NCPA - National Center for Policy Analysis

Myth Of America's Declining Manufacturing Sector

January 20, 1999

People concerned about the decline of U.S. manufacturing should find something better to worry about, says the NCPA's Bruce Bartlett.

It is true that U.S. manufacturing employment has fallen sharply as a share of total employment, from 41 percent of all employment in 1950 to 20.1 percent in 1998.

Since manufacturing jobs have tended to pay more than service jobs, people assume millions of "good" jobs have disappeared. But many service jobs pay more than many manufacturing jobs. And taking account of benefits, job security, workplace safety and other factors, on balance service jobs compare favorably.

People also focus on manufacturing because of its sharp decline as a share of total output. In 1950, the production of goods accounted for 55 percent of the gross domestic product (GDP). By 1998, that figure had fallen to just 36.5 percent.

But this analysis looks at output in nominal (money) terms without adjusting for price changes. This is important because prices for manufactured goods have fallen relative to prices for services.

  • Looking at real (inflation-adjusted) goods production as a share of real GDP, one sees that not only has manufacturing not fallen, it has increased its share of GDP.
  • In 1950, real goods production accounted for 37.3 percent of real GDP, according to the Department of Commerce; last year it accounted for 39.8 percent.
  • Indeed, manufacturing hit its lowest share of real GDP in the early 1960s -- the "good old days" for many people -- and has risen almost continuously since.

When output rises while employment falls, the result is an increase in productivity. And according to the Labor Department, U.S. manufacturing productivity is now higher than in any other major country.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 20, 1999.


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