Do we really want more manufacturing jobs?

There's just one problem with this: none of us do it, including the very people who say they love manufacturing.

The mantra we hear from politicians is that manufacturing offers "good, well-paying, stable jobs". So, why don't more of us quit our service jobs and go work in manufacturing?

One reason is that the political mantra is wrong.

When we look at earnings by industry, manufacturing is one of the lowest.

Professional services pays 30 per cent more than manufacturing. Information, media and telecommunications pays 41 per cent more. The average industry pays 11 per cent more.

The idea that manufacturing provides stable employment similarly doesn't stack up.

Manufacturing is about average when it comes to the percentage of workers who are casuals. When we look at the rate at which people change jobs, manufacturing again sits around the average.

If a "good job" is a safe job, manufacturing again doesn't do well.

The average fatality rate - the number of deaths that occur for every 100,000 workers - was six times higher for manufacturing in 2022 than it was for professional services.

Some of our love for manufacturing is rational, but a lot of it is based on irrational psychological biases.

The rational reason we love manufacturing is that it reduces our dependency on other countries. These countries can be unreliable, either intentionally (think: China's trade restrictions) or unintentionally (think: COVID-19).

But even this is not entirely rational. If you crunch the numbers, like the Productivity Commission did, we usually have lots of options in where we get products. When we are dependent on a single country, it tends to be things like Christmas lights - hardly an essential good.

There are even more irrational reasons why we like manufacturing: psychological biases. One of them is loss aversion. This is where we tend to put more weight on the things we lose than the things we gain.

More than 240,000 jobs have been lost in manufacturing since 1990. Back then, 14 per cent of the workforce was employed in that sector. It's less than half that today.

These statistics fill many Australians with horror. But to look at manufacturing without looking at the rest of the economy is to look at the problem with only one eye open.

While 240,000 jobs have been lost in manufacturing since 1990, more than five million jobs have been created elsewhere in the economy.

Almost 1.1 million jobs were created in healthcare and social assistance alone. More than 800,000 jobs were created in professional, scientific and technical services. Almost 600,000 jobs were created in construction.

While the employment share of manufacturing has halved since 1990, the employment share has doubled in almost every services industry. For professional, scientific and technical services, the employment share has tripled.

This transition from manufacturing to services might be surprising, even scary, to some. For economists, it's about as mysterious as a blocked toilet is to a plumber.

This is because, with few exceptions, every economy moves through these phases as it becomes richer.

Economies start with agriculture as their dominant sector. As they develop, they move into manufacturing. As they develop even more, they move into services.

Just look at China. China's economy was dominated by agriculture before the 1980s. After the market-based reforms of the 1980s, the economy shifted in to manufacturing. And now, like clockwork, manufacturing is in steep decline. The manufacturing sector's share of the economy in China has fallen by almost a fifth since 2012. More and more of its economy is becoming services based.

Lamenting the decline of manufacturing is a bit like lamenting the day your child starts walking. Reminiscing about how cute they were when they could only crawl is one thing. Trying to recreate those days is weird.

The other psychological bias which underpins our love of manufacturing is the tangibility bias. You can touch products. You can feel them. You can't really touch and feel services. This biases us towards valuing products more than services.

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When we get a coffee, we think about how the cardboard cup was probably made in China, how the coffee was probably grown in Latin America, ignoring that almost all the value was generated by the Australian service worker standing right in front of you.

None of this is to say that Australia won't see an increase in manufacturing in the future, including with higher wages and conditions.

If renewables push down energy prices enough, the productivity increase could well see a boom in manufacturing output and wages.

But the key word is here is productivity. A manufacturing boom driven by anything other than productivity is unlikely to be sustainable.

So, the next time you wish we made more things in Australia, ask yourself why you don't simply quit your services job to go work in manufacturing? You might be less rational than you think.