January 19, 2012

Before we all rush off to revive the manufacturing sector....

China Makes Almost Nothing Out of Apple's iPads and iPhones - Forbes:

...As you can see the two largest inputs are materials and Apple's own profit margin. Despite the machine being assembled in China it's still true that the value of that labour is trivial: 2% or so of the cost of the machine...

....But here's the real takeaway point from these numbers. Basic manufacturing, electronics assembly type manufacturing, simply isn't a high value occupation any more. And the level of wages that can be paid in any particular occupation depend, inexorably, on the amount of value that occupation adds. So if electronics assembly adds little value then there simply cannot be high wages for those doing that work for it just isn't a high value added occupation.

So quite why there are those insisting that bringing all this manufacturing "home", to the UK or US, will lead to lots of well paid jobs in manufacturing I'm just not sure. There are indeed high paid jobs in manufacturing, as the onshoring of Samsung's chip plant for Apple shows. But that's producing 1,100 jobs to produce all of the processing chips for all of Apple's products.

If you like, the end lesson here is that you can have lots of manufacturing jobs, sure, as Foxconn does, but they pay $400 a month maybe. And you can have high paying manufacturing jobs like at that Samsung plant in Texas, but you're not going to get very many of them.

Manufacturing is going to become like farming. American agriculture is stunningly efficient, but it doesn't need many people. Only about 2% of Americans are now on the farm. It's interesting (to me at least) that the Industrial Revolution "solved" agriculture. There were, for instance, no more famines in industrial regions after about 1800. And the key to winning wars became industrial output and advanced weapons, not masses of peasant recruits.

Now as we enter the Information Age, manufacturing is likewise being "solved." It will not be a big problem in the future, and it won't employ many people. Any manufactured goods that are needed will pretty much just appear.

Posted by John Weidner at January 19, 2012 3:36 PM
Weblog by John Weidner