The Decline in Manufacturing Jobs

The Economist takes a look at trends in manufacturing and service employment. The article argues that the trend towards a more service oriented economy is a good thing and nothing to be concerned about.  Since I didn't agree with that conclusion, I deleted all but the descriptive part of the article.  It's not clear to me that a shift of employment from manufacturing to services makes all workers better off, so I'm not willing to follow The Economist and conclude it is necessarily a good thing:

Industrial Metamorphosis, The Economist: For the first time since the industrial revolution, fewer than 10% of American workers are now employed in manufacturing. And since perhaps half of the workers in a typical manufacturing firm are involved in service-type jobs, such as design, distribution and financial planning, the true share of workers making things you can drop on your toe may be only 5%. ... Our figure of 10% comes from dividing the number of manufacturing jobs—just over 14m, say the latest figures—by an estimated total workforce (including the self-employed, part-timers and the armed forces) of 147m. In 1970, around 25% of American workers were in manufacturing. The share of manufacturing has also been falling in all other developed economies since 1970... (see chart 1).

Indeed, the actual number of manufacturing jobs has fallen by half since 1970. ... Most people today work in services: in America, as many as 80%. But this trend is hardly new. As early as 1900, America and Britain already had more jobs in services than in industry. Even at its peak, early in the 20th century, employment in manufacturing never exceeded one-third of America's workforce. What is new is the recent absolute decline in factory employment. Although manufacturing has long been shrinking as a proportion of America's expanding workforce, the number of industrial jobs stayed more or less the same between 1970 and the late 1990s. Since then, however, manufacturing employment has fallen in every year. Chart 2 shows that since 1996 the number of manufacturing jobs has shrunk by close to one-fifth in America, Britain and Japan. In the euro zone, the average loss has been only 5%. Similarly, manufacturing output has fallen as a proportion of GDP (measured in current prices)...

... Any analysis of labour-market trends soon gets bogged down in a statistical swamp. For instance, a small part of the fall in manufacturing jobs is a statistical illusion caused by manufacturers contracting out services. If a carmaker stops employing its own office cleaners and instead buys cleaning services from a specialist company, then output and employment in the service sector appear to grow overnight, and those in manufacturing to shrink, even though nothing has changed. More generally, the line between manufacturing and services is blurred. McDonald's counts as a service company, but a visit to any of its restaurants puts one in mind of an industrial assembly line, turning out cooked meat products. Similarly, an increasing slice of value-added in manufacturing consists of service activities, such as design, marketing, finance and after-sales support. Last but not least, Britain's number-crunchers stick The Economist, along with the whole publishing and printing industry, in manufacturing, even though almost all our staff are engaged in service-like activities...

Comments

[ken melvin]

The article hardly provides the big pictture one might hope for. Five thousand employed building cars at a Chrysler plant in 1970 meant lots and lots of jobs for others while these new 'manufacturing' jobs at MacDonald's? Doubtful. Not at all obvious to me as to how this service economy extends to one that creates wealth. More akin the dickey bird, or social parasite perhaps. Hardly a share and share alike. By the by, any relation between the service economy and savings rates, old chaps?

[calmo]

Thanks for the industrial countries' side of the international picture. The UK looks thoroughly serviced.
You figure ken that "share and share alike" is compatible with a free market economy where the shares are distributed according to one's efficiency?
Ok, neither do I. It's according to one's privileges (as the First Lady says) and failing that, prowess and ruthlessness (as Tom Delay proves).
In any case (such irrelevant details according to the privileged), the driving force is to get an uneven distribution of those shares to avoid that cardinal sin.
Socialism.
And then we have the post about communist China tackling it's problem of growing wealth disparities...

[Claus Vistesen]

In think this article can be seen in a couple of different perspectives which also guide my differentiated view on the points presented in the article.

Staying in the ivory tower of theory I think you cannot disagree with the fact that trade based on comparative advantage makes global output bigger as a whole. The individual social costs should obviously be concerned but I agree when the article pointing out the following ...

"Employment in rich countries will have to shift towards higher skilled jobs to maintain economic growth. Countries that prevent this shift taking place risk being left behind. Rather than block it, governments need to try to ameliorate the pains which change inflicts by, for example, retraining or temporarily helping those workers who lose their jobs."

The biggest criticism of this article is for stating the obvious. Globalization is not a new thing nor is the shift from industrial to service based labour. Now, the articles main points might be true but in my opinion it avoids the real sticky question concerning this topic. The developing world will not continue to be the manufacturing base for us in the "West"; they want in on the service pie as well and that is a far bigger challenge than losing the manufacturing business.

One of the many examples which mirrors this is the refusal of the Bolkenstein directive (service directive).

http://www.economist.com/displaystory.cfm?story_id=3747245

Although the dismissal of the directive probably had pragmatic intergovernmental grounds giving the fact that it was presented just before the French referendum it shows that the manufacturing industry is long lost and that services are threatened more than ever.

