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December 1986

Why Has Manufacturing Employment Declined?

by John A. Tatom

The author examines the factors that determine manufacturing employment. He argues that the decline in manufacturing employment had occurred for two reasons. Part of the decline represents a transitory cyclical phenomenon. However, the decline is also due to the relatively rapid growth of productivity in manufacturing that has taken place throughout the post-WW II period. The only recent period in which manufacturing employment grew relatively since WW II was in the early 1960s, when manufacturing wages declined sharply relative to wages paid to the rest of the economy. The author explains that the relatively rapid growth in manufacturing productivity has been an important source of the rising standard of living in the United States and that it has been associated with a declining relative price of these goods. Consumers, however, have not chosen to realize all of the gain in their standard of living through greater consumption of manufactured goods. Instead, they have demanded more of other goods and services as well. Thus, the proportion of labor resources employed in manufacturing has declined fairly steadily, especially since 1969. International competition has played only a small role in overall developments, the author says. In the 1980s, he argues, manufacturing output and employment have strengthened relative to the experience abroad.