at the first part of the 1990s compared to the later part
of the 1990s because during the 1990s we saw an unusual
situation where productivity growth picked up in the latter
part of a long cycle, and that is not the pattern of
productivity change that we usually see in long business cycles
so it was a somewhat surprising number when we first started
observing that in the data.
Okay. Returning to the first column, for the period 1973 to
1990, labor productivity grew at an average annual rate of 2.6
percent, and that 2.6 percent equals multi-factor productivity
growth, which was 0.5 percent, quite low during that period,
plus the effects of input deepening, so during that period the
increased use of materials outsourced from the manufacturing
sector to other sectors, whether other sectors in the U.S. or
overseas, that increased use of materials relative to hours at
work contributed an average of one percent a year to labor
productivity growth during that period.
The increased use of business services, purchased services
from outside the manufacturing sector relative to hours worked,
increased 0.4 percent on average through that period, so they
were contributing strongly to labor productivity growth during
that earlier period.
Looking now at the period 1990 to 1995, we see a strong
pickup in labor productivity measured on this sectoral output
concept, which is our preferred concept, a productivity growth
of 3.3 percent per year, and that equals multi-factor
productivity growth of 1.3 percent.
We also had a strong increase in multi-factor productivity
plus the effect of input deepening, but the contribution of
increased use of materials relative to labor hours and
increased use of business services relative to labor hours was
about the same during the first part of the 1990s as it was
during the 1973 to 1990 period.
What that means is that during that period increased
outsourcing was not responsible for the pickup in labor
productivity growth. This was contributing to productivity
growth, but not contributing to the acceleration of
productivity growth. The same thing is the case for the latter
part of the 1990s. The effect of input deepening is roughly the
same as in the earlier two periods, while labor productivity
and multi-factor productivity grew even faster.
These are the data that are the source of the statement we
make on the second page of the handout where we basically say
that the rate of outsourcing of goods and services for
manufacturing to other sectors was steady during the 20 years
ending in 2000. It was really 27 years. As a result, this
outsourcing does not appear to be responsible for the
productivity speed up up through the year 2000.
I want to make just a few remarks about the effect of
outsourcing and offshoring in the quarterly non-farm business
labor productivity measure. This is the quarterly labor
productivity measure that is most widely watched because it
refers to the entire non-farm business sector in the U.S.
In this measure--
Chairman Manzullo. Marilyn, how are you doing on time? I do
not want to take away from your presentation, but I--
Ms. Manser. Almost done.
Chairman Manzullo. Okay.
Ms. Manser. Next to the last slide.
Chairman Manzullo. There are some people here that are
ready to pounce on you.
Ms. Manser. Okay.
Chairman Manzullo. I just want to give them the
opportunity. Go ahead.
Ms. Manser. Okay. Output for non-farm business, like gross
domestic product, is measured by delivery--
Chairman Manzullo. What page are you on there?
Ms. Manser. Nine. Page 9.
Chairman Manzullo. Nine? Thank you.
Ms. Manser. Output for non-farm business, like GDP, is
measured by deliveries to final demand. By definition, there
can be no intermediate inputs in this definition. It is, if you
will, a value added type measure.
Imported goods and services to consumers reduce output
dollar for dollar, so in this measure output and input are
really not affected by outsourcing, and the effect of
outsourcing and offshoring on productivity comes from
compositional effects, which are likely to be fairly modest.
To wrap up and conclude, the data show that the
productivity speed up has been ongoing since 1990. Since 1979,
outsourced materials and purchased business services
contributed about 1.5 percent per year to sectoral output per
hour growth in manufacturing. Actually, that trend started in
1973.
Outsourcing can explain little of the manufacturing
productivity speed up through 2000. The productivity data
cannot specifically identify the effect of offshoring
separately from domestic outsourcing, and non-farm business and
value added manufacturing labor productivity are only modestly
affected by outsourcing or offshoring. This happens through
compositional effects.
That is all I have to say.
Chairman Manzullo. Thank you.
Ms. Manser. My colleagues and I will be happy to answer any
questions.
Chairman Manzullo. Okay. Dr. Cooper, did you have a
presentation you wanted to make?
STATEMENT OF KATHLEEN COOPER, DEPARTMENT OF COMMERCE
Ms. Cooper. I do not have a presentation. I just want to
say BEA, the Bureau of Economic Analysis, which produces the
numerator part of this measure, is comfortable with all that is
done there with regard to how it feeds into the productivity
numbers.
We do not have a representative from BEA here today. I am
here instead, but I would say that we are also comfortable with
the measurement issues that BLS has put together and that
Marilyn has talked about.
I just want to emphasize that, as she did mention, around
the middle of 1995 or thereabouts we did see a sizeable upturn,
as we all know in this room, in productivity performance in the
U.S. economy, and I think what is interesting and important for
those of us who follow the economy and its progress, what is
interesting for us to take note of is at the very same time and
continuing today not only did productivity accelerate,
essentially doubling the pace of growth that was experienced
from that period 1973 to 1995 that you defined, that Marilyn
defined, but at the same time we have seen an acceleration of
comparable magnitude in real compensation of workers.
That is what this is all about. This is about higher
productivity bringing on higher wage gains and higher standards
of living.
Chairman Manzullo. That will evoke a lightning strike from
one of the Members here.
Ms. Cooper. I am sorry?
Chairman Manzullo. That will evoke a lightning strike.
Ms. Cooper. I am sure it will, but I think it is good to
get it out there and talk about it.
Chairman Manzullo. I appreciate that.
Ms. Cooper. That is why we are here to discuss it today.
Chairman Manzullo. That is right.
Ms. Cooper. It is nice to be here. Thank you for inviting
me.
Chairman Manzullo. Let us open it up to questions,
comments, interchange of ideas. This is free flowing. All I
would ask is that you state your name and which group you are
with, if any, and speak directly into the microphone.
Go ahead.
STATEMENT OF LEE PRICE, ECONOMIC POLICY INSTITUTE
Mr. Price. I am Lee Price. I am from the Economic Policy
Institute.
When the calculations of multi-factor first started in the
1950s, one of the first researchers talked about what that
measure was, which is really a residual, as a measure of our
ignorance. It is not a measure of something that we know what
it is.
When you look at Table 2 and look at the period 1973 to
1990, you see multi-factor productivity going up five-tenths.
What we measured was labor output in manufacturing relative to
hours in manufacturing as going up 2.6. The question is how do
we account for that?
If there is more capital being used, that could account for
it; more materials being used, that could account for it. When
you did all of those things, you accounted for most of it. You
are only left with a residual that you could not explain of
five-tenths.
Now we go forward to the most recent period of 2.1, and
that is an increase in our level of ignorance by 1.6 percentage
points. That matches up against the labor productivity increase
of 2.6 to 4.3, so 1.7. We got a 1.7 acceleration in
manufacturing output per hour, and the things we used in
materials, business services, energy and capital do not account
for but one-tenth of that.
What we can account for, our ignorance, is the biggest part
of it. I think we know of a number of trends going on in the
economy that make it plausible that we have problems in the way
we are measuring those things. We have offshoring.
This stops in 2000, but we know just from the published
statistics that BEA gives us that we have lost half a percent
of GDP, unusually so in a recession. In the last three years,
CBO calculates we have lost half a percent of GDP per year and
dragged from the widening trade deficit in real terms. That is
offshoring of production for supply here in large measure.
Another part is when we do offshoring of services it is not
clear that we have very good measures of what is happening on
the services side. As she has said, we have materials going
up--that would be the components would show up there--and
business services, but I am really puzzled with a measure that
says that business services, outsourcing from the business
sector, slowed down in the 1995-2000 period. I think it is
implausible that it slowed down further in the last few years.
What we do know, though, is the other BLS statistics that
do take us up to the third quarter. In that respect, output in
the four quarters ended in the third quarter was up by 4.4
percent. I am sorry. Productivity was up 4.4 percent, but
output was down by 0.4 and hours were down by 4.7 percent, so
in the most recent year there was a big drop in hours. They are
capturing in the official statistics what a lot of us hear from
the general public; that they are not getting hours.
