Understanding the Decline of U.S. Manufacturing Employment

01/15/2018

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Susan N. Houseman

The manufacturing sector experienced a precipitous and historically unprecedented decline in employment in the 2000s, which coincided with a surge in imports, weak growth in exports, and a yawning trade deficit. The plight of U.S. manufacturing featured prominently in the 2016 presidential election, with candidates Donald Trump and Bernie Sanders arguing that globalization had severely damaged U.S. factories. This argument resonated in many American communities and may have played a role in the election of President Trump. Countering this view, many economists, policymakers and pundits cite manufacturing output and productivity statistics to assert that American manufacturing has never been stronger. They point out that although manufacturing employment had been relatively stable before 2000, its share of U.S. employment had been in decline for decades. Often making analogies to the agricultural sector, they contend that automation, not globalization, largely explains manufacturing’s relative employment declines and steep job losses in recent years. This perspective often is presented as the consensus view among economists and taken as fact in media reports. Typical is a New York Times article published in late 2016 in which reporter Binyamin Appelbaum asserts, “From an economic perspective . . . there can be no revival of American manufacturing, because there has been no collapse. Because of automation, there are far fewer jobs in factories. But the value of stuff made in America reached a record high in the first quarter of 2016, even after adjusting for inflation.” Regardless of whether the view represents a consensus, it reflects a misreading of the data and research evidence. The apparently robust growth in manufacturing inflation-adjusted (real) output and productivity are driven by a relatively small sector—computers and electronic products, which account for only about 13 percent of value-added in manufacturing. Without the computer and electronic products industry (hereafter referred to simply as “the computer industry”), real GDP growth in manufacturing was less than half that of the private sector average from 1979 to 2000, and only 12 percent in the 2000s. And without the computer industry, manufacturing labor productivity generally has been no higher or only somewhat higher than that of the private sector. The computer industry, in turn, is an outlier and statistical anomaly. Its extraordinary output and productivity growth reflect the way statistical agencies account for improvements in selected products produced in this industry, in particular computers and semiconductors. Rapid productivity growth in this industry—and by extension the above-average productivity growth in the manufacturing sector—has little to do with automation of the production process. Nor is extraordinary real output and productivity growth an indicator of the competitiveness of domestic manufacturing in the computer industry; rather, the locus of production of the industry’s core products has shifted to Asia. Manufacturing’s declining employment share has mirrored its declining share of output (nominal GDP) and to a large degree reflects the fact that, in most manufacturing industries, there has been relatively little growth in the amount of goods made in American factories for the past 40 years. The recent precipitous decline in manufacturing employment is a distinct phenomenon, and a growing body of research examines whether—and the extent to which— international trade can explain it. Although none of the studies comprehensively examines the various mechanisms by which trade and the broader forces of globalization may impact employment, collectively they find that trade has played a significant role in the collapse of U.S. manufacturing employment in the 2000s. In contrast, research to date finds no support for the hypothesis that automation was responsible. In the remainder of the paper, I elaborate on these points. I close with a brief discussion of the consequences of the large job losses in manufacturing for workers and regional economies and consider lessons for policy. View the full report here: mfg-decline

Susan N. Houseman is Senior Economist at the W.E. Upjohn Institute for Employment Research.

 Copyright © 2018 W.E. Upjohn Institute for Employment Research.  All rights reserved.

The report was originally posted here.