American Manufacturing Decline | Worse Than the Great Depression

“The conventional wisdom that U.S. manufacturing job loss is simply a result of productivity-driven restructuring (akin to how U.S. agriculture lost jobs but is still healthy) is fundamentally flawed” writes Robert D. Atkinson, Luke A. Stewart, Scott M. Andes and Stephen J. Ezel in  What the Experts Are Missing About American Manufacturing Decline .

Excerpts by JMM

The most obvious sign of U.S. manufacturing decline has been the loss of jobs. Job loss does not necessarily mean output loss and competitiveness decline, however.

To be sure, manufacturing job loss is not new. Some who deny the problem of U.S. manufacturing decline point to the fact that manufacturing’s share of total U.S. employment has been falling since the 1950s and that the absolute number of manufacturing jobs peaked in 1979. They argue that this loss of jobs reflects an inexorable and fundamentally positive trend away from manufacturing to services. We have become, the thinking goes, a “post-industrial economy.” Our world-leading job losses can be seen as a sign that we are the most advanced economy in the world, moving beyond all that commodity-based activity of actually making things. The American Enterprise Institute’s Kevin Hassett states, “Any economist can tell you that this decline (in manufacturing) is not necessarily a cause for concern…We have become an ideas economy.” Larry Summers, former director of the National Economic Council under President Obama, agrees, stating, “America’s role is to feed a global economy that’s increasingly based on knowledge and
services rather than on making stuff.”

Yet manufacturing job loss was relatively slow and modest until just the last decade. From 1980 to 1999, manufacturing jobs declined by an average of 0.5 percent per year. But from 2000 to 2011 the rate of loss dramatically accelerated, with manufacturing jobs shrinking at a rate nearly six times faster (3.1 percent per year) than the rate in the prior two decades. Manufacturing lost 5.4 million jobs for a decline of 31.4 percent. (Figures 1 and 2) The economy lost 13 times as many manufacturing jobs between 2000 and 2010 than between 1990 and 2000. On average, 1,276 manufacturing jobs were lost every day for the past 12 years.

A net of 66,486 manufacturing establishments closed, from 404,758 in 2000 down to 338,273 in 2011. In other words, on each day since the year 2000, America had, on average, 17 fewer manufacturing establishments than it had the previous day In the 2000s, U.S. manufacturing suffered its worst performance in American history in terms of jobs. Not only did America lose 5.7 million manufacturing jobs, but the decline as a share of total manufacturing jobs (33 percent) exceeded the rate of loss in the Great Depression. Despite this unprecedented negative performance, most economists, pundits and elected officials remain remarkably blasé about what has transpired. Manufacturing, they argue, has simply become incredibly productive. While tough on workers who are laid off, outsized job losses actually indicate superior performance. All that might be needed are better programs to help laid-off production workers. And there is certainly no need for a determined national manufacturing competitiveness strategy.

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Only two states—Alaska and North Dakota—saw less than double-digit declines in manufacturing employment (with only Alaska actually creating jobs), and in neither state is manufacturing a substantial part of the economy. Manufacturing in Alaska and North Dakota represents 1.7 and 2 percent of gross state product, respectively. The two states employ less than 20,000 workers combined. Even the third-best state in terms of manufacturing employment performance, Nevada, saw a loss of 11 percent of
manufacturing jobs.

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At the rate of growth in manufacturing jobs in 2011, it would take almost 11 years to returnto where the economy was in terms of manufacturing jobs at the end of 2007.

There is a major difference between restructuring and decline in a nation’s manufacturing sector. Manufacturing restructuring is required (higher productivity and a shift from lower-valueadded sectors to highervalue-added ones) for economic success. But decline is just decline…

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