The manufacturing output is shrinking, and the hours are
shrinking even faster. That shows up also in the December jobs
numbers. Between the end of 2002 and the end of 2003, December
to December, we went from 15 million to 14.5 million. Almost
all of that was in production workers.
We have had a huge drop in just the last year in the number
of people employed in the manufacturing sector. That has been
faster. We had a decline. I am not sure what the 12 month
change in manufacturing production has been, but it is pretty
close to flat even as we have had this big contraction in
hours.
I think when you talk about the multi-faction numbers
stopping in 2000, there is reason to believe that since 2000
there has been a shift towards outsourcing of both components
and of services.
STATEMENT OF ALAN TONELSON, U.S. BUSINESS AND INDUSTRY COUNCIL
Mr. Tonelson. Thank you. Thank you, Mr. Chairman. My name
is Alan Tonelson. I am with the U.S. Business and Industry
Council, and we represent predominantly small and medium sized
manufacturing companies.
I would just like to make two points fairly briefly. One,
it is good to hear an acknowledgement that the productivity
figures do not distinguish between offshoring and outsourcing
at home.
At the same time, that failure to distinguish between these
two business trends is very important and would suggest that
there are some serious limits to the ability of these numbers
to shed light on what has been concerning a great many of us in
recent years, and that is the health of the American based
manufacturing sector, as opposed to the health, for example, of
multi-national industries or all multi-national companies that
use offshoring to increase productivity.
That is awfully interesting. I certainly want to know that,
but I am much more interested in the health, by whatever
measure you choose, of the U.S. based manufacturing complex.
When productivity rises because of offshoring, that not only
does not tell me anything about the health--again, whatever
measure you want--of the U.S. based manufacturing complex. It
can produce a somewhat misleading figure.
The second point that I would like to make is that we know
or we should know that there has been a very substantial
increase in the imports of intermediate goods into this economy
in recent years. There is a handout in front of you all that
shows increases in import market share for about 90 categories
of major industrial products. One set goes from 1992 to 1996.
One set goes from 1997 to 2001.
I had to break them up because we changed over in terms of
measuring industrial output in the annual survey of
manufacturing from the SIC system to the NAICS system, so
precise comparisons are hard, but we do see very substantial
rises in imports in the market share in the U.S. market of
imported goods, including many, many categories of intermediate
goods since 1992.
We see that the outsourcing of this production has been
very substantial. Again, I do not mean to be critical of the
federal government, for at least at this point perhaps the
state of the art simply does not permit us to distinguish
between the two kinds of outsourcing that we are faced with,
but I hope that we could acknowledge that as a result of that
inability to make this distinction there are some serious
limits in the light that these productivity figures shed on the
health of the U.S. based manufacturing sector, not U.S. owned
firms. The U.S. based firms doing manufacturing in this
country.
Chairman Manzullo. Thea, go ahead.
STATEMENT OF THEA LEE, AFL-CIO
Ms. Lee. I just wanted to make a couple of broad points
about what the numbers mean and what we think they mean and
maybe sort of what we need to think in terms of the future and
how we look ahead.
Obviously, as Ms. Cooper said, the reason we care about
productivity growth is that this is the basis for non-
inflationary wage growth and so it is very, very important to
us, but we do see I think certainly in the last couple of years
a gap between productivity growth and the gains that workers
are getting.
I think it is important for us to really make sure when we
talk about productivity that we are talking about a measure
which intuitively makes sense to us and that is going to be
sensible to move forward. Measures take a long time to change.
As Lee said, multi-factor productivity started a few decades
ago, but it takes a long time to fix them.
Certainly to the extent that offshoring of the inputs, as
Alan shows, is a growing trend, that it may be the case that
this is not responsible for some of the growth in productivity
in the recent term, but it may be in the future. If so, I think
it is important that we think about how we might revise these
numbers as we look to the future.
I think most Americans, when they see productivity growth,
are thinking about companies being more efficient, using
technology better, workers working harder. They are not
thinking about buying huge amounts of imported inputs and
artificially in some sense inflating productivity through that.
I do think it is something that needs to be taken into account.
I guess there is another question that goes to the points
that Lee was raising too about how much confidence do we have
in the numbers and the difference between, for example,
outsourcing domestically, as Alan said, and importing product.
The quantity of labor that is contained in those two
different things may be very, very different. The input/ output
figures that we are using that we calibrate the productivity
numbers with, are those keeping up with the changes, with the
offshoring and the very, very different production functions
possibly, very, very different labor/capital input ratios that
may be used in other countries due to very, very different
relative prices of inputs.
I guess those are some of the questions that I hope maybe
we will get to later on today, but just as we think about the
numbers, the productivity numbers, certainly the sectoral
output per hour, it seems to me that is a number that does not
represent what we want it to represent, which is the
productivity of workers, how hard they are working with what
kind of technology to the extent that imported inputs will
alter that number. It is just I think a common sense problem.
Chairman Manzullo. Before we go to Joel, did anybody have a
response to that? It is not necessary.
Ms. Manser. I would just say I guess just--
Chairman Manzullo. Marilyn, could you pull that closer to
your mouth? Thank you.
Ms. Manser. Just a few points. I think we do think and this
follows up a little bit on what Lee was saying, that multi-
factor productivity is probably the measure that we would most
like to be able to highlight because it is the most
comprehensive measure, and it does take account of all the
substitution inputs. Unfortunately, the data lags badly in
terms of--
Chairman Manzullo. Is there a reason for that? It just
comes in real slowly?
Ms. Manser. Right. It is because you have to rely on data
sources that just cannot be collected and processed that fast.
We do see, and this is what Table 1 showed, that we have
historically, up to at least the year 2000 we have seen the
same trends and the same story about productivity acceleration
and strong productivity growth coming from the quarterly
sectoral output measure as we see from the multi-factor
productivity measures.
In terms of the data that we have to date, I do not think
we really can say that the sectoral output measure is not
giving us a good picture of whether we are having acceleration
or not.
It, of course, talks about productivity. What we think of
as multi-factor productivity is what we often think of as
changes as productivity changes in technology, better
organizational structures, economies of scale, things that
really increase our ability to produce output with the same
inputs.
Chairman Manzullo. Joel?
Ms. Manser. That is what multi-factor productivity tells us
and why we think that is a good measure, but we cannot,
unfortunately, say what that is going to look like for the last
two years.
Mr. Price. Is that not just a surmise? I mean, multi-factor
productivity--
Chairman Manzullo. Let me go to Joel.
Mr. Price. Okay.
Chairman Manzullo. Joel, go ahead.
Mr. Yudken. Lee, do you want to finish your point?
Mr. Price. There are a lot of things that multi-factor
productivity could be. We would like to think that they are
better technology, better organization, but we do not know
that. It may be poor measurement of the other things as well.
We cannot really distinguish.
I am not challenging your effort to try to get the best
measures you can, but if we have poor measures of inputs those
would show up. The effect of that would show up in multi-factor
productivity.
If we have understated the material input by poor
measurement, that would show up as higher multi-factor
productivity just as well as better technology.
Ms. Manser. That is correct. That is correct. Just to make
one point in terms of what the story and the picture of
productivity is, though, and how things change, Lee was making
the point that multi-factor productivity was very low from 1973
to 1990 and, you know, has sped up and is it possibly a
question of mismeasurement or a question that we do not
understand what is going on, but the issue used to be why was
productivity growth so low in 1973 to 1990.
If you look at the figures, multi-factor productivity grew
1.5 percent from 1949 to 1973, so what we have really seen is a
return to the higher measure of productivity growth that we had
for earlier years in the first part of the 1990s and then a
speed up beyond it in the latter part of the 1990s.
Chairman Manzullo. Joel?
Mr. Yudken. Yes.
Chairman Manzullo. State your name and position. Name, rank
and serial number.
Mr. Yudken. I do not know what my serial number is.
STATEMENT OF JOEL YUDKEN, AFL-CIO
Mr. Yudken. I am Joel Yudken. I am with the AFL-CIO Public
Policy Department.