[Mark Thoma]

Claus - It gets me in trouble around here sometimes for saying so, but I should have made it clear that I support free/fair trade.

My complaint is as yours - we will not stop globalization, the economic tide will move where it wants to move - but we can do a whole lot better helping those who, through no fault of their own, have the costs of globalization thrust upon them.

And not everyone agrees, but I think education is a key component of our ability to compete and our recent disinvestment will cost us dearly in the future (but I am admittedly biased towards valuing education). I don't want to be the country that specializes in low wage jobs in either the manufacturing or service sectors...

[anne]

Important topic. I am less concerned than many about the real estate and construction boom that low long term interest rates stimulated since the jobs created about real estate associated activities have been a cushion to the continuing loss of manufacturing jobs. I keep wishing for a real estate boom in Germany. Japan used construction to cushion the economy through the slow growth decade.

[anne]

http://www.nytimes.com/financialtimes/business/FT20050704_15325_77200.html

July 4, 2005

Germans Lay Foundations for Property-Owning Boom
From Financial Times

Early last year, a letter popped through the door of number 25, Am Mühlkanal in the leafy Frankfurt suburb of Sachsenhausen.

Christina Schmickl, who rented the flat with her partner, opened the envelope with little enthusiasm, assuming it was another bank statement or some marketing bumph. What she found 'was quite a shock', the 20-something PhD student recalls. 'Deutsche Annington [our landlord] was offering to sell us our flat.'

A few months and meetings later, Ms Schmickl was the proud owner of a three-bedroom home in a desirable part of town for just €141,500 (£95,600). It is a tale being repeated across Germany in a trend that is transforming the way the nation lives. Within five to 10 years, property experts believe more than 60 per cent of Germans could own their own homes compared with barely 40 per cent now.

Germany's low level of owner occupation has deep cultural roots and was consolidated when the destruction of the second world war prompted the state and the country's big employers to rehouse the nation. But the budgets of federal and regional governments have been squeezed and companies have come under pressure to focus on their core businesses. The result has been a dramatic divestment of property, almost exclusively to foreign financial investors.

The pattern began in earnest in 2001 when Guy Hands, the UK entrepreneur who then worked for Japanese financial group Nomura, acquired 64,000 former railway workers' homes from the state. Ms Schmickl's flat was one. Last year came another big deal, when Fortress, a US private equity firm, bought Gagfah, a portfolio of 80,000 flats, from the state pensions administrator....

[anne]

There should be notice given the extent to which immigrants have participated in the construction boom through the country. Also, we should be concerned about the President's set aside minimum wage and equal opportunity hiring requirements for work done in re-construction along the Gulf Coast.

[dilbert dogbert]

deLong had a post a while back about how to balance our current account and other out of balance stuff and what stuck in my mind was that in one option balance would require a shift of about 10 million from services to export industries. Yikes! 10mil! Interesting contrast.

[David]

I don't think it's a choice between services or manfacturing, but rather importing [and running up the trade deficit] and exporting [paying off the trade deficit and/or creating a trade surplus]. As a service economy, we import, import, import...and borrow to the tune of $2 billion per day, 7 days a week. Over 2004 and 2005 ALONE, we will have run up about 1.5 TRILLION dollars in trade deficit. And, despite shifting currency values to the good, this deficit will probably continue to grow into the indifinite future. No service economy can pay off a trade deficit. Simply cannot be done. What happens when those loaning us the money to purchase their goods [our imports, their exports] stop loaning us the money? As they surely must. The day is approaching that the middle-classes of the industrialized nations will regret the day that they allowed the "unelected" leaders [CEOs]of the WTO to run their governments and therefore allow their manufacturing to go overseas, because by then, it will be too late.

[save_the_rustbelt]

NAFTA was sold to us with the promise of "high value service jobs," which has been a giant fraud.

Could the creation of so many low value service jobs have something to do with lagging real wages and and lagging real incomes? Well, duh.

The mad rush to increase trade has left many victims in its wake, and the basic vibe from Washington is

"let them eat cake."

[save_the_rustbelt]

"By the by, any relation between the service economy and savings rates, old chaps?"

The former manufacturing workers who are standing in line to file bankruptcy in the Rustbelt states have a very, very low savings rate (sarcasm intended).

"High-value service jobs" is a steaming pile of cow stuff.

[vorpal]

David has it right. What really matters is whether the product can be delivered on a world market, rather than a local market. All product is a service, just that when the service is a manufacturing service, it lends itself to exchange and trade.

The Saudi's are not going to trade their oil for a McDonalds hamburger cooked in Hoboken New Jersey.

since we are buying massive amounts of oil on the global market, we have to provide that same market with value commensurate with the oil we consume.

Victory will go to those net oil importers that are able to produce the most value for exchange on the global market.