Pesident Obama and the GOP candidates for president have at least one thing in common, they all call for ending US Government assists for companies sending jobs abroad and bringing jobs, specifically manufacturing jobs back to the USA.  These calls display a quantum ignorance of American company operations abroad and the nature of our manufacturing sector here. 

I talked with a friend on Sunday who had been a senior municipal official in Gary, Indiana, a classic “Rust Belt” manfucturing town.  He noted that the huge steel mill there employed 32,000 in 1968, a number that fell to 4000 employees in 2010.  However, the mill’s output remains the same.  In other words the reduction in the work force came from higher productivity, not movement of jobs to offshore companies or lower production.

My friend’s comments spoke well to my continued statement in this blog that the manufacturing sector does not offer many opportunities for increasing overall employment.  In fact, increased production may simply accelerate the trend to automation that has caused the quantum reduction in our manufacturing work force.  As I have stated before, the work force in our agricultural sector fell from over 50% of the total to just under 4% in the 20th Century.  This was the result of intense mechanization of agriculture and other modern technologies.  Likewise, the manufacturing sector fell from a high of about 23% of our total work force to about 13% in 2010 due to increased mechanization and automation of industry.

So any increase in jobs in our manufacturing sector will more likely go to robots than people.

The US Government offers no tax or other incentives for US firms to move their work force abroad.  Lower labor cost per unit of production, better access to foreign markets, lower transportation costs, and in general better business conditions induce US firms to move operations to other countries.  The same can be said for the many more foreign companies that have operations in the USA than US firms that have operations abroad  Honda motors may be the largest private employer in the state of Ohio.  Foreign auto makers have factories throughout the USA hiring thousands of American workers.  The German giant electrical company, Seimens, hires thousands of American workers.  And there are many more.

Regarding taxes, one should remember that a US subsidary in another country is a company in that country, organized under the laws of that country.  As such the US subsidary is subject to taxation in that country.  US tax only comes into consideration when that company abroad remits money to the US company.  Moreover, US tax law prevents double taxation of earnings, thus if the earnings have been taxed in another country, that becomes a tax credit for US reporting.

In sum I view the politically driven calls to “bring US jobs back home” and “more manufacturing jobs” as mere campaing slogans with no real relevance to improving our jobs picture.  

While on the subject of jobs, I also note that, while our unemployment rate has fallen to a “new normal” 8.3%, our work force has shrunk by about 3 million jobs.  In other words improvement in unemployment may simply reflect workers dropping out of the work force all together.