I have one technical question that I am grappling with
understanding, which in the end we are talking about some
equation with a bunch of terms which you are all trying to
measure each one separately. I think the problem we have is
that there could be a lot of methodological issues and problems
with actually what they mean and how we collect them.
I have three more general questions, and I will try not to
be too long. The first technical question is I was trying to
grapple with the equations you use, which you do provide in
your various documents and which show the relationship of the
labor productivity to the multi-factor and all the other
components.
It looks like labor productivity is additive of multi-
factor plus these other components. Is that right?
Ms. Manser. Productivity growth.
Mr. Yudken. Trying to calculate them, you get into using
natural log relationships and quotients, which my math is not
what it used to be. It has been a long time, and so I am not
sure. You use weights, and the weights are related to the cost
of the factors, the relative cost.
Here is the question, because I am just asking. I really do
not know. It is just a suggestion here. Those weights, can they
not be part of the mystery here that we are trying to fathom
here in terms of when you start offshoring some of your
activity and they come back as part, they are cheaper than they
would have been in they were produced here.
Therefore, would that not in fact lessen the component part
of materials in your measurement relative to what in fact it
would have been, let us say, if it was produced here, but
outside or incorporated? Maybe you can explain a little bit. I
do not know.
Chairman Manzullo. Larry, did you want to take that
question?
Mr. Rosenblum. Yes.
Chairman Manzullo. If you could hand the mike down? Again,
state your name for the record.
STATEMENT OF LARRY ROSENBLUM, BUREAU OF LABOR AND STATISTICS
Mr. Rosenblum. Larry Rosenblum, Bureau of Labor Statistics.
The answer is that yes, it would, but if they are buying
less expensive inputs then presumably there is an efficiency
gain that is going on through doing that. In fact, if they
are--excuse me. I do not want to speak technically.
If they are operating as efficiently as they can, they will
alter their production so that the value of the cost of the
goods equals its value in production, so it should fall. That
is correct.
Chairman Manzullo. That is presuming the price goes down on
the completed item.
Mr. Rosenblum. No. Just for the intermediate that they are
now buying from overseas.
Chairman Manzullo. All right.
Ms. Lee. Just a quick followup in terms of the word
efficiency. You know, if you are buying the goods from overseas
and they are cheaper, you can say they are produced more
efficiently. It is also the case that they may be produced in a
way that damages the environment or where workers are treated
very badly.
Mr. Rosenblum. And they may not actually be produced more
efficiently. I mis-spoke. They are simply cheaper.
Ms. Lee. Right.
Mr. Rosenblum. Now, the firm that buys them presumably is
going to equate marginal cost in production in a way that will
alter their mix of how they produce things in a way that the
value share of material should in fact fall and reflect changes
in the marginal products of other inputs. Yes, they should
fall, to answer to your question.
Mr. Yudken. Would that not mean that this--
Chairman Manzullo. Joel, could you talk into the mike more
directly, please?
Mr. Yudken. This 1.1.0. If you had a significant growth of
offshoring inputs, could that not in fact be understated here?
Mr. Rosenblum. If you are assuming that firms are operating
competitively, then price is equal to value of marginal
products.
Now, I am not going to get into the issue about whether
firms are operating competitively or foreign markets are
competitive. That is beyond my pay grade, so to speak, but in a
competitive market--
Mr. Yudken. In theory.
Mr. Rosenblum. --in theory the lower price should reflect
its value.
Mr. Yudken. It should balance in some way, but I guess that
is an open question. I have three other points, but I will--
Chairman Manzullo. David, did you have a comment you wanted
to make or a question?
STATEMENT OF DAVID HUETHER, NATIONAL ASSOCIATION OF
MANUFACTURERS
Mr. Huether. Yes. Hi. I am Dave Huether, chief economist at
the National Association of Manufacturers. We represent
manufacturers of every size, every industry here.
This has been a concern of a lot of our members in talking
about this, about outsourcing. I guess one of the questions I
have is that one of the things that I think we need to address
and to find out is if this is a structural event going on or is
this a cyclical event that has been caused by some external
forces such as U.S. competitiveness in manufacturing.
I know that you look at inputs of manufactured products and
you look at that as a share of domestic production. It has gone
up very much since 1997. In 1997, imports of manufactured
products were about 14 percent of production. Now it has gone
up about 50 percent. It is at 32 percent now.
I know Alan was mentioning earlier that to an extent it is
very difficult to ascertain how much of this is imports of
capital goods, how much of it is consumer goods, how much of it
is intermediate products, but I think that another thing to
really kind of investigate is how much this has to do with the
strong value of the dollar which occurred during the late 1990s
and made imports extremely inexpensive.
U.S. firms, since they had no pricing power, were seeking
the lowest cost possible. Now we have all seen that the dollar
has come down in the last year or so, so the question is
whether or not this trend is going to continue going forward.
The other point I kind of would like to make is that a lot
of discussion with respect to productivity ends up becoming
discussion about jobs in the United States. While I think
productivity definitely has--
Chairman Manzullo. It took us 40 minutes to get there.
Mr. Huether. Yes. --an impact on jobs, looking at that is
really looking at half the equation in the sense that you need
to look at productivity growth, as well as output growth in the
manufacturing sector.
There is one constant really that has been going through
the manufacturing sector for about 50 years, and that is if you
look at when output growth in the manufacturing sector rose
faster than the productivity growth, manufacturers had
employment, and when productivity grew faster than output
manufacturers reduced employment.
This has been true in every year since 1950 except three
years, so I think when we look at what has been going on in the
last three years, especially the last two years since
``recovery'' began, we really have to look at why, even though
productivity has been trending a little higher, but what has
kept manufacturing recovery in terms of output growth so
sluggish, which has kept manufacturers from seeing demand
increase enough to begin to regain employment.
I think that when all is said and done, talking about
productivity growth and whether or not this measure is off a
little bit here or there, I think when we think about what is
going to drive the employment numbers back up in manufacturing
is going to be the domestic international conditions that are
going to make manufacturing production start to begin to
outpace manufacturing productivity.
Chairman Manzullo. Alan?
Mr. Tonelson. I just wanted to make a quick point about the
import levels and how they bear on the question of whether this
growing import dependence is mainly structural or mainly
cyclical.
What my figures show, and this is not the trade deficit. It
is very important to understand that because the trade deficit
is an increasingly inadequate measure of the real effects of
trade on employment and living standards in this country
because so much trade today consists not of finished goods
being traded back and forth between one producer and one
customer.
For example, Boeing makes an airliner and sells it to Air
France. Perhaps 40 or 45 percent of all global trade today has
nothing to do with that. It is the constant flow of
intermediate goods and inputs of various kinds around the world
within the production chains and outside also the production
chains of multinational companies.
Trade deficit is helpful in some regards certainly, but
really limited. The market share numbers show you how were U.S.
based producers performing head to head, whether they are U.S.
owned or foreign owned, versus producers overseas. What these
figures show is that the market share losses began well before
the dollar run-up of the mid 1990s.
I wish I could find data going back before 1992. I have not
found it. If anybody knows where it is, please tell me. I can
only find it back to 1992. This predates the dollar run up
which began in 1995.
Chairman Manzullo. Bill Beach? Go ahead.
STATEMENT OF WILLIAM BEACH, THE HERITAGE FOUNDATION
Mr. Beach. Yes. My name is Bill Beach. I am from the
Heritage Foundation at the Washington Think Tank, one of the
few organizations at this table that cannot be outsourced,
though I am sure there are some who wish we could be
outsourced.
Chairman Manzullo. Just wait. There are a lot of economists
in India.
Mr. Beach. Indeed. Indeed. It is a coming phenomenon. I
will be back on the other side of this issue, I am sure.
Let me just say a couple of things, Mr. Chairman, just to
add to this discussion, which is fascinating and highly
constructive. Productivity measures, as Lee has pointed out so
skillfully, have been a controversial issue for a long time.
Now, a lot of the discussion that we are having in the
policy community and you are having as policymakers turns on
numbers. Unfortunately, you have some very difficult numbers
you have to work with. Let me suggest that if you cannot work
directly with the numbers there, as my colleagues from BLS will
no doubt affirm, what you can do is look at the other side.
