NCPA - National Center for Policy Analysis


October 25, 2005

Many Americans believe that the United States is undergoing deindustrialization. They note that fewer than 10 percent of American workers are now employed in manufacturing; down from 25 percent in 1970. A recent article from the Economist argues that the United States is a major manufacturing power that is simply transitioning through an industrial phase of economic development.

According to the author, the United States is not a declining industrial power because:

  • Real output in manufacturing has been growing at an annual pace of almost 4 percent since 1991, faster than overall gross domestic product (GDP) growth.
  • Despite China being widely acclaimed as the new workshop of the world, America remains the world's biggest manufacturer - producing twice as much as China.

Likewise, the U.S. economy is not losing production, but employees:

  • The number of manufacturing jobs shrunk by nearly one-fifth between 1996 and 2004.
  • However, all developed countries have lost industrial jobs in the last decade.
  • Even China lost industrial jobs - between 1995 and 2002 the number of such jobs fell by 15 million.

The author argues that a declining number of industrial workers is a natural phase of economic development. As countries get richer, it is inevitable that a smaller proportion of workers will be involved in manufacturing. Rich nations buy fewer goods (automobiles and refrigerators) and purchase more services (education and health care). Additionally, they can more easily automate manufacturing processes than services.

In fact, large manufacturing sectors may be a symptom of economic weakness in developed countries. Countries like Germany and Italy protect their manufacturing industries with employment-protection laws and red tape that discourage the creation of jobs in services. This retards economic growth and creates bigger problems in the future.

Source: "Industrial metamorphosis - Manufacturing employment," The Economist, October 1, 2005.

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