Concern About The Decline in Manufacturing in the United States? Becker

 

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.

President Obama, in his State of the Union address, advocated special tax breaks and support for the manufacturing sector. I do not see any more convincing case for subsidies to manufacturing than there was for the special treatment of agriculture during the long decline in farm employment. Most of the arguments made in support of privileges for manufacturing could be made for services and other sectors of the economy.  For example, although certain manufacturing industries have had high rates of productivity advance, so too has mining, such as through the development of fracking techniques. The most important technological advance of the past several decades has been the computer and the Internet, for these gave birth to email, word processing, apps, online sales, and social networks like Facebook and Twitter.

Instead of singling out manufacturing for special privileges, the government should get behind certain general policies. High on the list would be raising the rate of growth of the American economy, for this will tend to create jobs in most sectors of the economy. More government support may be justified for basic research in science and other areas that would also benefit all sectors, not just manufacturing. Local and state governments, along perhaps with the federal governments, could try to reduce the dismally high dropout rates from American high schools. Dropouts have trouble finding good jobs even in the best of times, and they suffer the most during recessions.

Many other steps can be taken to help the American economy, especially by limiting the growth of entitlements and the federal budget. None of the steps to improve the economy involve favoring manufacturing employment and the manufacturing sector. The call by many for special treatment of manufacturing jobs is basically misguided.

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This seems to be the problem as technology becomes more and more readily available, not to mention cheaper and less risky to use. More and more manufacturing companies are using a capital intensive program rather than a labor intensive one. They only apply skilled labor to operate machinery. Skilled labor pays higher but it requires a lower number of laborers. This has always been the trade-off. And as said by economists, nothing we do to increase efficiency and profitability ceases to create trade-offs. These trade-offs may be seen in the environment, in the labor market as well as other sectors.

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Did You Know...

The United States is the world's largest manufacturing economy, producing 21 percent of global manufactured products. China is second at 15 percent and Japan is third at 12 percent. 1

U.S. manufacturing produces $1.7 trillion of value each year, or 11.7 percent of U.S. GDP. For every $1.00 spent in manufacturing, another $1.35 is added to the economy. 2

Manufacturing supports an estimated 17 million jobs in the U.S.—about one in six private sector jobs. 3 Nearly 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing. 4

In 2010, the average U.S. manufacturing worker earned $77,186 annually, including pay and benefits. The average non-manufacturing worker earned $56,436 annually. 5

U.S. manufacturers are the most productive workers in the world—far surpassing the worker productivity of any other major manufacturing economy, leading to higher wages and living standards.

U.S. manufacturers perform two-thirds of all R&D in the nation, driving more innovation than any other sector. 6

Taken alone, U.S. Manufacturing would be the 9th largest economy in the world. 7

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