Contents
Executive summary
While U.S. manufacturing has been hit hard by nearly two decades of policy failures that have damaged its international competitiveness, it remains a vital part of the U.S. economy.
The manufacturing sector employed 12 million workers in 2013, or about 8.8 percent of total U.S. employment. Manufacturing employs a higher share of workers without a college degree than the economy overall. On average, non-college-educated workers in manufacturing made 10.9 percent more than similar workers in the rest of the economy in 2012–2013.
This report examines the role manufacturing plays in employment at the national, state, and congressional district levels, including the number of jobs manufacturing supports, the wages those jobs pay, and manufacturing’s contribution to GDP. (This report updates an earlier EPI report but includes U.S. congressional district data for the first time.) The data show that manufacturing employment was stable for three decades until 1998, and has been on a largely downward trajectory since then, with traditional manufacturing states hit particularly hard. Given its size and importance, we cannot ignore the consequences of such a decline. Further, the policies that would help manufacturing the most are those that would help close the nation’s large trade deficit. Reducing this trade deficit would, in turn, provide a valuable macroeconomic boost to a U.S. economy that is still operating far below potential.
The manufacturing sector has a large footprint in the U.S. economy. It employed 12.0 million workers in 2013, 8.8 percent of total U.S. employment.
Manufacturing plays a particularly important role in supporting jobs in a core group of states in the upper Midwest (East North Central and selected West North Central) and South (East South Central) states. The top 10 states ranked by manufacturing’s share of total state employment in 2013 are Indiana (16.8 percent, 491,900 jobs), Wisconsin (16.3 percent, 458,400 jobs), Iowa (14.0 percent, 214,500 jobs), Michigan (13.5 percent, 555,300 jobs), Alabama (13.1 percent, 249,100 jobs), Arkansas (12.9 percent, 152,400 jobs), Ohio (12.6 percent, 662,100 jobs), Kentucky (12.4 percent, 228,600 jobs), Mississippi (12.3 percent, 136,700 jobs), and Kansas (11.9 percent, 162,900 jobs).
The top 10 states ranked by total manufacturing employment in 2013 are California (1,251,400 jobs), Texas (871,700 jobs), Ohio (662,100 jobs), Illinois (579,600 jobs), Pennsylvania (563,500 jobs), Michigan (555,300 jobs), Indiana (491,900 jobs), Wisconsin (458,400 jobs), New York (455,100 jobs), and North Carolina (442,500 jobs).
The top 10 congressional districts ranked by manufacturing’s share of total district employment are Indiana’s 3rd Congressional District (76,200 jobs, 23.3 percent of district employment), Indiana’s 2nd (73,500 jobs, 23.1 percent), Wisconsin’s 6th (80,000 jobs, 22.6 percent), California’s 17th (63,400 jobs, 19.9 percent), Indiana’s 6th (60,400 jobs, 19.4 percent), Alabama’s 4th (48,500 jobs, 19.2 percent), Wisconsin’s 8th (69,600 jobs, 19.2 percent), Ohio’s 4th (61,000 jobs, 19.0 percent), Michigan’s 2nd (57,500 jobs, 18.6 percent), and Wisconsin’s 5th (66,200 jobs, 17.9 percent).
The top 50 congressional districts ranked by share of employment in manufacturing are widely dispersed throughout 16 states, nearly one-third of all the states. The states represented in the top 50 congressional district list include Indiana (seven congressional districts), Michigan (seven), Wisconsin (six), Ohio (five), Alabama (three), Arkansas (three), California (three), Iowa (three), Tennessee (three), Kentucky (two), North Carolina (two), South Carolina (two), Georgia (one), Kansas (one), Mississippi (one), and Oregon (one).
Complete data for employment in each state and for all 435 congressional districts (and the District of Columbia) are also available in the EPI Manufacturing Footprint Map below. This interactive feature also includes details on employment by state and congressional district in each of 25 unique manufacturing industries.
