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Concern About The Decline in Manufacturing in the United States?

From the Becker-Posner blog:

Manufacturing employment as a fraction of total employment has been declining for the past half century in the United States and the great majority of other developed countries. A 1968 book about developments in the American economy by Victor Fuchs was already entitled The Service Economy. Although the absolute number of jobs in American manufacturing was rather constant at about 17 million from 1969 to 2002, manufacturing’s share of jobs continued to decline from about 28% in 1962 to only 9% in 2011.

Concern about manufacturing jobs has become magnified as a result of the sharp drop in the absolute number of jobs since 2002. Much of this decline occurred prior to the start of the Great Recession in 2008, but many more manufacturing jobs disappeared rapidly during the recession. Employment in manufacturing has already picked up some from its trough as the American economy experiences modest economic growth, and this employment will pick up more when growth accelerates.

Still, if past trends continue, the share of American jobs in manufacturing will probably be lower in the future than it was even as late as 2007.  New and exciting technologies, like 3D printing, may bring back some manufacturing output to the United States since labor costs will be a lower fraction of the total cost of manufactured products based on these new technologies. However, these technologies are unlikely to offer many jobs since they are generally labor-saving, not labor-using, but the jobs will require skilled and better paid workers.

Commentators have always lamented a sizable fall in jobs in any large sector of an economy.  A prominent example is the huge decline in farm employment during the twentieth century in all developed countries. In 1900, about 40% of American jobs were in agriculture. This fraction continued to drop during that century, despite a host of special subsidies and tax breaks to the farm sector. Only 2.5% of the American labor force has worked on farms during the past couple of decades. The enormous advances in farm productivity are a major reason behind the disappearance of farm jobs. With about 2% of the labor force currently on farm, the US manages not only to provide the vast majority of food consumed by 300 million Americans, but American farmers have enough production left over to export large quantities to the rest of the world.

Big productivity gains in manufacturing are also a major cause behind the decrease in manufacturing employment in the US. Higher productivity lowered prices of manufactured goods relative to prices of services. Yet employment in manufacturing fell because the lower manufacturing prices did not stimulate a large enough increase in the demand for manufactured goods to offset the productivity increases of the manufacturing workforce.

A second obvious force reducing jobs in American manufacturing has been the growth in China’s economy and its exports of a large variety of cheap manufactured goods (which are a great boon to American and other consumers).  Since China did not become a major player in world markets until after 1990, exports from China cannot explain the downward trend in manufacturing employment prior to that year, but Chinese exports were important in the declining trends in manufacturing during the past 20 years. Finally, the recession cut jobs in all sectors of the American economy, but especially in factories and construction.

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