The worriers like to complain that we don’t make anything anymore. America is being hollowed out. Soon we’re going to be left doing one another’s laundry. Boy, will we be poor then.
At the heart of this concern is the belief that manufacturing is the key to an economy’s success. You have to make stuff. You can’t just move it around or sell it. A nation of services is a poor nation.
In fact, there is no gold-medal industry that is the key to economic prosperity. In 1900, agriculture employed 40% of the American work force. America was pretty prosperous in 1900 relative to the rest of the world. You might have thought that farming is the road to material well-being for a nation. You would have been wrong, of course. Today, agriculture is 2% of the American work force and we are seven to thirty times richer as a nation compared to 1900.
But there is a second confusion in the worriers’ worries, one that I deliberately made in the previous paragraph. You want to distinguish between employment and output. We grow a lot more food today in America than we did in 1900. You also want to distinguish between total employment in a sector and that sector’s employment as a proportion of total employment.
Manufacturing employment as a proportion of total employment has been falling steadily since 1950. Even the level of manufacturing employment, the absolute number of workers in manufacturing has fallen dramatically from its peak in 1980:
Over the last five years, manufacturing employment has fallen even more dramatically, from about 17 million to under 15 million workers. But manufacturing output is rising:
This series from the BLS starts in 1987 and you have to realize right off that it’s a guess at best. It’s aggregating cars, refrigerators, bed frames and computer chips to get an overall index of total output. But it’s the best we can do.
The index climbs about 50% since 1987. It dipped in 2001 with the recession, but total output has already outpaced the level of 2000.
The bottom line is that we aren’t being hollowed out. We still make stuff. A lot of stuff. A lot more stuff than we did 20 years ago. We’re just doing it with fewer people. How? Productivity. We’ve found ways to make workers more productive so even though fewer people are doing the manufacturing, they’re producing more. Technology and innovation, spurred by the carrot of profits and the stick of losses has allowed that transformation. It makes us richer. It frees up a very scarce resource, people, to go do other things creating new products and services.
The unions don’t like it. A smaller unionized work force makes their lives less pleasant. They have less power. So they desperately want us to be worried that the economy is being hollowed out and that we don’t make anything anymore. But we aren’t being hollowed out. We still make lots of stuff. Not that that’s the key to our prosperity. But even if you think it is, the basic premise is false. We’re making more stuff. We’re just doing it with fewer people than before, which is good. It means we can have more of other stuff. Productivity along with trade is the road to wealth.
(HT to Dale Bodine for raising the issue)