INTERACTIVE MAP
EPI Manufacturing Footprint Map with Extended Data by State and Congressional District
Notes: See tables 2, 6, 8, and 9 in the report for data and computational notes
Source: Author’s analysis of Bureau of Economic Analysis (2014b), Bureau of Labor Statistics (2014c), Current Population Survey Outgoing Rotation Group microdata (U.S. Census Bureau, various years), and U.S. Census Bureau (2013)
Manufacturing industries generated $2.1 trillion in GDP (12.5 percent of total U.S. gross domestic product) in 2013. But even these figures do not fully capture manufacturing’s role in the economy. Manufacturing provides a significant source of demand for goods and services in other sectors of the economy, and these sales to other industries are not captured in measures of manufacturing sector GDP but are counted in the broader measure of its gross output. U.S. manufacturing had gross output of $5.9 trillion in 2013, more than one-third (35.4 percent) of U.S. GDP in 2013. Manufacturing is by far the most important sector of the U.S. economy in terms of total output and employment. The manufacturing sector supported approximately 17.1 million indirect jobs in the United States, in addition to the 12.0 million persons directly employed in manufacturing, for a total of 29.1 million jobs directly and indirectly supported, more than one-fifth (21.3 percent) of total U.S. employment in 2013.
The manufacturing sector is also a particularly important provider of jobs with good wages for workers without a college degree. This can be seen in the manufacturing wage premium—the dollar amount by which the average manufacturing worker wage exceeds the wage of an otherwise comparable worker outside the manufacturing sector. The average wage premium for all U.S. manufacturing workers without a college degree was $1.78 per hour (or 10.9 percent) in 2012–2013.
The United States lost 5.7 million manufacturing jobs between March 1998 and 2013. The principal causes of manufacturing job losses were growing trade deficits, especially with China, Mexico, and other low wage nations, and the weak recovery from the Great Recession since 2009.
The Great Recession was unusual because of the length and depth of the manufacturing employment decline. Although nearly 800,000 manufacturing jobs have been added since the employment trough, U.S. manufacturing employment remains depressed. If employment had recovered to the level of the average recovery in the post-World War II era, then an additional 1.2 million manufacturing jobs would have been created through the third quarter of 2014. The weak manufacturing recovery is a product of both international and domestic challenges faced by the manufacturing sector. The U.S. trade deficit in manufactured goods has increased sharply since 2009, which has significantly retarded the growth of manufacturing output and employment since the recession. Currency manipulation by China, Japan, and other countries is one of the leading causes of the growing U.S. trade deficit (Scott 2014b). Weak growth of domestic demand is also a major contributor to the relatively weak manufacturing recovery.
The Midwest and some southern states have been particularly hard hit by the collapse of manufacturing since 1998. Those states are also well positioned for a manufacturing recovery if the structural causes of the manufacturing decline are reversed, including by eliminating currency manipulation, which would substantially reduce or eliminate the U.S. trade deficit in manufactured goods. In addition to the growth of the U.S. trade deficit, other structural problems in manufacturing are the stagnation of public investment in infrastructure and in research and development, and inadequate tax, education, and energy policies.
Manufacturing’s footprint: Jobs
In 2013, the U.S. manufacturing sector directly employed 12 million workers, or about 8.8 percent of total U.S. employment.
This report uses a unique data set from the American Community Survey (ACS) to estimate the distribution of employment in each state and congressional district. Estimates of total manufacturing employment for each of 25 industries for each region in 2011 were obtained from the survey and used to develop estimates of the distribution of manufacturing employment in each state in the representative period. Total state employment in manufacturing in 2013 was obtained from the Bureau of Labor Statistics (2014c), and allocated to states, industries, and congressional districts based on the distribution of employment obtained from the ACS (U.S. Census Bureau 2013). For further details on the data sources and models used, see Scott (2014a, Appendix: Methodology, 25–27).
Note: All of the tables referenced in the text are available at the end of this report.
Manufacturing jobs in the states
As Table 1 shows, manufacturing plays a particularly important role in the labor markets of a core group of states in the upper Midwest (East North Central and selected West North Central) and South (East South Central). Manufacturing was responsible for 13.1 percent of employment in the East North Central region in 2013.