We have not talked about consumers today. One of the things
that productivity, high gross productivity, should be doing is
raising the quality of standards, the quality of goods,
lowering prices. Those are the things that are sort of the
mirror of productivity, the returns to capital and returns to
labor, as Secretary Cooper had pointed out. We should be
looking at increasing wages.
If you cannot find multi-factor productivity as a
comfortable concept or cannot measure it well, then you can
look at these other things. I think the committee would be well
served to do so. Life of capital goods in service.
Another thing which has only been mentioned a couple of
times, and I really do hope we do mention consumers more, but
another item. This is not the first time this Congress has had
this discussion about outsourcing. It seems to me, and I have
been doing this a long time, that we come to this issue almost
every time we have a recovery after a recession. We begin to
think about all those jobs that are going overseas.
Chairman Manzullo. My District's unemployment is at 11
percent.
Mr. Beach. Indeed. Indeed.
Chairman Manzullo. That does not include the four factories
that have announced they are closing down, so we are not
exactly dancing in the streets in Rockford, Illinois.
Mr. Beach. Well, that is right. That is my point. Every
time we come to a recovery--that is we have just gone through a
recession--we come through a point in the early stages of that
recovery where we have this discussion because we are concerned
about, A, high unemployment that is not coming down the same
way the other numbers are going up, and outsourcing that has
occurred.
I was working for one of the governors of Missouri back in
the early 1980s. We had just gone through a very severe
recession. We had 18 percent unemployment in certain parts of
the state. I will close on this. The discussion that this
governor was having with the folks in St. Louis was what to do
with the Brown Shoe Company.
The Brown Shoe Company at that time wanted to relocate very
badly, and there was a great deal of political pressure brought
on Governor Ashcroft to keep the company in the state, along
with Zenith Television.
Well, the decisions were made just not to resist that
desire to go overseas, but instead to put the emphasis of the
state on retraining those employees so that in fact Brown could
go to Brazil, Zenith could go to Mexico, could produce at
higher margins as they wanted to do, and those employees would
be retrained to better paying jobs.[The information follows:]
Chairman Manzullo. Let us go to Don Marron.
STATEMENT OF DONALD MARRON, JOINT ECONOMIC COMMITTEE
Mr. Marron. Thank you, Mr. Chairman. I am Donald Marron. I
am the staff director of Congress' Joint Economic Committee.
I am just revisiting some of the comments I heard earlier.
I want to make sure that going back to the issue of how you
measure productivity that we not ask of productivity the wrong
question. I think in just sort of a traditional economic
framework, productivity is a measure of how much Americans, if
we are focusing on America, can produce per hour of their work
using whatever means possible.
It might be innovations in technology. It might be the
recognition that they can import certain services from other
countries. It might be the recognition many decades ago that we
could import oil from other countries.
Productivity is really about just using everything at our
disposal, how can the American worker produce as much as
possible or what is the measure of how much they can produce,
so I am hesitant to say or to allow it to be said that the
measures of productivity we have at the moment are artificial.
I think for what they are being asked to measure--
Chairman Manzullo. Are official?
Mr. Marron. Artificial. Sorry.
Chairman Manzullo. Artificial.
Mr. Marron. I heard some people say we may be experiencing
artificial improvements in productivity because of the
opportunity to outsource, and I think in reality if you are
asking productivity, how can we produce stuff using whatever
means are at our disposal, importing or outsourcing is one of
those means, and productivity is a fair reflection of the
average productivity, the average stuff that is produced by the
American worker.
Now, I share Alan's concern that you need metrics for how
the American manufacturing sector is doing, and I would submit
that output and jobs would be the first two natural things to
look at and that they would give you a good metric for thinking
about how things are going.
As you know better than I in the manufacturing sector,
output has done quite well over the long run, but has had a
difficult time with the recent recession and the very slow
recovery for a variety of reasons which we could get into. Jobs
have had a less good time in part because of rapid advances in
productivity.
Those are I think reasonable metrics to look at when asking
about how manufacturing is doing. I just want to make sure we
do not ask the wrong question of productivity and invest in
perhaps coming up--well, it would be difficult to come up with
a different productivity measure I think. That is not the most
productive way to go.
Rather than saying we have productivity measures; they look
at what the average output of American workers is. That is the
right thing to ask of them. There may be some interest in some
sort of measure that is the state of technology if that is what
people have in mind by sort of the layperson's notion of what
productivity is.
I think total factor productivity is the measure that comes
the closest to that that we have today, but, as Lee rightly
points out, it is residual, and it is very, very hard to
measure.
Chairman Manzullo. Thank you. Tom?
STATEMENT OF THOMAS J. DUESTERBERG, MANUFACTURERS ALLIANCE
Mr. Duesterberg. Thank you, Mr. Chairman, and I want to
thank you for convening this very useful discussion.
At the risk of changing the subject, I want to make two
comments. One, with regard to productivity and the effect of
outsourcing, we have done a little bit of work through
Manufacturers Alliance and--
Chairman Manzullo. Tom, pull that in closer. Could you?
Thank you.
Mr. Duesterberg. We have done a little bit of work which
collaborates what Marilyn Manser reported about the effects of
outsourcing on productivity. We think it has very little
impact, although we have a sense that probably there is a
little bit more outsourcing, an uptick in outsourcing over the
last six or eight years, which I think is probably obvious.
The second point I would make is that these discussions
always convert to jobs, you know, and I am very aware of the
situation around your area because a lot of my members are from
Rockford, Illinois.
What we think, and this responds to one of Dave's points
about whether or not this is a cyclical or a secular question.
We did some work jointly with NAM to try to look at the cost
side of the equation as a way to get at whether or not there
has been a secular change in the competitiveness of American
manufacturing.
I think we have all heard anecdotally that various forms of
costs, such as health care costs, have been rising fairly
rapidly. There has been an uptick in health care costs the last
few years ago, so the actual cost of labor--
Chairman Manzullo. Now, that is part of productivity is the
cost of health care. It increases, but that is reflected in it.
Ms. Cooper. It pushes productivity.
Mr. Rosenblum. Right. I mean, it changes the cost of labor,
but it does not affect productivity directly except as, of
course, firms may want to outsource or reduce their labor,
whatever.
Chairman Manzullo. Tom, go ahead.
Mr. Duesterberg. We did some work trying as best we could,
as much as the data will allow, to compare the costs of
manufacturing in the United States versus the nine leading
trading partners of the United States.
If you look just as unit labor costs, raw unit labor costs,
which are wages, basically wages alone, the United States is
reasonably competitive. Their costs are lower than places like
France and Germany, surprisingly close to even South Korea.
When you add in costs, and we looked at five categories--
taxes, employee benefits, including health care, tort costs,
natural gas costs, which have doubled in the United States or
more, as you know, in the last few years, and certain forms of
regulatory costs.
We found that we added over 22 percent to the cost of labor
in the United States, so this is one reason that you have seen
an explosion in productivity because firms just have to try to
do better with the labor that they have in order to compete.
It also suggests that maybe we should pay a little bit of
attention to that side of the equation, the cost side of the
equation. That is what we are really interested in.
Chairman Manzullo. Marvin?
STATEMENT OF MARVIN KOSTERS, AMERICAN ENTERPRISE INSTITUTE
Mr. Kosters. Thank you, Mr. Chairman. I am Marvin Kosters
at the American Enterprise Institute, and I would like to raise
a question about something that has not been mentioned.
There are lots of data sources around, and our data system
is really very rich. Both the Department of Commerce and the
Department of Labor are very forthcoming about the data and how
they are used, but sometimes when there are multiple sources of
data questions arise about possible inconsistencies and about
which is the more accurate measure of one thing or another.
I think in particular of the input side here, the labor
measurement, particularly in view of recent trends that have
one measure of our labor, but growing more rapidly than another
measure.
It raises questions in my mind, and I realize they are
defined differently and so on, but the questions it raises in
my mind are, one, how the two measures can be reconciled and
whether the measure of labor input that is used in the
productivity measurements primarily is more accurate or not
than the other labor input measure.
