Thread by @hamandcheese

Manufacturing reshoring requires strong labor markets and a skilled workforce.

My new essay for @AmerCompass therefore makes the case for a comprehensive system of employment and training programs.

Check it out here:
americancompass.org/essays/on-work…

US manufacturers employ more workers in China than in Mexico, and own more valuable property, plants, and equipment in China than in any foreign country besides Canada.

Why did China become the biggest offshore market for the US?

Cheap labor? or a very particular set of skills?

China's skilled workforce represents what @delong calls "communities of engineering practice."

Communities of practice maintain process knowledge, or know-how, that can't be easily written down.

As @danwwang argues, rebuilding those communities is key.
bloomberg.com/opinion/articl…

Labor market policy is central to industrial policy.

Reshoring strategies based on tax incentives, local content requirements, or R&D will only go so far if, at the end of the day, our shiny new factories have “help wanted” signs on the door.

As @rodrikdani has long argued, offshoring (& globalization broadly) increases the "own-wage elasticity of labor demand."

Jargon-free: Offshoring makes employment & wages more responsive to shocks, fueling job insecurity.

Strong labor laws, conversely, can reduce offshore risk.

As @davidautor has explained, labor relations are key to understanding “why the ‘China Shock’ was so shocking” in the first place.

US manufacturers moved south in the 70s & 80s to take advantage of lower taxes, weaker unions, & non-college educated labor.
piie.com/system/files/d…

The US could use stronger unions and employment protections. But we could get many of the same benefits by keeping labor demand high.

Tight labor markets force businesses in need of workers to raise wages, invest in the labor productivity, or recruit disadvantaged workers.

Active Labor Market Policies can help keep labor markets tight, and come in many forms: Job search assistance, employment subsidies, work sharing arrangements, retraining programs, etc.

Yet the U.S. spends only 0.10% of GDP on ALMPs, the lowest of any OECD country after Mexico.

As @jasonfurman's CEA noted, our low rate of ALMP spending is the result of a steady erosion that began in the 1980s, and which correlates well with steady declines in prime-age labor force participation.
obamawhitehouse.archives.gov/sites/default/…

Denmark spends over 1.9% of GDP on ALMPs and has the most dynamic labor market in the world. Robust income support and retraining programs help them stay globally competitive.

The U.S. would need to increase spending on ALMPs by ~$100 billion / year just to hit the OECD average.

Well-designed ALMPs can be both protective of the industries we have and attractive to the industries we might hope to reshore.

But their effectiveness depends on ensuring the underlying workforce development programs are both comprehensive and coordinated with private industry.

Workers retrained through Trade Adjustment Assistance, for example, cumulatively earn $50,000 more than their non-TAA trained counterparts over ten years.

One third of this effect is driven by higher wages, suggesting workers gain real human capital. papers.ssrn.com/sol3/papers.cf…

Unfortunately, TAA eligibility is restricted to workers who can demonstrate they lost their job due to international competition or outsourcing. Establishing that kind of causation is a challenge for the world’s top econometricians, much less your typical blue-collar worker.

A comprehensive system would integrate otherwise effective training programs directly into federal-state UI, expanding eligibility to the universe of dislocated workers.

The same systems used to reemploy dislocated workers could then be aligned w/ broader development strategies.

While “creative destruction” may be an inevitable feature of capitalism, the disposability of our skilled workforce is not.

With Great Depression-levels of joblessness, the United States needs a comprehensive approach to re-employment and retraining now more than ever.

Among the best proposals out there is @RonWyden's ELEVATE Act.

It would create a flexible funding stream for states to implement subsidized employment programs that automatically expand following a regional or national downturn. niskanencenter.org/the-elevate-ac…

We have a once-in-a-generation opportunity to reset our labor market around a new equilibrium.

Rather than take the low road on wages and productivity, we can bridge workers into apprenticeships, trades, and transitional jobs conditioned on job quality, training and retention.

Through industry partnerships, we can retrain workers for the jobs we want, not merely for the jobs we already have.

In doing so, we can plant the seeds for new communities of engineering, scientific, & vocational excellence to grow in our own backyard.🧑‍🏭 americancompass.org/essays/on-work…