Midwestern states with a large manufacturing share of employment (greater than 10 percent, measured as manufacturing’s share of all jobs in the state) include Indiana (491,900 jobs, 16.8 percent of total employment), Wisconsin (458,400 jobs, 16.3, percent), Iowa (214,500 jobs, 14.0 percent), Michigan (555,300 jobs, 13.5 percent), and Ohio (662,100 jobs, 12.6 percent), Kansas (162,900 jobs, 11.9 percent), and Minnesota (308,100 jobs, 11.1 percent).
Manufacturing-dependent states in the South include Alabama (249,100 jobs, 13.1 percent), Arkansas (152,400 jobs, 12.9 percent), Kentucky (228,600 jobs, 12.4 percent), Mississippi (136,700 jobs, 12.3 percent), South Carolina (224,800 jobs, 11.8 percent), Tennessee (319,000 jobs, 11.6 percent), and North Carolina (442,500 jobs, 10.9 percent).
Table 2 reports manufacturing employment in each of the 50 states (and the District of Columbia) ranked by manufacturing jobs as a share of total state employment. The top 10 states in 2013 by share of manufacturing employment were Indiana (16.8 percent, 491,900 jobs), Wisconsin (16.3 percent, 458,400 jobs), Iowa (14.0 percent, 214,500 jobs), Michigan (13.5 percent, 555,300 jobs), Alabama (13.1 percent, 249,100 jobs), Arkansas (12.9 percent, 152,400 jobs), Ohio (12.6 percent, 662,100 jobs), Kentucky (12.4 percent, 228,600 jobs), Mississippi (12.3 percent, 136,700 jobs), and Kansas (11.9 percent, 162,900 jobs).
Table 3 provides the same information but ranks the 50 states (and the District of Columbia) by total manufacturing employment. The top 10 manufacturing employers in 2013 were California (1,251,400 jobs), Texas (871,700 jobs), Ohio (662,100 jobs), Illinois (579,600 jobs), Pennsylvania (563,500 jobs), Michigan (555,300 jobs), Indiana (491,900 jobs), Wisconsin (458,400 jobs), New York (455,100 jobs), and North Carolina (442,500 jobs).
Manufacturing jobs in congressional districts
Using a new model and new congressional district data to estimate the job impacts of manufacturing for the 113th Congress, this study finds that manufacturing is a key source of jobs in many congressional districts, both net jobs and jobs as a share of total congressional district jobs. For example, in over a third of congressional districts, manufacturing accounts for 10 percent or more of total jobs. (These estimates use the data sources and models described above.)
The top 50 U.S. congressional districts ranked by manufacturing’s share of overall district employment are shown in Table 4. The top 10 U.S. congressional districts, in terms of the share of employment in manufacturing, were Indiana’s 3rd (76,200 jobs, 23.3 percent of district employment), Indiana’s 2nd (73,500 jobs, 23.1 percent), Wisconsin’s 6th (80,000 jobs, 22.6 percent), California’s 17th (63,400 jobs, 19.9 percent), Indiana’s 6th (60,400 jobs, 19.4 percent), Alabama’s 4th (48,500 jobs, 19.2 percent), Wisconsin’s 8th (69,600 jobs, 19.2 percent), Ohio’s 4th (61,000 jobs, 19.0 percent), Michigan’s 2nd (57,500 jobs, 18.6 percent), and Wisconsin’s 5th (66,200 jobs, 17.9 percent).
The top 50 congressional districts, by share of employment in manufacturing, were widely dispersed throughout 16 states, nearly one-third of all the United States. The states represented in the top 50 districts are Indiana (seven congressional districts), Michigan (seven), Wisconsin (six), Ohio (five), Alabama (three), Arkansas (three), California (three), Iowa (three), Tennessee (three), Kentucky (two), North Carolina (two), South Carolina (two), Georgia (one), Kansas (one), Mississippi (one), and Oregon (one).
