Sparks fly on a production line at the Guangzhou Automobile Group Co. Ltd. (GAC) plant in Guangzhou, China. (Photographer: Qilai Shen/Bloomberg)

Loss of Factory Jobs Needn't Spell Doom for Nations, IMF Says

(Bloomberg) -- Economies don’t necessarily suffer lower growth or higher income inequality as factory jobs become more scarce, the International Monetary Fund said.

Manufacturing’s share of employment has been declining in advanced economies for almost five decades, the IMF said Monday in an analysis that’s part of its latest World Economic Outlook. The full report, including the fund’s updated global economic forecasts, will be released April 17 at the IMF’s annual spring meeting in Washington.

The slide in factory employment has worried some economists and policy makers, who often see manufacturing as a key catalyst for a nation’s productivity growth and a solid source of well-paying jobs for lower-skilled workers.

President Donald Trump has vowed to revive the U.S. manufacturing sector and bring back jobs that have been shifted to other countries in years of “offshoring” in search of lower production costs. While U.S. manufacturing employment has bounced back since the last recession, which ended almost nine years ago, it remains well below its peak from the late 1970s.

Rekindling Manufacturing

Trump’s desire to rebuild U.S. manufacturing has been a driving factor behind his push to crack down on countries he believes trade unfairly. The president’s plan to impose tariffs on imports from China has roiled financial markets and sparked fears of an all-out trade war between the world’s two biggest economies.

“The United States hasn’t had a Trade Surplus with China in 40 years. They must end unfair trade, take down barriers and charge only Reciprocal Tariffs,” Trump said April 7 in a Twitter posting.

Trump has also knocked Mexico and other countries on trade imbalances with the U.S. Escalating trade tensions are sure to be on the agenda when finance ministers and central bankers from the IMF’s 189 member nations meet later this month.

The decline in factory employment need not undermine productivity growth in any given country, said the IMF, noting that some service industries are more productive than the manufacturing sector.

Pay Inequality

The IMF acknowledged that earnings in the manufacturing sector are “somewhat higher” and more evenly distributed than in service industries. But the fund says inequality has risen in all sectors of advanced economies since the 1980s.

“The key drivers behind greater pay inequality over time seem to be the dislocation of middle-skilled workers through technology and trade -- and the resultant downward pressure on wages for medium- and low-skill jobs -- rather than shifts in the relative size of employment between industry and services,” the IMF said.

In nations where manufacturing jobs are disappearing, policy makers should take steps to help displaced factory workers develop new skills, and should also strengthen social safety nets, said the fund.

In a separate analysis, the IMF found that many advanced nations have been able to counteract the downward pressure on workforce participation created by aging populations. In about half of developed economies, labor force participation has increased since the global financial crisis.

But the surge masks stark differences between men and women and across age groups, said the fund. Labor-force participation among women aged 25 to 54 has increased dramatically in advanced economies since the mid-1980s, while the involvement of older workers has picked up considerably since the mid-1990s, according to the IMF.

However, participation has fallen among male workers aged 24 and under, women 24 and under, and men between the ages of 25 and 54.

Factors such as changes in labor-market policies and gains in education account for most of the increase in participation among women in that age group and older, the IMF said. Technological advances -- namely, automation -- partially explain the declining participation among men in that age group, it said.

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