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Has Demand for Cheap Goods Killed Californian Manufacturing Sector?

2000-2011 Employment Data

If you want cheap, big corporate retailers like Walmart is the place to shop, not your local corner store. The demand for cheap goods and services means a few things.

  • For starters, the likes of WalMart can deliver lower cost goods because it has an exceptional delivery system. Greater efficiency = lower costs.
  • Big corporate retailers also buy in massive bulk which permits greater discounts.
  • And of course, they import most of their goods from countries that can produce at a lower cost.

Importing from China, South Asia, and India, permits WalMart to take advantage of the lower standard of living and thus lower labor costs. Lower labor costs means cheaper goods and the savings get passed down to the American consumer. Those savings, however, are a double edge sword. The consumers want to save, the greater the pressure to find cheaper goods, and the greater the pressure for manufacturers of said goods to lower costs.

The greatest cost to any outfit is of course wages. So lower wages = lower products for you at the till. But the cost of lower wages in a global economy usually means no wages. Put another way, it means a loss of domestic jobs to cheaper foreign competitors.

What’s the cost of cheap goods imported from, say, China? Has the demand for the lowest cost crippled the local economy? What is the impact of globalization (outsourcing) for what once were American jobs? Or is there no connection between the rise in unemployment and the increase in imports?

Let’s look at some broad indicators in the economy. This post will look at California, being America’s largest state. Here’s a graph from the largest state in the America describing employment in the manufacturing sector since 2000. The results probably won’t shock you.

The results are not seasonally adjusted.

We can observe an obvious decline in the past ten years. From the peak employment to the lowest, the change is about a decrease of 35%. That means the manufacturing sector has lost 35% of their jobs since 2000 (or about 658,000 jobs).

DUring the same period Chinese imports have increased. I chose China simply because of volume, a blog post on Chinese imports will come at a later date.

If someone wants they can do a correlation between the two data sets, although that would not be the most accurate measurement to develop evidence on Chinese imports vs. California manufacturing job loss.

Of course, there are some domestic changes that cause a decline in the manufacturing sector. Some of it attributed to demand (think of Michigan and the change in demand in cars and car parts), or in the case of California, sectors like technology have increased.

But do those increases attribute for the significant loss in jobs in the manufacturing sector? We know jobs have declined, what we haven’t tested is the change in wages during the same period. That’s perhaps another post for another time.

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