Supplemental Table 1 reports manufacturing employment for each of the 435 U.S. Congressional districts and the District of Columbia, ranked by manufacturing employment as a share of total district employment. This table is available online in interactive format [insert url], which allows the user to sort the table alphabetically (by state and congressional district), and to rank the districts by net manufacturing jobs in the districts.
Complete data for employment in each state and for all 435 congressional districts (and the District of Columbia) are also available in the EPI Manufacturing Footprint Map With Extended Data by State and Congressional District . This interactive feature also includes details on employment by state and congressional district in each of 25 unique manufacturing industries.
Manufacturing’s footprint: GDP
Manufacturing’s impact on jobs is a reflection of its outsize share of U.S. economic production. Manufacturing is the largest sector of the economy, excluding real estate (which is dominated by imputed and actual rental income on property) in most states, as a share of GDP. Nationwide, manufacturing generated $2.1 trillion in GDP in 2013, equal to 12.5 percent of total U.S. GDP (Bureau of Economic Analysis 2014b).1
GDP in the states
In 2013, manufacturing was responsible for more than 10 percent of GDP in 32 of the 50 states, as shown in Table 5. Table 6 ranks the states by the manufacturing share of GDP. Many manufacturing jobs are capital intensive, productive activities. Thus, the GDP share of manufacturing exceeds its employment share in most states, reflecting the fact that manufacturing activity also generates higher-than-average value-added per employee. (This helps explain why manufacturing wages are higher than average for non-college-educated workers, as discussed later in this report.)
Manufacturing generated more than 20 percent of total GDP in four states in 2013: Indiana (30.1 percent of total GDP, or $95.3 billion), Oregon (29.8 percent, $65.4 billion), Louisiana (23.4 percent, $59.3 billion), and North Carolina (20.9 percent, $98.3 billion).
Table 7 ranks the states by total manufacturing GDP. Ten states generated more than $65 billion each in GDP in 2013: California ($239.0 billion), Texas ($233.2 billion), Illinois ($101.3 billion), Ohio ($99.8 billion), North Carolina ($98.3 billion), Indiana ($95.3 billion), Michigan ($82.3 billion), Pennsylvania ($77.4 billion), New York ($67.9 billion), and Oregon ($65.4 billion).
Manufacturing punches above its weight: output and indirect jobs
The GDP data do not fully cover manufacturing’s impact because they don’t account for how manufactured goods generate significant demand for goods and services from other sectors of the economy, ranging from energy and natural resources to construction of new factories to services provided by accounting, engineering, software, and temporary help firms. U.S. manufacturing had gross output of $5.9 trillion in 2013, more than one-third (35.4 percent) of U.S. gross domestic product in 2013. Manufacturing is by far the most important sector of the U.S. economy in terms of total output (Bureau of Economic Analysis 2014a).
An industry’s GDP, also referred to as “value added,” includes sales to final users in the economy but not sales to other industries, referred to as “intermediate inputs.” In technical terms, value added/GDP includes compensation of employees, taxes on production and imports, less subsidies, and gross operating surplus. When aggregated across industries, value added equals national GDP. The intermediate inputs that are not part of industry GDP refer to “the value of both foreign and domestically produced goods and services which are used as energy, materials, and purchased services as part of an industry’s production process” (Bureau of Economic Analysis 2014c). As such manufacturing’s GDP does not account for the fact that the manufacturing sector is a large consumer of goods and services produced elsewhere in the economy and, thus, the source of a large share of the final demand for goods and services produced in the United States. Because it includes intermediate inputs, manufacturing’s gross output (technically, the value of manufacturing shipments, net of purchases of domestic manufactured intermediates) is perhaps the best measure of the overall manufacturing impact on the economy.
