August 19, 2019 at 5:00 am ET
There’s long been a debate over the evolving transformation of the U.S. economy. In the 1970s, manufacturing employment began to decline. And even back then, there was discussion of whether manufacturing was essential. Some argued that the decline of manufacturing was a natural process, and that as America became richer, it would devote more resources to service industries. It would leave the “dirty” work of manufacturing things to poorer countries.
After the year 2000, however, U.S. manufacturing employment “fell off a cliff,” according to economist Paul Krugman. As manufacturing employment tumbled from 17 million to 11.5 million, debate over its importance intensified. Some said the nation would be better off — and economists argued that trade and technological progress would inevitably lead to higher pay and better conditions. One presidential advisor summed this up with a famous wisecrack: “Microchips or potato chips, what’s the difference?”
But new research by our organization, the Coalition for a Prosperous America (CPA), shows that the decline in manufacturing was unambiguously bad for U.S. workers. On average, downsized manufacturing workers suffered a 19 percent decline in their inflation-adjusted incomes by 2018.
To look at what happened to manufacturing workers, CPA examined Bureau of Labor Statistics data for 19 major employment sectors. We studied the trends in employment numbers, wages and hours worked from 2000 to 2018. And we limited our sample to everyday workers in production and nonsupervisory (PNS) positions — and excluded managers and senior executives.
In those 18 years, the total number of PNS employees grew by 14 million jobs — a 15 percent increase — to 105 million employees. Most U.S. sectors also saw an increase in employment during that time. However, four sectors did experience an absolute loss in employee numbers, and those were dominated by the manufacturing of durable and nondurable goods. Both saw at least a 28 percent drop in the total number of workers.
What happened to these manufacturing workers? We assumed that the average manufacturing employee who lost a job in this period probably ended up in one of the expanding sectors of the U.S. economy. So, we compared the manufacturing sector’s average pay to the average wage in these new jobs.
In 2018, the average PNS manufacturing employee was earning $904.46 per week. But the average PNS employee in sectors that were actually adding jobs was earning only $730.80 a week. That means the typical non-management employee who left manufacturing found new work with weekly income 19 percent below their previous earnings.
Why the decline in income? The three largest job sectors by 2018 were Leisure & Hospitality, Health Care, and Professional and Technical Services. The first two paid less than manufacturing in 2018. In fact, the Leisure & Hospitality sector paid a whopping 62 percent less — only $344.49 a week. The Health Care sector paid somewhat better than that, but still came in at 4.5 percent below manufacturing, with $863.96 a week.
In contrast, the Professional and Technical Services sector pays far more than manufacturing, at $1,290.23 a week — or 43 percent more than manufacturing. This is the sector that people often think of when they talk about the great opportunities that services provide — the new wave of white-collar jobs like software developers, architects and consultants.
The problem is, there just aren’t many of these positions available. In 2018 there were 7.19 million PNS employees in Professional and Technical Services. But there were almost twice as many workers employed in the largest sector, Leisure & Hospitality —14.36 million employees. And of course, Professional and Technical Services jobs typically require specialized education and skills. The future for many former manufacturing employees is more likely to be found in Leisure & Hospitality, or Retail Trade — another huge sector with 13.6 million employees.
It’s not surprising that ordinary Americans are unhappy about the decline in U.S. manufacturing. If the result for the average worker who finds a job in a growth sector is a pay cut of 19 percent, then making microchips is an awful lot better than serving potato chips.
Except that today 90 percent of the world’s microchips are manufactured outside the U.S.
Jeff Ferry is Chief Economist at the Coalition for a Prosperous America (CPA).
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