Two groups of policy analysts argue that nothing should be done about the stunning fall in manufacturing employment, but for opposite reasons. One group, exemplified by a 2007 study by Daniel Ikenson of the Cato Institute, argues that the employment decline is a sign of soaring productivity, and that manufacturing is actually “thriving.” Another view, exemplified by New York Times columnist Thomas Friedman, says it is simply impossible to compete with countries whose wages are so much lower than ours. It is inevitable, he argues, that manufacturing will go the way of agriculture, employing a tiny fraction of the workforce.
Neither of these views is correct. Although U.S. manufacturing is not thriving, with appropriate policies it could be. First, there are problems with the Cato study’s statistical analysis. Second, a significant number of firms are holding their own, and more could do so with appropriate policies.