I would myself be curious about whether we have some
information about that issue.
Chairman Manzullo. Does someone want to try to respond to
that?
Ms. Utgoff. Yes. Let me try.
Chairman Manzullo. Kathleen, if you could state your name
for the record for the reporter?
STATEMENT OF KATHLEEN UTGOFF, BUREAU OF LABOR AND STATISTICS
Ms. Utgoff. Yes. Kathleen Utgoff, Bureau of Labor
Statistics.
Chairman Manzullo. Thank you.
Ms. Utgoff. Marvin has pointed out something that a number
of people have noticed, which is that the household series of
employment has grown faster than the payroll series, and the
issue is how do we do that in productivity.
The productivity measures come from both series, from the
basic data that is used for the payroll series, and it also has
things like self-employment that come from the household
series, so it is a mixture of both.
Chairman Manzullo. Kathleen Cooper? Did you have something?
Ms. Cooper. No. Labor is there.
Chairman Manzullo. Let me just throw out a couple things
here because we expect a series of votes around 3:15. Let me
put a hypothetical here.
If I have in the manufacturing process four firms--Firm A
is located in Rockford, Illinois, which, by the way in 1981 led
the nation in unemployment at 24.9 percent, so we have had some
tough times there. Company A in Rockford and Companies B, C and
D. A, B and C provide parts. Company D does engineering. This
is all done in the United States, okay?
Productivity increases at let us say just for the heck of
it eight percent. That could be due to a lot of things. Faster
machines. High-speed, hard-milling machines now are at 30,000
rpm. Seven months ago they were at 13,000. I am sorry. Twenty
thousand rpms. You can see it is a faster machine. It does the
job faster, but we bring in more orders. Therefore, we have to
add employees.
That is going on now with Don Buzzacross, who has the first
high-speed, hard-milling machine in the United States delivered
from Japan. The machine tool is not made here. That is pretty
easy to figure that one out what productivity is. It is a
faster machine.
Let me throw this out to you. If in the parts end of it
Company A over here does the assembly and some manufacturing, B
does manufacturing, and now you have Company C. All of a sudden
instead of Company C in the United States, Company C is in
China. That part now is made at 20 percent of what the cost of
the part that was made by the company when it was in the United
States.
Are you with me at this point? Would that increase
productivity? You are making the same product, only cheaper.
Mr. Rosenblum. In the manufacturing sector, if you are
using the sectoral output, which is the first definition we
mentioned, sectoral output per hour--
Chairman Manzullo. Right.
Mr. Rosenblum. --it is true that output of those four firms
or three manufacturing firms would remain the same. The hours
would go away of Firm C that left and moved to China, and so
sectoral labor productivity would rise.
Chairman Manzullo. Okay.
Mr. Rosenblum. Sectoral multi-factor productivity is likely
to be largely unchanged except for a compositional effect if,
for example, C was a very weak firm and by moving off seas the
remaining firms were relatively strong, so you have a
composition effect. You are left with two really good firms in
the industry, and you got rid of the third one, but largely it
would be unchanged.
Now, finally with the value added output per hour that
again would have very little change in productivity because
both the output and the hours of Company C would decline in the
measures. Again, you might have a composition effect if C is a
relatively low productivity firm compared to A and B.
Chairman Manzullo. Thea, and then Lee?
Ms. Lee. I just had a quick point. We started talking about
productivity gains being the basis for real wage gains. Now,
the workers who are left behind are not likely to get a wage
increase when Company C moves to China.
Chairman Manzullo. Their company closed.
Ms. Lee. Right. I mean the workers at Factory A, even
though their output looks like it has gone up. I guess that is
really one of the questions I want to raise. It goes I think to
the point that Mr. Marron was making that there is really no
difference. Your productivity can go up because you are using
imported imports just as well, and that ought to be the
measure.
I guess my question is do we see the same basis for
productivity gains to be translated into real wage gains when
some of that productivity, some portion of it, is coming
through imports rather than increased technology and harder
work effort or even the most efficient plants being--
Chairman Manzullo. Kathleen, do you want to try to tackle
that?
Ms. Cooper. I would simply say, and I am sure there are
others who want to comment too, but I see no reason why if
these firms, if the other firms that are left are doing better
as a result of a stronger sector and more ability to pass on
and earn higher profits, I do think that wage earners would end
up ultimately--not immediately, but they would end up doing
better longer term.
In addition, we need to think about how the capital that is
earned by the shareholders of the firm that went to China, how
those shareholders redeploy that, reinvest it in the U.S.
economy most likely, but potentially in a broader way.
Chairman Manzullo. Lee, and then Joel? Microphone?
Mr. Price. Just to modify your example a little bit, and I
think it explains another phenomena that is going on. If you
have the three component places and the engineering place, let
us say they are all in the same company. They are
establishments in the same company.
Chairman Manzullo. The same company. Okay.
Mr. Price. They ship out to a foreign source one of the
three parts places. If the engineering place gets paid more,
their average worker pay is higher than in the component
production places. That will raise the value added measure.
The manufacturing sector looks like it is, in Kathleen's
terms, healthier. You have fewer workers in manufacturing. The
average has gone up because the jobs that you have outsourced
were lower paid than the engineering jobs that you kept.
To the extent that we have had, and I think we have had,
keeping more of the headquarters and engineering jobs here and
shipping out the production jobs, that is going to raise both
manufacturing productivity, but also the value added measure of
productivity.
Chairman Manzullo. Lee? I am sorry. Joel?
Mr. Yudken. I wanted to bring back to the productivity
measure in relating the multi-factor to the actual numbers you
had.
Aside from the methodological and some of the technical
issues, we have been trying to raise some questions of whether
or not we are measuring what we think we are measuring and
whether or not there is--what you have talked about is what we
had seen up until the year 2000.
I was trying to play with the numbers, your own numbers
here, and you can sort of see that after 2000 you just sort of
have--
Chairman Manzullo. Joel, where is that chart?
Mr. Yudken. I just brought it with me. I was playing on my
own computer here. I can give you a copy of this.
Chairman Manzullo. Okay. Thank you. Go ahead.
Mr. Yudken. This is the BLS data. I just took it off the
tables today. This is the labor productivity indexed to 1992,
starting everything at 1992. You see that the labor
productivity continues to rise after 2000 at a fair clip.
What you do see, though, is that the output starts to drop
and then sort of stagnates. I mean, it starts to move up a
little bit towards the end, which may be recovery we may be or
may not be seeing.
Labor hours dropped dramatically, which reflect in this
curve here the employment, this sharp drop since 2000 in
employment, which, of course, we are talking about employment.
It is an important part of this whole issue.
The problem is that in what you have measured and what you
have talked about, assuming what we have seen over the last
decade and before in part was in fact growing technology
improvements, a changing in organizational structure,
remanufacturing becoming much more prevalent. It is not just
technology that produces efficiencies in organizational change.
Other factors as well as maybe increasing steady outsourcing as
part of that.
Even assuming that up to this point there is a big, dark
area about what has happened since 2000 where we have seen this
sudden drop in hours, and we have seen a continued seeming
surge in productivity, but output itself is rather shallow.
That is also seen in their own bar chart.
Again, you start seeing that you have a lot of drop in
output in the last two or three years with the drop in hours.
It is just a faster drop in hours, which could be that
companies when they are in the downturn they start shedding
jobs. They ask workers to work longer hours. A lot of other
things happen that drive up productivity, but the output is
lower because demand is lower because of the recession or
whatever factors. There also could be a drop in the fact that
they are moving stuff away.
What I am trying to say is that there is this relationship
that is unclear, and so far you do not have the multi-factor
data to tell us one way or the other, assuming this additive
thing is true, and whether or not the component of the
materials and the outsourcing are still the same or whether
there is a growing component there that we cannot measure.
You know, if it is still the same, then what is explaining
this continued growth and productivity? I guess I am just
having a hard time believing, especially since we have seen
this drop in output, that it is just about improved technology.
