The Carrier deal in which Donald Trump negotiated with United Technologies to keep the company from moving jobs to Mexico continues to unravel. One of the terms of the deal was that Carrier would invest $16 million in its Indiana facility, but now it appears that much of that investment will involve automation that will ultimately cost many workers their jobs.
Trump had claimed that the deal would save “over 1,100” jobs in Indiana. Union leaders and Carrier had previously said that only about 730 manufacturing jobs would stay in the US as a result of the deal. Now it appears that many of those jobs have been saved only temporarily.
CNN Money reports that Greg Hayes, CEO of Carrier’s parent company, says that automating the plant is needed to keep it profitable. “We're going to...automate to drive the cost down so that we can continue to be competitive," Hayes said. "Is it as cheap as moving to Mexico with lower cost labor? No. But we will make that plant competitive just because we'll make the capital investments there. But what that ultimately means is there will be fewer jobs.”
Hayes had previously talked about the reasons for moving Carrier’s operations to Mexico on “Mad Money with Jim Cramer.” “We have a very talented workforce in Mexico,” he said. “Wages are obviously significantly lower. About 80% lower on average. But absenteeism runs about 1%. Turnover runs about 2%. Very, very dedicated workforce.” Mexican workers make about $3 per hour while Carrier’s US employees can earn more than $20 per hour.
“Automation means less people," Hayes said on CNN. "I think we'll have a reduction of workforce at some point in time once they get all the automation in and up and running." At this point, there is no indication of how many jobs will be lost when the plant automates.
Trump’s difficulties with Carrier underscore the harsh reality of the high tech economy. The biggest threat to manufacturing jobs doesn’t come from foreign workers, but from new technology and robots.
During the campaign, Trump frequently complained that “We don’t make anything anymore.” In reality, manufacturing is still the largest sector of the US economy according to Market Watch. China took the lead in manufacturing in 2010, but the US is still the second largest manufacturer in the world. US manufacturing output is near its all-time high.
The problem is that, while manufacturing remains strong, many manufacturing jobs, like those at Carrier, have disappeared. CNN reported that the US has lost 5 million manufacturing jobs since 2000. Some of these jobs were exported to other countries, but many were also lost to automation.
FiveThirtyEight described how rising wages and costs in China have inspired some companies to move their factories back to the US. The factories come back and contribute to the soaring US manufacturing output, but most of the jobs do not.
As the unemployment rate has fallen, many displaced manufacturing workers have shifted into other jobs. In the 1800s, American workers shifted from agricultural jobs to manufacturing jobs. Now another shift is underway from manufacturing to jobs in healthcare, construction and retail.
Manufacturing jobs won’t totally disappear, but they will be focused into areas where the US has a competitive advantage. Writing in the Wall Street Journal, Greg Ip points out that it wouldn’t make financial sense to keep Carrier’s furnace production in the US. The low tech product can be made more cheaply in Mexico or by robots. If Carrier persisted in using expensive Indiana labor to make these products, the company could eventually go out of business and the factory would close completely.
In contrast, another United Technologies company, Pratt & Whitney, builds high tech jet engines. The skilled labor required in manufacturing these jet engines cannot easily be farmed out to less developed countries or automated. In fact, Pratt plans to add 8,000 jobs in Connecticut over the next few years and, even before the Trump deal, UTEC had planned to offer retraining and new jobs with its aerospace companies to displaced Carrier workers.
The economy is changing and American companies have to be willing to change with it or perish. There is no way to put the genie of automation back into the bottle.
Originally published on The Resurgent