Figure A reports U.S. manufacturing’s gross output and its value added as a share of overall national GDP for 1997–2013. Gross output (net manufacturing shipments) exceeded one-third of U.S. GDP in every year of this period except for the recession year of 2009.2 Thus, the manufacturing sector was responsible for more than one-third of all economic activity in the United States (35.4 percent of GDP in 2013) in this period.3 As a result, manufacturing’s economic footprint is nearly three times as large as its share of direct economic output (value added) in 2013 (12.1 percent of GDP), and more than four times as large as its share of total U.S. employment (8.8 percent, as shown in Table 1).4
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Figure A
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Manufacturing gross output and GDP as a share of national GDP, 1997–2013
Year
Manufacturing gross output
Manufacturing value added (GDP)
1997
44.7%
16.1%
1998
43.1%
15.8%
1999
41.9%
15.5%
2000
41.1%
15.1%
2001
37.7%
13.9%
2002
35.9%
13.4%
2003
35.0%
13.3%
2004
35.3%
13.2%
2005
36.4%
13.0%
2006
36.5%
13.0%
2007
37.0%
12.8%
2008
37.1%
12.3%
2009
31.0%
12.0%
2010
33.4%
12.2%
2011
36.0%
12.3%
2012
35.9%
12.3%
2013
35.4%
12.1%
Source: Author's analysis of Bureau of Economic Analysis (2014a)
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The large footprint of the manufacturing sector (as indicated by the gross output share of manufacturing in GDP) is also reflected in the high level of indirect employment supported by manufacturing production. The purchase of domestic goods and services by the manufacturing sector supports a large number of jobs outside of manufacturing. As a result, manufacturing has a large “indirect employment multiplier.” For every person directly employed in manufacturing, manufacturing output supports more than 1.4 jobs elsewhere in the economy. In total, the manufacturing sector supported approximately 17.1 million indirect jobs in the United States, in addition to the 12.0 million persons directly employed in manufacturing, for a total of 29.1 million jobs directly and indirectly supported, more than one fifth (21.3 percent) of total U.S. employment in 2013.5 These estimates do not include macroeconomic respending multipliers, which are also quite large in manufacturing due to the high level of wages in manufacturing industries (Bivens 2003; Bivens 2015, forthcoming).
Manufacturing gross output and value added shares of the economy declined steadily between 1997 and 2013, as shown in Figure A. One reason for this decline is the rapid growth of manufactured imports, which have reduced the demand for domestically manufactured goods. Total imports of manufactured goods increased from $744 billion in 1997 to $1.83 trillion in 2014, rising from 8.6 percent of GDP in 1997 to 10.9 percent in 2013. Had it not been for the increase in manufactured imports, and of the U.S. trade deficit in manufactured goods, manufacturing output and GDP would have been significantly higher in 2013.6
Manufacturing wages
The manufacturing sector employs workers at all skill and education levels, and is a particularly important provider of jobs with good wages for workers without a college degree. It employs a higher share of workers without a college degree than does the economy overall.7 In addition, scientists and engineers made up 7.8 percent of the manufacturing labor force in 2011, a share that is more than twice as large as in the rest of the economy (Scott 2013, Table 4). And while many manufacturing jobs may not require a college education, they are not “unskilled.” Manufacturing employs many highly skilled workers in high-productivity jobs and manufacturing wages are higher than average as a result.
The manufacturing wage “premium” for non-college-educated workers—the amount that the average wage in manufacturing exceeds wages in nonmanufacturing industries—varies widely by state and industry, as shown in Table 8.8 The average wage premium for U.S. manufacturing workers without a college degree was $1.78 per hour (or 10.9 percent) in 2012–2013 (Table 8). However, the manufacturing wage premium is much higher in states that produce more high-tech or capital-intensive goods, such as aircraft, autos, and refined petroleum products. States with especially high manufacturing wage premiums include Montana ($3.76 per hour, or a 24.4 percent premium), Michigan ($3.35 per hour, 21.9 percent), New Mexico ($3.31 per hour, 20.8 percent), Louisiana ($3.06 per hour, 19.6 percent), Oregon ($3.23 per hour, 19.6 percent), Maine ($3.04 per hour, 19.5 percent), Ohio ($2.99 per hour, 19.4 percent), Kansas ($2.87 per hour, 19.1 percent), New Hampshire ($3.16 per hour, 17.9 percent), Kentucky ($2.57 per hour, 17.7 percent), and Washington ($3.13 per hour, 17.6 percent).
