The “Deindustrialization of America”, in Pictures

From Donald J. Trump, March 14, 2016:

…under decades of failed leadership, the United States has gone from being the globe’s manufacturing powerhouse — the envy of the world — through a rapid deindustrialization…

Here is a graph of real value added in manufacturing and manufacturing employment, 1967-2015.


Figure 1: Real value added in manufacturing (blue, left log scale), and manufacturing employment (red, right log scale). Source: BEA and BLS via FRED.

Note that 2015 real value added in manufacturing essentially matches that recorded in 2007, even while employment is 11% lower. That, mechanically, is the outcome of high productivity growth in that sector.

One way which manufacturing employment can be increased is by decreasing productivity levels. That in turn can be accomplished by stifling trade in intermediate goods which is associated with production fragmentation/development of global value chains. And that can happen with relatively small increases in tariff rates…Needless to say higher employment accomplished in this manner need not be welfare-increasing.

Of course, if overall manufacturing output declines due to foreign country retaliation against the imposition of tariffs, then employment still might decline.

Update, 12/1 11AM Pacific: One thing that needs to be kept in mind is that while there is a trend decline in manufacturing as a share of total value added, in real terms it is not as pronounced as it might be thought; and the current ratio is not far off a linear trend estimated over the entire 1947-2015 period.


Figure 2: Log ratio of real value added in manufacturing to total, normalized to 1967=0 (blue, left scale), and manufacturing employment as a share of total nonfarm payroll (red, right scale). NBER defined recession dates shaded gray. Source: BEA, BLS via FRED, NBER and author’s calculations.

35 thoughts on “The “Deindustrialization of America”, in Pictures

  1. Drew

    According to your graph since 1995 5+million people lost their jobs in manufacturing. Perhaps THIS is more of the “deindustrialization” hes referring to…

    Not sure why people keep quoting politicians and then pointing out that their rhetoric doesn’t match reality. It comes off as extremely lazy and naive. Actions>Quotes

    1. Menzie Chinn Post author

      Drew: I didn’t say there was no de-industrialization, just that value added statistics did not bear out that proposition. I then merely pointed out trying to increase drastically manufacturing employment could be counterproductive. I apologize if those observations annoyed you. I would welcome a comment that highlighted an error in those statements, or provides further insights into the foregoing observations. Thank you in advance.

      1. Drew

        Your post has really important points and you are absolutely right about manufacturing. When you point out the issues with certain governnors policies, your points are solid. HOWEVER i feel like you really glossed over millions of people losing their jobs and picked a random statement a candidate said half a year ago. Politicians say ridiculous stuff all the time. Its when they enact ridiculous policies that it really matters. (Also, props to you for calling out ks gov dumb policies)

        1. Menzie Chinn Post author

          Drew: For a long time, I’ve advocated enhanced trade adjustment assistance, see here. Where were the Republicans then? They were trying to cut funding for such programs…

          1. m

            True enough.

            But enhanced trade adjustment assistance does not sell as well as “i’ll help you keep your job by opposing the policies that would take it away.”

            And once the jobs are gone, “adjustment assistance” does not sound as good as “I’ll get your jobs back” (even if untrue) or “here is a new and better job.”

            Let’s rearrange the deck chairs and tell silicon valley and hollywood that the US government will no longer pursue copyright protections for them in trade deals, but it will instead offer them “patent piracy adjustment assistance.” They”ll scream bloody murder.

    2. Mike v

      That’s the definition of productivity. That’s what market economies do – allocate resources efficiently. The point is that you cannot have it both ways. High manufacturing productivity and high employment will never happen.

      1. Bellanson

        As much as I agree with your basic premise I do want to point out that we’ve had periods of both: Manufacturing productivity and high (manufacturing) employment. Case in point: during the post WWII rebidding of “the world”. I would personally also point to the late -90’es build out of the Internet.
        And that points to the necessary condition for “Having it both ways” – you need some kind of transitory advantage for a given country (e.g. the US)
        The US could “re-industrialize” if we invented some kind of innovation. We would then have to continuously innovate – sort of “surfing on the innovation wave”.
        Silicon Valley has proven that this is possible (but difficult). It requires exactly the opposite of what people are comfortable with: rewarding education, accepting immigration……
        This isn’t easy, but it *is* possible – IF you are willing to create the conditions that rewards and encourages hard work, innovation, acceptance of change and a slew of other things that are very uncomfortable.
        I might add that “balance” is important: too much immigration/innovation/change is bad but too little is equally bad.

        1. Mike V

          Ok, but you understand how ridiculous it is to compare the immediate post WWII period to today, right? The entire modern industrial world *except* for the U.S. was destroyed, and there was an huge population boom in the U.S. A lot has changed since then and the world is better in nearly every way.

