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Saturday, October 01, 2005

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...

    Posted by on Saturday, October 1, 2005 at 02:29 AM in Economics, Unemployment | Permalink  TrackBack (2)  Comments (12)


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    » Another view of the shift from manufacturing from Worthwhile Canadian Initiative

    Mark Thoma of Economist's View is unconvinced by the optimistic tone of The Economist's article on the shift from manufacturing in rich countries. As he notes in his comments page, he's aware of the gains from trade, but he's also [Read More]

    Tracked on Saturday, October 01, 2005 at 07:27 PM

    » The Decline in Manufacturing Jobs from The Theroxylandr in Flame

    This article worries about the decline of manufacturing jobs in US and the shift to services. Indeed, it seems like the manufacturing is the real meat of the economy, while services are just the creaming on top. But you forgot one important detail ��... [Read More]

    Tracked on Saturday, October 01, 2005 at 09:40 PM


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