Cheap energy fails to fuel hiring
Comment of the Day

April 04 2013

Commentary by David Fuller

Cheap energy fails to fuel hiring

This is an informative article by Nelson Schwartz for the NYT & IHT, on an important subject often discussed by Fullermoney (may require subscription registration so here is a PDF version). I have used the IHT's headline, and here is the opening and also a latter section
These are good times for Libbey, a 125-year-old American glassmaker that nearly went bankrupt four years ago. The company's shares have risen to almost $20 from below $1, sales of its tableware are at a record high, and its energy-intensive factories saved more than $5 million in 2012 as natural gas prices fell.

Despite all the upbeat news, however, Libbey recently announced it would lay off 200 workers at its plant in Shreveport, La., and move some production to Mexico as it cuts costs and discontinues several products.

Libbey's decision is just one example of why manufacturing, for all its renewed promise, is likely to fall far short of the claims by industry groups that millions of new factory jobs are about to be created in the United States because of the unlocking of abundant supplies of domestic energy.

"Even though the U.S. is more competitive globally, manufacturing doesn't give you the kind of direct job creation it did in years past," said Joseph G. Carson, director of global economic research at AllianceBernstein, a Wall Street investment firm. "At the end of the day you still want a strong manufacturing base, but there aren't as many people on the factory floor."

Indeed, while the sector has added 500,000 jobs since the recession ended and the value of what the nation's factories churn out is close to a high, there are nonetheless two million fewer manufacturing workers today than in 2007. Ever since the early 1960s, the share of jobs in manufacturing has been on a nearly uninterrupted downward slope, now accounting for less than 9 percent of all employment in the United States.


While demand for their products is improving thanks to a more robust housing market and other factors, don't expect a ramp up in hiring, said Richard A. Beuke, vice president for flat glass at PPG Industries, a Pittsburgh-based glassmaker.

The production lines run 24 hours a day, seven days a week at PPG's plants, including one in Carlisle, Pa., that makes flat glass. It's among the plants benefiting from a rebound in housing.

"Because it is automated, we won't have to add a lot of employees with the upturn in the construction industry," Mr. Beuke said. "You don't touch a piece of glass in our factories." At PPG, production is up 10 percent since the recession - but employment remains flat.

Glass isn't the only manufacturing sector that has struggled to add jobs recently. Other industries identified by American Chemistry Council as potential winners from the energy boom, like paper producers and foundries, have continued to lose jobs in recent months.

It's not that manufacturing itself is disappearing. But nearly all of the American manufacturers that survived the lean years of the last decade are globally competitive companies that depend on high productivity and advanced technology for their success more than masses of assembly line workers.

"There is this incredibly powerful long-run trend of declining employment in manufacturing," said Robert Z. Lawrence, a professor of economics at Harvard's John F. Kennedy School of Government. "It's the same story as in food and farming. We're producing more food with many fewer workers. The only way we compete with our higher wages is by being more innovative."

David Fuller's view There are three main themes to this situation: 1) wage costs, which have inevitably narrowed somewhat in the era of globalisation but are still comparatively high in the USA and many other developed economies, relative to competition from Asia and other developing regions such as Mexico; 2) energy costs, which are now lower in the USA than in other industrialised economies, thanks to America's invention and utilisation of fracking technology; 3) the accelerating rate of technological innovation, which increasingly enables automation and robotics to make many jobs redundant, at both blue collar and more recently, white collar levels.

I think wage costs will gradually become less important as more developing economies prosper.

The USA's energy advantage is probably temporary as many other countries are likely to develop their shale oil and particularly shale gas potential. This will be the most important factor in lowering energy costs, in real terms, as Fullermoney has long forecast. It should happen by the end of this decade, or sooner, depending on how quickly countries can satisfy environmental concerns and develop these resources.

Incidentally, natural gas should eventually replace crude oil as the world's most important source of fuel within the next ten to twenty years. This will lower atmospheric pollution much more quickly and at less cost than often inefficient renewable 'green technologies'. Currently, three of the developed world's largest energy companies, I have heard, are now producing more natural gas than oil: Exxon Mobil, Royal Dutch Shell and Chevron.

Lastly, I maintain that the accelerating rate of technological innovation is the biggest long-term threat to employment. In saying this, I do not doubt that many new jobs will be created, as we have seen following other technological advances over centuries. However, those earlier technology breakthroughs were much less frequent and slowly adopted. Exponential technological development will certainly outpace job creation. The major beneficiaries will be corporations, particularly Autonomies, frequently reviewed by Eoin. However, the risk of obsolescence is also increasing for firms that fall behind.

Welcome to this exciting new world.

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