The State of Manufacturing in USA

Manufacturing jobs in USA had its glory days during the 1970s when it peaked at 19.4 million (Figure 1).  At that time about one in five American workers had a job in manufacturing. For the next two decades, it was fluctuating around 17.5 million. The free fall happened at the beginning of this millennium from 17.3 million in 2001 to the lowest of 11.5 million in 2010. The mild recession in 2001 and the Great Recession during Dec 2007 to June 2009 accelerated this fall.

In the last six years, manufacturing sector just added 800,000 jobs out of the 5.8 million jobs vanished in the first decade of this millennium. Now only one in thirteen American workers has a job in the manufacturing sector. What happened to those experienced and skilled employees? Some of them were moved to low-paying jobs in other industries, some resorted to part-time work, and the remaining just frustrated out of the job market unsuccessfully trying to change their skill sets. The federal and state governments provide many great services for the unemployed including help with job searching, career counseling, and job training. The effectiveness of these training programs, in helping the unemployed to transition to a new job and boosting the local economy with respect to opportunities available, need to be evaluated.

US Maunufacturing Employment

Figure 1: U.S. Manufacturing Employment

Source: Bureau of Labor Statistics, “Employment, Hours, and Earnings from the Current Employment Statistics Survey (National)”, http://data.bls.gov/timeseries/CES3000000001

 

The growth of other sectors

The orientation of American economy has transitioned primarily from agriculture (early 1800s) to manufacturing (late 1800s) to service (1980s) sectors. Figure 2 shows the decline in manufacturing sector’s contribution to U.S. GDP and the corresponding increase in service sectors. It decreased from 22.9% in 1970 to 12.1% in 2015 for manufacturing. During the same period, service sector’s (Finance, insurance, real estate, rental, and leasing / Professional and business services / Educational services, health care and social assistance) contribution increased from 23% to 41%. According to Bureau of Labor Statistics projections, job growth is expected to be the highest for health care and social assistance sector in the next decade and it will have the highest number of jobs among the entire service sectors by 2022.

GDPbyInd_VA_1947-2015-AUG 2016

Figure 2: Gross Domestic Product (GDP) by % of Sector

Source: Bureau of Economic Analysis, “Gross Domestic Product (GDP) by Industry Data”, http://www.bea.gov/industry/gdpbyind_data.htm.

 

Why manufacturing jobs are important for U.S. economy?

Manufacturing sector is the backbone of any major economy. A county cannot sustain solely based on service sectors. Manufacturing companies drive innovation through their research and development that in turn result in better products and better standard of living.  As shown in figure 3, economic multiplier is the highest for the manufacturing sector ($1.33). It means that each dollar in final sales of manufacturing supports $1.33 in output from other sectors. This indicates the positive ripple effects that manufacturing jobs make in our economy. Economic multiplier is the lowest for service sectors.

Economic Multiplier - AUG 2016

Figure 3: Economic Multiplier

Source: Manufacturing Institute, “Manufacturing’s Multiplier Effect is Stronger that Other Sectors’”,   http://www.themanufacturinginstitute.org/Research/Facts-About-Manufacturing/Economy-and-Jobs/Multiplier/Multiplier.aspx.

 

Boosting the Manufacturing sector in U.S.

Two suggestions for boosting manufacturing sector are fixing the U.S. corporate tax system and improving the environmental protection policies (DiMicco, 2015). USA has the highest corporate tax rate (39.1 percent) among industrialized nations. In his book, “American Made: Why Making Things will Return Us to Greatness”, Dan DiMicco argues that the ideal corporate tax rate should be 23 percent. It will greatly encourage companies to keep the base and significant presence here in U.S. soil. The environmental regulations are very stringent in United States compared to other countries and may put a drag on the expansion of manufacturing sector. The increasing compliance costs for these regulations will discourage existing and aspiring companies as it is not practical to pass these costs to customers. The impact can be summarized as follows: The air may be microscopically cleaner, but only because nobody’s working (DiMicco, 2015).

Following are the two major initiatives under Obama administration that support the manufacturing sector. Formation of Manufacturing USA – the National Network for Manufacturing Innovation (NNMI). Through Manufacturing USA, industry, academia, and government partners collaborate and leverage existing resources to establish manufacturing institutes each with a distinct technology focus area. The goal is to secure America’s future through manufacturing innovation, education, and collaboration (Manufacturing.Gov, 2016). Federal government is also working on getting the Trans-Pacific Partnership (TPP) ratified. TPP is a trade agreement among 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA, and Vietnam) to reduce trade barriers. TPP will eliminate and reduce import taxes–or tariffs-on the American exports to TPP countries and will significantly boost the U.S manufacturing sector (USTR.GOV, 2016).

 

References

DiMicco, D. (2015). American Made: Why Making Things Will Return Us to Greatness. PALGRAVE MACMILLAN TRADE.

Manufacturing USA – the National Network for Manufacturing Innovation. (2016). Retrieved October 8, 2016, from https://www.manufacturing.gov/nnmi/

The Trans-Pacific Partnership. (2016). Retrieved October 8, 2016, from https://ustr.gov/tpp/

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