The Past and Future of Manufacturing Job Growth

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The Past and Future of Manufacturing Job Growth

Fewer Jobs Affect Apartment Market

By Louis Rosenthal | Wednesday, January 18, 2017

During the 2016 presidential election, President Donald Trump placed the return of manufacturing employment front-and-center in his campaign, vowing to return American manufacturing to its post-war Golden Age. However, a deeper look at manufacturing employment — and how it has changed over the last several decades — presents a more complicated picture, one that has major implications for the future of employment, economic growth and real estate fundamentals.

As of November 2016, about 19.7 million Americans were employed in the manufacturing sector. This represents a 13% decrease from the pre-Great Recession peak of 22.6 million manufacturing employees, and a 14% drop from 1994, the year the North American Free Trade Agreement (NAFTA) took effect. Whereas about 30% of all employees were in manufacturing in the mid-1950s, only 8.5% of all workers are in manufacturing today.

Share of Manufacturing Employees

However, despite falling employment levels, manufacturing output levels have grown dramatically, beginning in the early to mid-1990s. Using an index for employment and output levels, while the employment index fell about 28% since 1994, the output index has grown by an astonishing 51%.

Manufacturing Jobs vs. Productivity

In fact, falling employment but growing output levels in the manufacturing sector are two sides of the same trade-driven story. The factories that employed the most workers were the ones that went abroad, depressing overall manufacturing employment levels, but leaving behind the most productive and high-tech manufacturing jobs stateside. As a result, the typical American factory looks and operates very differently than it did back in the so-called Golden Age.

Regional economies were affected by these changes as worker-heavy industries moved out of the country. Textiles in the Northeast, furniture in the Southeast and automobiles and steel in the Midwest are a few examples. However, some regions or metro areas gained manufacturing jobs in the aerospace and energy industries (i.e. Seattle; Charleston, SC; Houston; Oklahoma City; Fort Worth).

An important corollary to the decline in manufacturing employment is the explosive growth in service-sector employment. As manufacturing employment fell by 14% from 1994-2015, service-sector employment grew by 33%. Today, more than 125 million workers are employed in service-sector occupations, representing about 86% of all employees nationwide. The services-providing sector shows no sign of slowing, with the BLS projecting a compound annual growth rate of 0.7% through 2024 — compared to essentially zero growth for goods-producing employment (which includes mining, construction and manufacturing jobs).

Goods and Services Employment

The challenge in modeling the impact of manufacturing employment at the national and sub-national level flows from the paradoxical relationship between growth and productivity: to grow the manufacturing sector in the US would mean increasing the productivity of US manufacturing — but productivity-enhancing measures typically mean automation. The more that manufacturing work comes to be automated, the fewer manufacturing employment opportunities there are — particularly among blue-collar workers.

The controversy surrounding manufacturing employment serves as a microcosm for a much more pernicious problem afflicting the U.S. economy: Productivity growth is in a historic slump, which in turn limits potential economic growth. 

Productivity Growth

In the immediate post-war years, American labor productivity grew, on average, by 2.8%. This was a time when new technological innovations spread throughout the globe, bringing some degree of automation to the manufacturing sector. This Golden Age fell apart in the face of the oil crisis and increasing foreign competition in manufactured goods. Productivity rates grew dramatically in the mid- to late 1990s with the arrival of computers and information technology. But this revival was short-lived and caused no shortage of anxiety about the loss of “Mom-and-Pop” retail establishments to big-box stores with fancy inventory-management technologies. Productivity rates were never able to match the 1990s surge, and since the end of the Great Recession, productivity growth has been exceptionally low.

When manufacturing jobs were plentiful, Americans without a college degree benefited greatly with rising incomes and living standards through the early 1970s. Now that manufacturing in the U.S. has moved toward high-technology and less labor-intensive production processes, blue-collar workers are increasingly left behind—often in lower income service-sector employment.

Lower incomes and declining living standards (to say nothing of the complicated political implications) reverberate throughout the economy. As we look ahead, one has to wonder what increasing automation in service-sector employment (whether that be in retail establishments or accounting firms) would mean for the broader economy.

Louis Rosenthal

Louis Rosenthal

Real Estate Analyst

Louis Rosenthal researches and analyzes current apartment trends in the United States and correlates them with economic indicators. He also studies the urban landscape and other metrics to develop in-depth reports and presentations for clients. Louis recently earned his Master of Science in Public Policy, focusing on housing, landuse patterns, real-estate dynamics and economic development. He combines that knowledge with his four years of practical experience in tax analysis, regression analysis and presentations to develop insightful analysis. An accomplished writer, Louis’ work has appeared on Forbes.com and Axiometrics’ blogs, among others.

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