Maybe that is there, but it seems that something is still not
understood about what we are seeing in this productivity
growth.
Now, I just want to respond to one thing Donald mentioned
because he was making the equation that productivity growth is
responsible for the job loss. You know, that just simply is not
true. Productivity in fact is not necessarily correlated with
any job growth or job change at any particular time.
Historically, and I think your own JEC document pointed
that out, it has been associated with job growth. It has been
used. I am just wrenching that because--
Chairman Manzullo. No. This is great.
Mr. Yudken. --the productivity numbers have been used
recently to say well, that is what has caused the job loss.
Chairman Manzullo. That is correct. That is one of the
reasons why we had this here.
Let me go to Lee, Don and then Alan. Go ahead.
Mr. Price. You had your hand up.
Mr. Marron. Okay. I would like to stipulate that Joel's
interpretation of my position is correct regardless of what I
may have said earlier.
It is the case I think that sudden productivity
enhancements can lead to short run dislocations which reduce
jobs, which I think is the concern, but in the long run
absolutely.
I wanted to go back, Mr. Chairman.
Chairman Manzullo. But could you defend that?
Mr. Marron. Actually, I was going to use the example you
gave earlier as an attempt to build on that.
Chairman Manzullo. All right. Go ahead. I do not mean to
use the word defend. This sounds like a doctoral thesis.
Mr. Marron. Right. No. Your story was, and I will over
simplify it slightly, Company C used to sell stuff to Company
A, and now Company A buys it overseas.
Chairman Manzullo. That is correct. From China at 25
percent of the cost.
Mr. Marron. So then we had the question about how that
affects the productivity calculation, and I believe--I do not
know the gentleman's at the end name, but--
Mr. Rosenblum. Larry.
Mr. Marron. Larry's description about what he
characterized, I believe, as what you might think of as being
the first order direct affect of that change, but that the
overall affect on productivity is going to depend on what
happens to those people who used to work at C because we have
to account for where they go in the economy.
Chairman Manzullo. I can give you the names of about three
million of them.
Mr. Marron. And also then what happens to Company A,
because Company A is now more efficient and will presumably
gain market share and sell more stuff. There will be some
efficiency in the economy.
Chairman Manzullo. We have the economic theories coming
out.
Let me see. Who is next? Alan?
Mr. Marron. So Company A will probably expand and hire some
more people, and maybe that will get some of the people from C.
Maybe it will not. Some of the people in C will go into some
other aspect of the manufacturing sector. Some of them will go
into the services sector, and some for some time period will
presumably unfortunately remain unemployed.
I just want to have on the record for you the technical
point that the ultimate effect on productivity is going to
depend for those people who get re-employed what their
productivity is in the new place that they land, and then sort
of the beauty of the dynamic economy is that over time
entrepreneurs say--I used to be one; I failed, which is why I
am in government now.
There are entrepreneurial folks out there who are looking
for people to work with who will create new jobs in the future.
I mean, I sense and feel the pain of the folks for whom this
takes time and it is difficult, but the long run history of our
country and many other countries is that over time the folks
get re-employed in newer and better opportunities.
Chairman Manzullo. Okay. Alan?
Mr. Tonelson. I think Lee was. I think you actually called
on Lee.
Chairman Manzullo. Go ahead.
Mr. Tonelson. I thought he had his hand up before I did.
Chairman Manzullo. Okay. Go ahead.
Mr. Price. There are a couple of arguments being made here
that--
Chairman Manzullo. Get closer to the mike, please.
Mr. Price. Lee Price. There are a couple arguments being
made here that I hear often and I think are misleading. One is
to say that the reason that employment has not gone up with
hours is because of productivity, but that is a tautology.
Chairman Manzullo. Just a second. What Thea said was that
one of the reasons given by some--
Mr. Price. Right.
Chairman Manzullo. --that jobs are not being created is due
to productivity, if not the reason.
Mr. Price. Right.
Chairman Manzullo. Okay. Go ahead. Why is that wrong?
Mr. Price. The reason that production has gone up and hours
have gone down is because the ratio of the production to hours
has gone up. By definition, that has to be the case.
Chairman Manzullo. Okay.
Mr. Price. The question is why has the ratio of output to
hours worked or jobs gone up? There are multiple reasons for
that, some of which may be the phenomena you are trying to
question whether that is contributed to. How much of it is
import sourcing of what used to be done here?
I would say we do not have a good answer as to how much
that has contributed, but it could be a significant part.
Chairman Manzullo. Remember, BLS has, and Marilyn stated it
very specifically. The productivity data cannot specifically
identify the effect of offshoring separately from domestic
outsourcing, so they are working within some very tight
parameters.
Mr. Price. Right.
Chairman Manzullo. Alan?
Mr. Price. Let me just make one other point.
Chairman Manzullo. I am sorry.
Mr. Price. We have had a very unusual three-year period. We
have never had a three-year period like this before.
Yes, it is true that manufacturing has gone down in
previous recessions, but it usually bounces back strongly.
Manufacturing is lower today than it was three and a half years
ago in terms of total production. That is totally unique in the
period since we have been doing monthly statistics to have this
sustained decline in manufacturing output.
We have had 11 recessions since 1939 that we monthly have
data for employment. The first 10 of them, employment hit
bottom within three months. People talk about employment being
a lagging indicator. In the first 10 recessions, it never was
longer than three months after the end of the recession that we
hit bottom and started adding jobs. We did not add jobs as fast
in the tenth recession, the one in the early 1990s. We did in
the first nine. We were adding jobs.
This time we continued to lose jobs. Part of it is what is
happening to manufacturing. I think that manufacturers have
decided that they need to be lean and mean and compete
internationally, and what has happened in 2001 and 2002 may
well be an interaction of what is happening to domestic
competition and international competition.
They have been much more aggressive in cutting back in
employment, and it has caused us to not have the kind of normal
stabilization and rebound that we have had in the first 10
recessions.
Chairman Manzullo. Alan, and then David?
Mr. Tonelson. I was just hoping to drag us back to greedy
empirical reality from certain hymns we have heard about the
glories of the beautifully dynamic American economy, which is a
beautiful and completely dynamic thing, but in fact during the
1960s, during the 1960s expansion, we had a very substantial
rise in labor productivity. I cannot remember the exact figure.
It was about 50 percent. Real wages and manufacturing during
the 1960s expansion rose by about 22 percent.
During the 1990s expansion, we had an even greater rise in
labor productivity. It was about 60 percent. Real manufacturing
wages went up 2.8 percent cumulatively, so the notion that
well, when you get around to the first and second and third and
fourth order and ninth order effects and workers will
eventually get re-employed at higher wages, that relationship
seems to be a lot more complicated now than it had been.
The second point is that it is just strange. I do not know
the explanation, but it is strange that during the 1990s, a
period of surging productivity growth in this nation, the
market share of about 80 or 90 American industries, major
American industries that I studied from 1992 to 2001, went
down.
Competing head-to-head against foreign competition in this
market, the market they should presumably know best and do the
very best in, 80 or 90 industries losing market share despite
world beating productivity increases.
Again, something is odd here, and I would hope we would be
more ready to acknowledge this and acknowledge the limits of
this data, which is widely used, but perhaps less revealing
than has been recognized so far.
Chairman Manzullo. Maybe we are placing too much emphasis
on it also.
Mr. Tonelson. We may be.
Chairman Manzullo. David?
Mr. Huether. Yes. Just to build on what Lee said, you know,
the last three years have been unprecedented in the sense that
since the end of the recession all the way to the end of 2003,
so that is two years, manufacturing output edged up three
percent. You compare that to what usually happens during the
first couple years of a recession. Like you said, usually
things bounce back.
That is true. The manufacturing output in the first several
years of a typical expansion usually rises by about 18 percent.
I think one of the reasons we have to look at it is why have
there not been an increase in manufacturing employment. I think
productivity is one of the reasons.
We also have to go back and look at the fact that
manufacturing production has not consistently been positive
continuously for three or four months until October of last
year, so for a number of reasons we all know with respect to
investment recovery lagging, export recovery lagging, there
really has been no stimulus in the manufacturing sector.
