The Demographic Tea Leaves and American Manufacturing
The winds are set to blow more manufacturing back to the US over the next 20 years. One reason is demographic. Another reason is the nature of manufacturing innovation.
This post looks at demography, while future posts will look at what is happening with manufacturing innovation.
The demography changes that matter for America are those in China. China rode the demography wave on the way up, drawing its large workforce from the country into urban factories, providing historical capacity to make shoes, toys, iPads, and what have you for the world. Because its one-child policy is catching up to it, its rapidly aging population is not being replaced by enough younger workers, either to support the costs of caring for the old or to replace the former pools of cheap labor. From now to 2050, the share of the Chinese population that is of working age will fall drastically, while the number of elderly dependents is rising, creating a potentially economically destructive imbalance.
This will have profound internal societal, as well as global economic effects. In terms of the latter, the Chinese workforce that builds and assembles for the rest of the world will not be as flexible, whether in terms of price, skill, or availability, as it is today. (Think of recent coverage about the ability of the Chinese workforce to expand to prepare for a new Apple product launch.)
Here is where the contrast with American culture comes in, showing America’s special flexibility to support innovation. The Economist writes this week:
The shift spells the end of China as the world’s factory. The apparently endless stream of cheap labour is starting to run dry. Despite pools of underemployed country-dwellers, China already faces shortages of manual workers. As the workforce starts to shrink after 2013, these problems will worsen. Sarah Harper of the Oxford Institute of Population Ageing points out that China has mapped out the age structure of its jobs, and knows for each occupation when the skills shortage will hit. It is likely to try to offset the impact by looking for workers abroad. Manpower, a business-recruitment firm, says that by 2030 China will be importing workers from outside, rather than exporting them.
Large-scale immigration poses problems of its own. America is one of the rare examples of a country that has managed to use mass immigration to build a skilled labour force. But America is an open, multi-ethnic society with a long history of immigration and strong legal and political institutions. China has none of these features.