Job Decline in US Manufacturing — Uncovering the Driving Factors
A lot is going on in the news these days. Still, there was a particular story that stood out the most for me. It made a case for how past mistakes in manufacturing ended up costing millions of jobs in America to this day.
According to the story, the shift started with the move of American manufacturing operations overseas. As companies reaped the benefits of lower labor costs and fewer regulations, an unfillable void was left behind. Because of that, a ripple effect went through our economy. Many factories closed down. Once-employed workers lost their jobs. Other countries saw an opportunity to take our spot.
In fewer words, outsourcing was the appointed culprit.
As a consultant for the manufacturing industry, I was curious to confirm if outsourcing was really to blame for the loss of jobs in America. Or dig out if there were overlooked factors in the equation. After all, manufacturing has seen significant change over the last few decades. Just like the rest of the world.
Keep reading to learn about my findings.
US manufacturing: A brief history
US manufacturing has faced several challenges throughout its history. Let’s go over some important milestones.
1950s: US manufacturing took off after World War II. Our dominant position in the global market had limited competition. Manufacturing jobs accounted for about 30% of total employment.
1980–1985: There was a precipitous decline in US manufacturing jobs. The rise of global competition, especially from Japan and other Asian countries that offered cheap, high-quality products, was on the front end. Recession and stagflation did their part too.
2001–2009: A new decline happened. The combination of globalization and automation created a structural change in the US manufacturing sector. It shifted from a labor-intensive to a capital-intensive industry. Globalization increased the integration of markets. US manufacturers faced competition from low-cost foreign producers like China and Mexico. Regarding Automation, manufacturers started to produce more output with fewer workers as the technology displaced those employees who lacked the skills to adapt.
2010-2019: The sector had a mild recovery, partly driven by a stabilization of the US share of global manufacturing output and exports. A shift toward more advanced and high-value-added manufacturing activities was beneficial too.
2020-2021: The COVID-19 pandemic brought a new set of hurdles. Lockdown, labor shortages, rising inflation, trade tensions, cybersecurity risks, and supply chain disruptions created job deficits. Increased domestic demand, government stimulus programs, and reshoring initiatives brought resilience to the industry and its job market.
Latest US manufacturing indicators
I compiled information about critical indicators for the US manufacturing industry: GDP, output, and labor force size. They would be my starting point to analyze if outsourcing was the most critical cause of job losses in manufacturing.
My study’s time frame goes from 1997 to 2021. The data utilized is displayed in the charts below.
Fig. 1. US Manufacturing Industry GDP and Output from 1997 to 2021 (source: MacroTrends.net)
The main takeaways from the indicators examined are as follows:
GDP lowered by 5.38% (16.09% to 10.71%)
Output grew by 81% ($1,379.89 billion to $2,497.13 billion)
Private sector worker figures shrank by 5.26 million (19.96 million to 14.70 million)
While the contribution to the GDP decreased over the 24-year span, the output did not
Accounting for inflation, an output of $1,379.89 billion in 1997 equals $2,329.65 billion in 2021.
The output surplus of $167.95 billion shows our manufacturing operations aren’t as tanked as they make them out to be, in spite of having fewer workers in service.
I was unable to draw a connection between outsourcing and the loss of millions of jobs based on these findings. So, I turned my attention to another element that could’ve had an important bearing on the decline in manufacturing jobs.
The rise of automation
The Brookings Institution, a nonprofit organization focused on the analysis of public policy issues, studied the impact of automation on the US economy. Their results reflect that:
About 88% of the manufacturing jobs between 2000-2018 were eliminated due to automation instead of trade with other countries
Workers with lower levels of education, skills, and wages were the most affected
Regions and industries with less economic resilience were more vulnerable
Other sources claim the job losses in the manufacturing industry due to automation deployment range anywhere from 1.7 million to 7.2 million. If we averaged the different figures, we would be talking about a whopping 4.45 million job losses due to the growth in automation deployment. Give or take, around a third of the total.
Trading and manufacturing jobs in the US
At last, I wanted to analyze the impact of trade on the loss of US manufacturing jobs. Specialists on the subject say the type of agreement and the trading partner define the outcome. For example, some studies have found that the North American Free Trade Agreement (NAFTA) had a small net positive effect on US manufacturing jobs, while China’s entry into the World Trade Organization (WTO) had a large net negative effect.
Insights show trading has cost about 2.4 million manufacturing jobs. Though significant, it seems as if it might be a close second culprit in the job decline in US manufacturing. Automation being the first.
Is outsourcing to blame for the decay of US jobs?
After looking at the evidence, I don’t think so.
Various economic, technological, and political factors have influenced the US manufacturing boom and bust cycles. Beyond outsourcing, globalization, automation, and trade deficits also seem to be the protagonists that have led to a loss of market share and jobs.
Automation’s larger impact cannot be denied. In today’s climate, along with the massification of AI, many wonder if these technologies are a threat or a blessing for the US economy.
To that, I can only say that I believe automation and AI are realities that require careful analysis and proactive action. By understanding its impact on the US economy and its workers, we can prepare for it accordingly and harness its potential for growth and prosperity while minimizing the risks of disruption and inequality.
I hope you found this article helpful.
For a consultation or technical support, contact Verdusco Consulting, your direct connection to automation professionals.
