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October 28, 2016

Why Jobs Are Not Coming Back to America

By James Murray, Wolf Street

The “modern day marvel.”

The candidates in the current campaign – or any campaign – are all promising to “bring back good jobs” to “create good jobs.” When asked how they would do that, they are all a little light on details.

About a year ago, Joe Biden was in Michigan to celebrate the opening of a new manufacturing plant that made “small metal clamps” used in all kinds of industries to hold wiring, hoses. Etc. in place. The largest market is the auto industry but they are sold to hundreds of other manufacturers. Depending on size, shape, and material, these parts sell for a few pennies or less. You have to make a lot of these parts to have any substantial billing numbers.

This new plant is fully automated and runs 24/7/365 with just 14 people. Joe was quite happy saying “manufacturing is returning to America.”

However, there is a backstory. That plant had been around for years. It had employed 600 people on two shifts. Then, the Chinese began to undercut the pricing, and the plant was no longer profitable and closed. Two years later, it reopened as a fully automated plant and regained the business because it could now manufacture cheaper than the Chinese.
There are several stories inside the main story.

The first story is about the initial plant closing. Anytime 600 people lose their jobs, you know that some employee ended up losing their home, that some cars were reprocessed, that some college kid had to quit school, etc. Retailers got hit. Utilities at the plant were no longer needed. Suppliers got hit too.

Closing a plant that large takes down a chunk out of the local economy, and the ripple effect is huge.

The second story is about the new plant. It only has 14 employees, but that’s 14 employees that were not there before. I’m sure that the payroll for the 14 employees is a lot less than the payroll for 600 employees, but every little bit helps.
Some of the other missing stuff returned. The plant is using raw materials again, probably more than before. The power company is happy because the power bill is back…. It doesn’t affect the 600 people that were laid off, but the 14 people who do have a job are probably happy.
However, there is a third story, and that is about the plant itself.

Some people look at the new plant as a “modern day marvel” but it really isn’t. Most of the equipment inside can be readily bought on the open market. The “marvel” is tying it all together and getting it to work and that is not all that difficult either, it just takes time and money.

There’s a lot of hidden savings in going this way also. When you have 300 people working on a shift and you have 2 shifts, you have to have parking for more than 300 cars because at change over, shifts overlap. You have to have a big lunch room. You have to have some big bathrooms. All that space costs money and does nothing to add to production.
When you have 14 people scattered over 4 shifts a week, you can park them in a tiny area, the bathroom space shrinks drastically, and the “lunch room” can be a table and four chairs in a corner somewhere.

If you have 600 people, you have to locate near a population center in order to have workers. With 14 workers, you can afford to pay them moving expenses to live close to the factory. Land is always cheaper outside the urban areas.

The new factory was rebuilt on the old factory site, but nothing says that has to happen. You can drop that factory in some rural area with cheap property taxes, move 14 people and you are in business. All you need is a good road to the plant for deliveries and shipping and adequate utilities. In fact, you can duplicate that factory almost anywhere in the world and get the same results.

In the past, if you wanted to build a factory to make “small metal clamps,” you got the permits, bought the land, built a building, installed the equipment, and then had to hire and train 600 people. From the time that you started hiring until you got the plant at peak efficiency could easily be a year.

Today, automation has become a commodity, something that you can basically order and get delivered. You have fewer people to train and a quicker startup time, and the savings are tremendous. Now, instead of having to take a year to get people trained and rolling, you can start a plant a day after the installation is completed. There will be some problems, but they generally can be sorted out in a couple of weeks.

You hear people saying “We’ll manufacture in the US and export to the rest of the world.” That doesn’t work anymore either. If “small metal clamps” are needed in Africa, it is a simple process to just build a duplicate plant in Africa, find 14 people to run it, and you are in business in Africa.

Those 600 jobs at that plant are never coming back. Not today, not tomorrow, not ever.
Even if all 600 people that lost their jobs had the necessary qualifications to run the new plant, there are only 14 jobs. 586 people would not have an opening to apply for.
These politicians talk about “creating new jobs.” This is a classic case of what is happening. 14 new jobs were created but they replaced 600 old jobs in the process.

If you listen to the politicians, you get the impression that someone slipped into the US, stole jobs, packed them up, and shipped them off to China, Mexico, etc. Politicians tend to infer that all we have to do is just go get the jobs back, and everything will be fine. But jobs like those above didn’t “go” anywhere. They vanished and will never reappear. 

Courtesy of James Murray, Wolf Street

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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