A new paper by two scholars at Dartmouth's Tuck School of Business suggests that the Bureau of Labor Statistics (BLS) has been undercounting manufacturing jobs in the United States because of its rather narrow definition of what is and what is not a manufacturing job. The authors, Andrew Bernard and Teresa Fort, contend that many manufacturing companies are not included as such because they do not actually own and manage manufacturing plants where their products are made. They suggest, credibly in my opinion, that a company that designs and coordinates the manufacturing of goods is a manufacturer, with or without a factory, and that its employees should be counted as manufacturing employees.
Under the BLS's current definition, employees of such companies today are counted as employees of wholesale firms instead of manufacturers. According to Bernard and Fort, a more expansive definition of a manufacturing worker would have added between 431,000 and 1,934,000 workers to the ranks of manufacturing in 2007. Back then there were still some 14 million people counted as manufacturing workers versus about 12 million today.
This new scholarly paper reminds me of a beef I have had with the BLS dating back about 10 years to when the BLS bureaucrats decided that people working for manufacturing companies, who themselves were not directly engaged in making things on the factory floor, were not manufacturing workers. Thus, all the people working in the administrative offices of Ford Motor Company or General Mills were by definition not in manufacturing. That determination, which was in my opinion ill-considered, slashed hundreds of thousands of manufacturing jobs from the government's official headcount.
Understating the true number of people engaged in manufacturing also obscures the well- established "multiplier effect" in which each manufacturing job on average supports1.4 jobs in other sectors, more than any other line of commerce. The act of transforming raw materials into finished products generates jobs in mining, transportation, energy, technology and a host of other areas. In the final analysis, manufacturing is crucial to job creation.
This is not an irrelevant dispute over economic semantics. The perception that manufacturing employment is withering away fosters misunderstanding and is a crucial factor in our government's reluctance to invest serious time in manufacturing issues. It is simple enough for people like me to argue that manufacturing is critical to our economy, which it most assuredly is, but it is the human numbers that ring a bell with politicians.
It is long past time for the BLS to acknowledge its careless treatment of important data on manufacturing employment and to come up with a more credible definition that truly reflects what is going on in the industrial workplace.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. September 2013