Beware of Teamsters Bearing Gifts

Boots and Sabers links to a new study from the Economic Policy Institute, which documents manufacturing job losses in Wisconsin over the past 15 years.  As BadgerPundit has noted below, any evidence provided by the EPI must be taken with a Department of Transportation sized truckload of salt, since the EPI is nothing more than a front organization for America's largest labor unions.   It is in Big Labor's interest to claim the American economy is in a perpetual state of crisis, in order to advance its agenda of restrictive labor laws, redistributionist government transfers, and protectionist trade laws.  Economists throughout the ages have known that these policy objectives lead to ruin, although hope springs eternal in Organized Labor's breast that voters will nevertheless refuse to see the things which are not seen. 

The Journal Sentinel's uncritical regurgitation of union propaganda notwithstanding, Boots and Sabers' conclusions with respect to the study are well taken.  Wisconsin has undeniably lost many low-skill manufacturing jobs over the past two decades, particularly in the Milwaukee area (as documented in this rather grim assessment from the Wisconsin Policy Research Institute).  Organized labor's response to this phenomenon is akin to Dorothy's technique in the Wizard of Oz: Labor thinks that by wishing hard enough, the status quo ante can be recovered.  A higher minimum wage for Milwaukee (or Wisconsin as a whole) will simply accelerate the exodus of low skill jobs from the region which is already being driven by more fundamental economic forces.

The dirty secret is this- all those manufacturing jobs are gone and they are never coming back.  And the fact that fewer Americans and Wisconsinites are working in manufacturing jobs today is evidence of America's increasing prosperity, not its economic decline.  Reasoning by analogy is helpful in considering this proposition.  In early 19th century America, virtually every able-bodied person was employed in agriculture.  Today, less than 3% of Americans work in agriculture.  Yet despite this "precipitous decline in agricultural sector employment", the American farm economy produces orders of magnitude more food, and a gigantic surplus for export.  The difference is the miraculous increase in productivity, which enable many fewer farmers to produce much more food.

Something akin to this is happening in manufacturing, even in Milwaukee.  BadgerPundit's grandfather once worked as an engineer in the old Allis Chalmers works during the Depression years (before my grandmother insisted he move south again if he wanted to marry her).  Today, these works are silent and the many thousands of jobs they once provided are gone.  Yet between Catepillar, Deere, and other manufacturers, the U.S. is making more tractors than ever, with many fewer employers.  Even some slimmed-down Milwaukee giants of old are still going strong, as witnessed by the recent earnings surges at Bucyrus and Joy Global (the old Harnischfeger), albeit with many fewer employees. 

It is primarily productivity gains which are driving the decline in manufacturing sector employment relative to other parts of the economy - and that is a good thing.  It is not China or a sinister plot by the Bush administration.  The fact that manufacturers in the U.S. cannot run a factory by paying $3.00 an hour is not due to minimum wage laws- it is due to the fact that Americans confront so many economic opportunities, the opportunity cost of their time is substantially higher than the cost of a worker's time in China.  That is evidence of success, not decline!

So Boots & Sabers is absolutely correct that a Milwaukee minimum wage law will fail as an economic cure all for the city or the state.  If Wisconsin politicians were really concerned about revitalizing the Milwaukee-area economy, they would focus on factors which would make the region more attractive to high-skill workers and knowledge industries.  Such factors include low taxes, inexpensive housing, good transportation infrastructure, and a non-intrusive regulatory environment. The recipe for prosperity does not include a surfeit of pampered bureaucrats, a meddlesome government in Madison, and a menu of dubious, overfunded "services" which justify high taxes but provide little or no benefit to most Wisconsin residents.

A comparison with my native state of Alabama shows how Wisconsin could bring even manufacturing jobs back to Wisconsin, if only the state could learn to govern less, spend less, and regulate less.  Over the past decade, Alabama has become a major center of auto manufacturing, landing large new plants from Mercedes, Honda, Hyundai, and Toyota. In Alabama today, auto plants and suppliers provide over 60,000 jobs and $3 billion in annual worker payroll which did not exist a decade ago.  Given its historical strength in manufacturing and auto suppliers, why didn't some of these jobs come to Wisconsin? Well, you know the answers - high taxes, unions, expensive labor, burdensome regulation, and a dysfunctional attitude towards business.

If Wisconsin wants to restore dynamism to its economy, the state could do well by changing its attitude.  Corporations and businessmen are not the enemy- they are the engines of wealth creation.

Comments

Realistically, the Union Menace has been de-fanged a long time ago; only about 14% of private-sector workers in the USA are represented by unions. (Government is a different story, however.)

Alabama has attracted some auto plants, perhaps in preference to Wisconsin, because Wisconsin presents far more challenges to a manufacturer than does Alabama.

However, you glossed over the fact that all those 'foreign' cars are being manufactured in the United States because Ronald Reagan forced the issue by placing tariffs on non-domestic-content autos.

There are two significant questions which are not resolved easily: first, what are the prospects of a nation which no longer manufactures "things"?--recalling that manufacturing was at one time 25% of the US' GDP and is now only about 14% of GDP. This is not a result of "productivity gains"--it is a result of industry seeking better terms and conditions.

Secondly, what, if anything, should US policy be on this question? It is a given that the Congress will not substantially reduce regulation on issues such as safety or environment--nor will the several States do that, nor reduce taxes in any meaningful way.

Further, there are some items which should NOT be touched--wage and hour laws come to mind.

Thus: should the US trade policy require that firms which 'offshore' production pay tariffs which equalize their burden? If not, why not?