If we look at where have we lost all of these jobs in
manufacturing, it has not been in apparel. It has not been in
textiles. It has not been in leather goods. It has not been in
areas that are most import dominated. It has been in
electronics. It has been in transportation. It has been in
industrial equipment and fabricated metals. Combined, that is
the majority of all the jobs lost in manufacturing in the past
three years.
What do those sectors have in common? Well, they are all
very export dependent and all very dependent on domestic
investment as well. When you have no business investment
recovery and you have no export recovery, it is not a far leap
to assume that you are not going to have a recovery in the
manufacturing sector where those are basically the three
biggest sectors in manufacturing today.
I think that we have to always go back and take a look at
what are the domestic and international conditions that are
going to generate the demand that U.S. manufacturers really
need to begin to see output growing fast enough to start
offsetting this productivity growth and increasing the demand
for workers.
I think there are some structural components here because
imports as a share of shipments have been going up for decades,
but I think the real thing to focus on is the conditions that
are going to get manufacturing growing. I think and most people
think that things are starting to turn around right now.
Chairman Manzullo. Kathleen?
Ms. Cooper. Yes. I just wanted to second what David said. I
mean, this has been a highly unusual recession and recovery
period for the manufacturing sector, for the economy as a
whole, but certainly for the manufacturing sector.
The reason it has gotten hit even harder, the main reason
it seems to me it has gotten hit even harder this go around,
has to do with the two things he mentioned, exports very weak
from the U.S. and actually the world as a whole and then
secondly the investment goods part of our economy had not
gotten hit, and now that this economic recovery has begun and
these parts of our economy are starting to improve, I certainly
expect and believe that over the course of the next year we are
going to see some improvement in manufacturing.
Does that mean a sizeable improvement? Does that mean that
job growth will be there in a major way? I think that is a
different question obviously because what is going on and what
these manufacturers have learned is that there are very high
fixed costs of employment. Healthcare was mentioned. One could
name a number of other issues that relate to the cost of hiring
someone today.
I think manufacturers, like other businesses across this
country, are being very cautious in putting someone on their
payroll on a permanent basis. That does not mean that will not
come and it is not getting ready to come, but it is going to
take a while.
I think that is a big part of the reason why on a cyclical
basis over the third and fourth quarter in particular we saw a
great deal of reluctance on the part of companies to do that,
but it has begun. We have a stronger economy, and it is going
to actually show up in the manufacturing sector, I am
convinced.
Chairman Manzullo. Joel?
Mr. Yudken. Yes. It remains to be seen obviously, so I
guess some of us who are not quite so sanguine about the whole
thing that if we are indeed seeing, and I guess this comes down
to the outsourcing, a large, increasing part of our industrial
base being outsourced especially in some of these sectors you
are concerned about, what does that mean in terms of any of the
jobs coming back, or are these permanently lost?
If some of the high end jobs, and I know we are slipping
more into a policy discussion beyond productivity, but if some
of the high end jobs that we are talking about because they are
more easily digitized, and technology certainly is a factor in
making that possible. Is that going to mean that we--you know,
are those good jobs that we are supposedly going to replace all
the lower wage and bad jobs, which we do not think are bad, but
some people call them that, going overseas.
You know, where are those jobs going to come from? In the
end, if we do not have the kinds of jobs being created that
replace the jobs that are being lost--
Chairman Manzullo. And who is going to buy the stuff?
Mr. Yudken. And who are going to buy the stuff? Where is
the boost to the economy?
E.P.I. had a recent study that showed that there is a
definite shift from high wage to lower wage industries in the
last few years. Am I correct, Lee? Am I stating this correctly?
Mr. Price. Manufacturing is the major driver in that
though.
Mr. Yudken. Pardon?
Mr. Price. The loss of jobs within the manufacturing sector
is the major driver.
Mr. Yudken. At the same time, we are seeing the huge boost
in productivity, and it is being bandied about this is the
greatest thing since sliced bread. Things cannot be that bad.
The productivity is moving, and that is why we are raising
this.
Chairman Manzullo. Marvin?
Mr. Kosters. There has been a lot of comment about failure
of manufacturing jobs to spring up with the recovery, but
nothing has been said about how far down they went.
It is my observation that they have gone down less with
this recession than during many earlier recessions. That is one
reason why they have sprung back less strongly. I think of
automobiles, for example. The automobile production in the
country has held up better than in many earlier recessions, and
that may be one reason why we do not see a quick recovery in
employment manufacturing.
Chairman Manzullo. Tom?
Mr. Duesterberg. This does not directly address
manufacturing, but we are all wondering where the jobs are
going. I mean, it is a legitimate concern. Here is some
empirical data.
Chairman Manzullo. Tom, could you talk directly into the
mike, please? Thank you.
Mr. Duesterberg. Some empirical data about job growth and
losses between 1999, the peak of the previous long boom, as we
called it then, and 2002, the depth of the recent recession.
These are BLS data.
Management jobs down 12 percent; business and financial
operations and their categorization up 9.4; computer and
mathematical jobs, 5.8 percent positive; then life, physical
and social sciences up 18.6 percent; office and administrative
support, a huge category, up .9 percent.
These are generally decent jobs, and it belies the notion
that we are outsourcing back office jobs to India and China and
not creating any new jobs. In fact, what is happening is we are
outsourcing the lower level jobs--this is in the services
sector--and we are creating opportunities for the higher
levels.
Chairman Manzullo. Tom, the problem is you have to return
to Natasha Humphries. She worked in California, a high end--
what did she do? Was she a programmer? A software engineer.
Natasha and 12 of her co-employees, including a lady who was
born in India, came to the United States, became a U.S.
citizen.
Natasha was asked to go to Banglador and to train people to
do the exact same thing that she was doing in the United
States. In her testimony before our committee, I asked the
question have you been re-employed. She said no. Thea, you were
there. I said of the 12 others that were laid off, have they
gotten re-employed. She said only one.
I mean, the point is what are you going to retrain people
for? You know, where are these jobs with the tremendous amount
of offshoring that is going to India, for example? These are
people that are reading x-ray films, radiation films. These are
engineers, accountants. I mean, these are not low end. These
are not service centers. These are high end, white collar jobs
that are going to India.
Does that make U.S. companies more productive to use those
services? You bet they do. They turn out the same product, only
cheaper. Is that an increase in productivity? I would think it
is.
There is a term they use back home for what happens to
machines. It is called black hole. In one of the companies that
was closing down, the guys came down to my office and said they
were getting ready to black hole the machinery. I said what do
you mean? He said well, we try to figure out what the codes are
when they tagged where the machinery is being shipped to. I
said well, where is it going? China, Mexico. If the machinery
is leaving, what are these guys going to work on?
Mr. Duesterberg. Each loss of a job is a tragedy. Each
individual story in itself is worthy of attention. I was just
giving some overall statistics which show increases in jobs.
I think we need to do a better job of controlling the cost
pressures on American manufacturers. I think we need to do a
better job--
Chairman Manzullo. I was not picking on you.
Mr. Duesterberg. --building human skills so that we can
remain the innovative and technology leader of the world
economy.
Chairman Manzullo. Okay. Bill, and then Thea?
Mr. Beach. Let me just point out two things, Congressman
Manzullo. The BLS is now producing a data set, which they had
produced years and years ago. It shows job gains and job
losses, millions and millions and millions of jobs each year,
which are created. These are in some cases employees who have
lost their job and found another job, who have gone from a low
paying job to a good paying job. That is kind of the way the
economy works.
We actually cannot answer your question. The honest answer
is we do not know where these people are going to get jobs.
Nobody knows the answer to that, but we have to have some sense
of is the economy producing jobs. If you look at these data,
which have just begun to come out, yes, they are.
Second point. One of the things we have not discussed is
the fact that we have the second highest corporate income tax
in the world. We have business taxes on business taxes, which
are very, very high.
Now, it could very well be that one of the unusual
parameters, one of the things we did not expect to see, is the
high operating cost now for businesses in the United States. We
may not be a business friendly country like we were 10, 15, 20
years ago.