          And I think you are missing the point that it simply requires much much fewer people to create products now. Back then, $1million worth of manufactured goods took 25 jobs; today $1million worth of manufactured goods requires less than 5 jobs, and that number will keep shrinking (unless we intentionally reduce productivity which seems to be what some people are advocating).

          I’m skeptical that there is a real disincentive to work hard work or innovate in the U.S. (tax reform might help that slightly). This country still works longer and harder than any other and still ranks highest in patents and innovation. Acceptance of change is definitely a problem, but the change we need to accept should not take us backwards.

  2. dilbert dogbert

    Another way to increase manufacturing jobs is to redefine what manufacturing is. Leaf raking, Picking up trash, Mowing lawns, Blowing leaves. Making lattes, Yoga instruction, Career counseling – and the list goes on. I expect some of these will be added to the manufacturing job force.

    1. Erik Poole

      “Blowing leaves”

      Blowing leaves creates dust and invisible airborne particulate matter that could hurt people with COPD and similar.

      Come to think of it, why not lower environmental standards, kill off old and sick people faster than otherwise might be the case, and thus ‘stimulate’ the economy by freeing up all those resources currently devoted to the unproductive members of America’s exceptional society.

      Make America great again by killing off the sick, the feeble, the old.

  3. PeakTrader

    Currency manipulation, little regulation, that’s not even enforced, low effective taxes, corruption, and slave labor can make a country much more competitive in manufacturing compared to the U.S..

    The hidden downside of Santa’s little helpers
    The Irish Times
    December 21, 2002

    “An investigation into the price of a Mattel Barbie doll, half of which is made in China, found that of the $10 retail price, $8 goes to transportation, marketing, retailing, wholesale and profit for Mattel.

    Of the remaining $2, $1 is shared by the management and transportation in Hong Kong, and 65 cents is shared by the raw materials from Taiwan, Japan, the U.S. and Saudi Arabia. The remaining 35 cents is earned by producers in China for providing factory sites, labour and electricity.

    China now makes 70 per cent of the world’s toys, and its exports have doubled in just eight years. In addition, it exported nearly a billion dollars’ worth of Christmas-related goods, half of it to the United States.

    Toy factories hire the least-skilled workers…Sixty per cent are young women between 17 and 23 years old who live cramped in company dormitories, 15 to a room, earning just 30 cents an hour and often inhaling spray paints, glue fumes and toxic dust.”

    Full article:

  4. Ace Luxley

    Maybe. I take it as a reference to the fact that manufacturing share of GDP has been steadily declining, something like 4 percentage points over the past 20 years. Would it not be a wise goal to try and maintain some share at a healthy balance? Germany has accomplished this feat and as a result has weathered many economic storms over the past decade.

  5. bean

    Just looking at this graph brings up questions. Why doesn’t it appear that there is some correlation between employment and value added [productivity]? Up to 2000-2001 value added is steadily increasing with reasonably steady perhaps slightly declining employment. At that point, value added continues to increase at a reasonably steady rate but there is a precipitous decline in employment after 30 years of reasonably stable employment.

    What happened in 2000 that caused the manufacturing employment to suddenly decline? Is it an unrelated cause that can be reversed?

    1. Bellanson

      3 things of note happened:
      1. Dot-com implosion (recession)
      2. Election of G W Bush/massive tax cuts
      3. 9/11

      I take no position on what, if any, was influencing the manufacturing employment. I will notice, however, that in Silicon Valley it became impossible to get funding for a new start-up, unless you promised to outsource the development to India, which lends credence to the theory that US industry and US finance decision-makers decided that it was in their best interest to “De-industrialize” America

      I think of this as “The revenge of the bean-counters”

      1. baffling

        the bush era ushered in the primacy of profits above all other elements. the free market ideologues won the argument that any action resulting in improved profits was economically justified, and such actions should not be challenged. you see the results in the graph. this is why trickle down economics does not work in practice.

  6. david

    I think the problem is that we lost retail goods and electronics technology, which are really the wave of the future. Our top manufactured product? Refined petroleum products. We are selling off our assets with ever increasing productivity, and thinking that is a good thing. And it really isn’t. I think our remaining leadership is in aircraft. Once we lose that, it will be all over.

  7. Erik Poole

    On a more serious note…..

    …. perhaps Americans should be asking themselves the following question:

    How are other rich developed countries managing the structural economic change that has come with the de facto globalization of the labour market?

    Can the USA learn from these other countries?

    It is kinda embarrassing when ya think about it. There are all these small countries with small stable populations and labour forces that are maintaining material standards of living comparable to and in some cases better than that of the USA.

    Maybe President-elect Trump is on to something when he insinuates that American entrepreneurs and workers need affirmative action programmes?

    1. DC

      How are other rich countries managing structural change?

