Reynolds on Manufacturing

Neil Reynolds has discovered that a fraction can be increased by reducing its denominator. Because labour productivity equals output divided by employment, he claims that “In manufacturing, you measure success by the number of jobs you eliminate.”

By definition, a given volume of manufacturing output produced by fewer workers implies higher manufacturing productivity. However, it does not follow that lost manufacturing jobs help the economy. If they are replaced by positions in the lower-productivity service sector, then the effect on economy-wide productivity is negative.

Reynolds also implies that the US has retained a large share of global manufacturing output because of American job losses. Through rising productivity, the US maintained output despite falling employment. However, US manufacturing output would be far greater if it had combined rising productivity with increased employment. This latter outcome should be Canada’s policy goal.