That is an area where the Congress can do some work and a
good deal of investigation. Two bills are pending, one in the
House and one in the Senate right now, to take a look at our
worldwide business taxes and what we can do to change that in
order to create a little more business friendly environment.
Chairman Manzullo. Okay. Lee, then Thea, and then Alan.
Mr. Price. When you reconcile the household survey with the
payroll survey and take out the self-employed and the
agricultural and the other that are in the household numbers,
what you end up with is a relatively small difference between
the two for the last year, year and a half.
There was an enormous difference in the late 1990s. The
payroll numbers were going faster. There was an enormous
difference in 2001 and the end of 2002 with the household
survey doing better.
For over a year or so, the two numbers reconciled on the
same basis of people in the household survey who look like they
are holding payroll jobs are growing at about the same rate. It
is a pathetically slow rate. It is just not an issue here.
Chairman Manzullo. There were 1,000 jobs recruited in
December.
Mr. Price. And there were 54,000 lost in the household
survey. It is not that different. The household survey does
show some people becoming self-employed. It does show some
people being in--
Chairman Manzullo. It does or does not?
Mr. Price. It does.
Chairman Manzullo. It does?
Mr. Price. It does. It does show some people being--I do
not know the trend beyond that, but when you make them on the
same basis, you give a slight increase in the household, a
slight decrease in the payroll over the last year, year and a
half. It is just not the story.
We are not adding jobs anything like we should if we were
keeping up with the growth of the population. We have a lot
more people turning 16, 18, 20 than we have turning 65. You
take into account what is happening with the working age
population. We should be adding.
We have 250,000 people added to the working age population
every month. Some of them are in school. Some are retired. Some
are disabled. Some of them are married with kids and they do
not want to work, but you expect 60 percent of them to be
employed.
We should have 150,000 new jobs every month to keep up with
the growth in the working age population. We have not had that
for over three years. It is better to add 50,000 than to lose
50,000, but every month we are not getting 150,000 the labor
market is getting weaker, and wages are going slower.
Chairman Manzullo. Thea?
Ms. Lee. I wanted to speak directly to this question about
upward mobility and whether workers who lose their jobs in the
manufacturing sector, get outsourced, are sort of moving
smoothly up the job ladder to more productive and better paid
jobs.
The displaced worker survey said the BLS used to collect,
and I understand that this program is under consideration for
being cut for budget reasons, which I think would be really,
really a shame. This is a very, very important and very
interesting survey. It actually tracks workers who have been
laid off, follows them three, five years later, how many of
them have a job and what their wage level is compared to their
old job.
I think it is pretty clear what you see. I am more familiar
with the numbers a few years ago, not the most recent ones, but
certainly manufacturing sector workers take a big pay cut when
they get re-employed. The higher paid they were, so steel and
auto workers, for example, might take a 40 percent pay cut,
whereas an apparel worker might take a 10 percent pay cut.
The people are not moving into higher paid jobs. This is
following the individuals who have lost their jobs, have been
displaced largely due to--for any reason for the different
kinds of layoffs. I just think it is an important point because
there is sort of a blitheness about the ease with which people
move into better jobs. It is not happening.
Chairman Manzullo. Alan, and then Kathleen? Did you raise
your hand? Alan, and then Kathleen?
Mr. Tonelson. I wanted to just speak briefly about the
business cost issue. I work for a group that again represents
small and medium sized manufacturers. They hate regulation.
They hate paying taxes, but they emphatically reject the idea
or certainly the strong implication that we have just heard
that the only way the United States can become globally
competitive once again is to reduce our levels of regulations
and also taxes from first world levels to third world levels.
Although there are always improvements that can be made in
tax and regulatory policy, that kind of move would be obviously
impossible politically and undesirable socially. We
emphatically reject the notion that it is necessary to restore
American manufacturing competitiveness.
Chairman Manzullo. Kathleen?
Ms. Cooper. I just wanted to make the point that certainly
what Lee said about the last three years being very tough years
is absolutely correct, and that ties in with what Thea
mentioned too. This has been a very tough period. The recession
began in early 2001 or perhaps even before that. The NBER is
considering whether it began in 2000.
It has been three very tough years, first recession and
then trying to get this recovery going with a lot of highly
unusual events causing a great deal of uncertainty in
everyone's mind and in business people's minds certainly who
have to make these decisions, so it has been a very tough
period.
As Tom said, in every job, when someone loses a job it is
very, very tough trying to get them re-employed because it is a
wrenching experience. This is a churning economy. Bill
mentioned the data that BLS puts out on how many jobs are
gained and lost.
This is an economy, because it is so dynamic, that is going
to continually provide challenges, and that is the reason the
Administration has certain programs to help that. I will not go
into the Department of Labor ones, but to help retrain workers.
I would say for Commerce, the kinds of things we have been
trying to do, for instance, such as your manufacturers are
feeling when their community is hit so hard because of
concentration in a particular industry, what we have tried to
do with our economic development administration is to work with
the community, try to put together a strategy for development
of industries and bringing in new industries, new companies
that fit with the skills and the infrastructure of that
community. We think that is one of the best things we can do.
Chairman Manzullo. Joel? Quickly, and then we have to go
vote.
Mr. Yudken. Yes. First I want to point out our goal should
be not lowering our standards in terms of regulation, you know,
but to raise labor standards, to raise environmental standards
so that in China and all the countries where we are trading
that they are at higher levels.
I think that goes to the second point that I wanted to
raise about leveling the playing field. This is part of what we
are concerned about, whether it the dollar issue of the trade
or what have you. Are we operating on a level playing field
internationally? This is one of the things that we are
concerned about, which has been fostering a lot of the
outsourcing and movement offshore and that we may never get
back.
The third is that, you know, it is very well to talk about
the aggregate and the overall, but in the end it is all very
regional and very local. There are particular population
groups, especially black Americans, who have suffered among the
greatest in terms of this drop in manufacturing.
Manufacturing has been traditionally a job ladder, a career
ladder for low income workers and through the middle class.
They are losing that. Those communities are getting especially
hard hit probably in parts of your state and in Chicago and
around the country in urban area. Rural areas are also being
harder hit.
You know, I just do not think that these issues are being
dealt with sufficiently, and I do not think the policies,
frankly, are--
Chairman Manzullo. Let me thank you for coming. This is the
55th hearing that the Small Business Committee has had in the
past three years on the issue of manufacturing, loss of
manufacturing jobs and loss of white collar jobs. Fifty-five
hearings.
The reason for that is that Rockford is the tool and die
center of the world. We have been screaming for years that when
the orders fall off for the machine tools, that must be an
indicator that we are in a downward spiral. We have been
working with the fed, and when they come out with their beige
book they are not taking a look at the order of machine tools
as an indice as to whether or not interest rates should be
raised.
The second thing is there is a phenomenal article that I
cut out of the Wall Street Journal January 3 about Chinese
companies that are now outsourcing because the price of labor
has skyrocketed to about $150 a month. They can outsource and
get cheaper things, get this, from North Korea.
I want you to think about this. I want American
manufacturers to think about this. Order anything from China,
and you are having parts coming in from North Korea. You know
the tyranny and the oppression of that government. The
sociological impacts of what is happening are astounding.
The purpose of this meeting, and you guys all took off your
political hats mostly, but really you did and added a
tremendous amount to the discussion here. Our goal obviously is
to try to restore manufacturing in this country.
We take a look at this figure we call a productivity figure
and ask ourselves what all is involved in it. The figures on
the multi-factor are three and a half years old. That seems to
be about the most accurate ones that we can rely upon.
Let me throw out one of the standards that I use, and that
is called the pink towel indication. A pink towel is used in
machining to wipe your hands on for the machine oil. When the
pink towel companies are down in their business, you know that
the jobs are suffering in the manufacturing sector.
Again, thank you all for coming. You have been really
terrific, and we appreciate your input this afternoon.
Mr. Price. What has happened to pink towels lately?
Chairman Manzullo. They are having a hard time.
[Whereupon, at 3:52 p.m. the committee was adjourned.]