A reader sends me a missive with this line, and (among others) a picture of manufacturing employment. I reproduce (on an annual basis) this series back to 1960 in the figure below.
Employment in manufacturing did take a plunge in 2001. I didn’t know it was going to take quite the plunge it did, but I did see employment declining (then serving on CEA).
Figure 1: Manufacturing employment, production & nonsupervisory, 000’s (blue, left log scale), and manufacturing value added in bn.Ch.2017$ (black, right log scale). Source: BLS, BEA.
Value added rises. Why? Specialization in high value added parts of value chains (cf international textbooks) as predicted by comparative advantage in tasks.
Mechanically, how can these trends in employment and value added do what they do? Well, it’s due to something called “productivity”. The same reason why employment in agricultural production (not processing, but farming etc.) is down yet value added output is up.
Just sayin’.
The reader also comments:
Just coincidentally and not at all related to any of this, China’s economy and rise as a military power soared about the turn of the century… or so we are supposed to believe.
The drop in manufacturing employment is not, in my view, unrelated to the entry of China into the world trading system. Comparative advantage would suggest reallocation should occur (gains from trade occur because of changes in consumption and production, after all). And there’s no doubt China has developed as a economic power and strategic competitor. On the second point, I wouldn’t be writing all those posts on PRC activities around Taiwan.
But good to keep things in mind. First, the US remains the world’s largest economy evaluated at market exchange rates.
Figure 2: US GDP (blue), China (red), in bn. US$. Source: IMF WEO (October).
There is no longer a projected crossover, as had been projected in earlier years.
While PPP dollars would be more useful for comparing standards of living, market rates are more for considering economic power in the world economy, and ability to project influence. What about per capita in PPP International $?
Figure 3: US GDP per capita (blue), China per capita (red), in bn. PPP 2021 International$ . Source: IMF WEO (October).
Hard to see rapid convergence in PPP per capita.
This doesn’t mean China does not have real global economic impact. I’d just say we want to keep things in perspective.
An interesting change has begun to take shape although the impact on employment and the economy hasn’t been apparent yet.
https://fredblog.stlouisfed.org/2024/03/has-us-china-decoupling-energized-american-manufacturing/
>i>In recent decades, the US has grown increasingly dependent on imports from China to access a vast variety of goods. The FRED graph above shows Chinese import data: From 1990 through 2016, as China became a globally integrated economy, the US import share from China grew steadily, from close to 2% of aggregate US imports in the late 1980s to close to 22% in 2016.
In recent years, however, policies have been enacted to reduce this dependence on China, as illustrated by the trade war during the Trump administration and the CHIPS and Science Act of 2022. Indeed, the US import share from China has declined from 22% to 14% since 2016.
As the cost of importing Chinese goods has increased, the incentive to produce goods domestically has also increased. So, to what extent is the US-China decoupling leading to a resurgence of American manufacturing? We investigate this question in the FRED graph below, plotting manufacturing investment in structure and equipment, as well as employment and output.
On the one hand, there has been a resurgence of manufacturing investment in structures since 2020. These investments may indicate that American manufacturing overall is indeed resurging, with investments in structures more than doubling in a short period.
On the other hand, output, employment, and investments in equipment haven’t increased in tandem with the growth of investment in structures. We interpret these findings as evidence that American manufacturing may be resurging, but that the resurgence may take time: Investment in structures is time-intensive and precedes the growth of employment and output that results once new manufacturing plants are completed.