      They aren’t. Even Germany has done terribly in economic terms the past 10 years relative to the 50 years before that. Southern Europe? Awful. Japan? Terrible.

  8. 2slugbaits

    I think I’ll demand $7 million from Menzie and JDH; otherwise I’ll move my web clicks to zerohedge.

    1. PeakTrader

      Unless you’re already in the process of moving to Mexico, you’ll get a 35% tariff instead.

      1. baffling

        peak, seems like you are in favor of a managed economy and crony capitalism. carrier did not stay because they were offered $7million dollars-they saved more than that with the proposed move. they stayed because their billions of dollars in defense contracts at united tech were threatened by trump-for political gain. pay for play does not bother you?

        1. PeakTrader

          Baffling, how do you know Trump threatened United Tech with defense contracts? Governments manage economies, and Trump managed to keep Carrier jobs in the U.S.. That’s not crony-capitalism.

          1. baffling

            peak, carrier would have saved much more money had they moved to mexico. if obama would have made this move, you would have been howling about executive overreach. it is crony capitalism. only a hack would argue otherwise.

          2. PeakTrader

            Baffling, how do you know Carrier would’ve saved more money moving to Mexico with lower corporate taxes, less regulation, and a 35% tariff? Did I ever say anything about executive orders? Did Carrier seek favoritism from Trump or did Trump set a policy for all American companies? Making things up doesn’t help your case.

          3. baffling

            “”There was a cost as we thought about keeping the Indiana plant open. At the same time, and I’ll tell you this because you and I, we know each other, but I was born at night, but not last night. I also know that about 10 percent of our revenue comes from the U.S. government”

            this is a statement from the ceo of united tech. he has concern for his government contracts if the plant does not remain in indiana. this is crony capitalism-or worse. as i said peak, only a hack would defend the “deal” that was made and business as usual. sets a poor precedent.

            “did Trump set a policy for all American companies?”
            i guess the policy is let the government pay off select companies to remain within the border. great policy. is this deal available to all businesses? or simply those for which trump can generate pr? crony capitalism-good old boy network style.

  9. PeakTrader

    Unlike Western Europe, the U.S. economy shifted much faster into the Information Revolution, high-tech manufacturing, and into a consumption-based economy. The U.S. leads the world in the Agricultural-Industrial-Information-Biotech Revolutions. Roughly half of the top 500 Information and Biotech Revolution firms in the world are American, and the largest are mostly American. The U.S. leads the rest of the world combined in the Information and Biotech Revolutions (in both revenue and profit). We offshored low-end manufacturing and shifted limited resources into high-end manufacturing. The U.S. has many times more retail space and shopping malls per capita than Western European countries. Americans live in much bigger houses, drive bigger cars, and are consumption-driven. The U.S. has a high per capita income, which is remarkable for a large country. Less than 3% of the U.S. population produces more than enough food to feed the entire country, and we continue to produce more manufacturing output with fewer resources. The only way to move into new economic revolutions is by making prior economic revolutions more efficient to free-up limited resources.

    1. Bruce Hall

      Your points about agriculture and manufacturing are well taken. It also highlights the false narrative about how immigration is healthy for our economy. As we become increasingly a service oriented economy with a technocratic elite, unskilled immigrants are not needed for agriculture or entry-level manufacturing jobs. With a labor participation rate hovering in the low 60s, there are ample labor resources from the pool of Americans. Neither are many skilled immigrants needed; for example, software programmers who are brought in to displace Americans (Disney was an especially egregious example of that).

      What are needed are policies that provides incentives to keep our population productive and upwardly mobile. Heavy regulation and increasing tax burdens simply don’t accomplish that.

      1. PeakTrader

        I’ve seen the results of too much immigration from dirt poor countries in California, where the white population is down to 40%. They live very poorly, go to poor public schools, stand in line or wait forever for government services, etc.. There are lots of upper income people in California – mostly whites and Asians – and they live well. It’s mostly the white middle class and blacks that suffered the most from too many immigrants with low skills and little wealth. Much of the middle class moved out of California. There’s a huge wealth disparity in California, although the state tries to narrow income inequality. Of course, many of the immigrants learned valuable skills. Nonetheless, I think, California would’ve been much better off without so much low skilled immigration.

  10. In Hell's Kitchen (NYC)

    I look at the top graph and I see loss of manufacturing jobs during the 12 years of Reagan-Bush, I see recovery of such jobs during the 8 years of Clinton, I see slaughter of such jobs during the 8 years of GWB, and I see recovery of such jobs during the 8 years of Obama.

    So overall, the GOP has stuck it to the Rust Belters since 1981 and that is probably the reason the GOP does well there. I hope Trump continues to stick it to the Rust Belters in true GOP fashion.

    1. PeakTrader

      You can blame China, NAFTA, Mexico, and American politicians taxing, regulating, and suing us too much.

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