High rates of unionization contribute to the wage premiums earned by manufacturing workers. In 2013, 10.1 percent of manufacturing workers belonged to labor unions, substantially above the 6.7 percent average unionization rate for workers in the private sector as a whole (Bureau of Labor Statistics 2014d, Table 3). Workers covered by a collective bargaining agreement (who made up 13.0 percent of the labor force) earned about 13.6 percent more than workers from comparable demographic groups in 2011 (Mishel 2012, Table 1).
Manufacturing productivity and other contributions to the U.S. economy
Manufacturing is one of the most dynamic sectors of the U.S. economy. It is responsible for roughly two-thirds, or roughly $208 billion, of all U.S. business research and development spending. (Manufacturing was responsible for 68.9 percent of all U.S. business research and development spending in 2012, with total business research and development spending in all industries of $302 billion (total public, corporate, and other funds) in that year alone (Wolfe 2014, Table 2). As a result, manufacturing productivity growth rates have been high for decades. Multifactor labor productivity growth averaged 3.3 percent per year in manufacturing between 1997 and 2012 (Bureau of Labor Statistics 2014b). This was nearly one-third greater than in the private, nonfarm economy as a whole. Given the nexus between research and development and manufacturing, a vital manufacturing sector plays an important role in maintaining an innovative economy.
Not only is manufacturing important for jobs and production, but a vital manufacturing sector is also essential to meeting national challenges, including rebuilding U.S. infrastructure, reducing greenhouse gas emissions, and lowering the nation’s reliance on fossil fuels. Renewable forms of energy, such as wind and solar power, rely on manufactured components more so than extractable energy such as oil. A vibrant manufacturing sector will be needed to supply the new materials needed to rebuild America’s decaying infrastructure and to create a low-carbon economy.
Finally, U.S. manufacturing firms also led the way on trade, exporting $1.4 trillion in manufactured goods—60.6 percent of all U.S. goods and services exported in 2013 (USITC 2014; U.S. Census Bureau 2014a; author’s analysis).
Recent manufacturing job losses nationally and by state
U.S. manufacturing employment was relatively stable between 1970 and 1998, and never fell below 16.5 million workers, as shown in Figure B. U.S. manufacturing employment reached a cyclical peak in March 1998. The United States lost 5.7 million manufacturing jobs between March 1998 and 2013, as shown in Table 9. The principal causes of manufacturing job loss were growing trade deficits, especially with China, Mexico, and other low-wage nations, and also the Great Recession, which was followed by a weak recovery. The Asian financial crisis of late 1997 caused the real, trade-weighted value of the U.S. dollar to rise 20 percent in value through the first quarter of 2002. What began with steady growth in U.S. manufacturing imports and job losses in the late 1990s turned into a major collapse when the U.S. economy fell into recession in early 2001. Manufacturing employment declined continuously thereafter throughout the recovery that ended in December 2007. The Great Recession caused another collapse in manufacturing employment, followed by a relatively weak recovery since 2009. Between March 1998 and December 2007, 3.9 million manufacturing jobs were lost and an additional 1.8 million manufacturing jobs were lost through 2013 (Figure B; Bureau of Labor Statistics 2014a and author’s analysis).
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Figure B
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Total U.S. manufacturing employment, 1970–2013
Year
Manufacturing employment (millions)
1970
17.8
1971
17.2
1972
17.7
1973
18.6
1974
18.5
1975
16.9
1976
17.5
1977
18.2
1978
18.9
1979
19.4
1980
18.7
1981
18.6
1982
17.4
1983
17.0
1984
17.9
1985
17.8
1986
17.6
1987
17.6
1988
17.9
1989
18.0
1990
17.7
1991
17.1
1992
16.8
1993
16.8
1994
17.0
1995
17.2
1996
17.2
1997
17.4
1998
17.6
1999
17.3
2000
17.3
2001
16.4
2002
15.3
2003
14.5
2004
14.3
2005
14.2
2006
14.2
2007
13.9
2008
13.4
2009
11.8
2010
11.5
2011
11.7
2012
11.9
2013
12.0
Note: Shaded areas denote recessions.
Source: Bureau of Labor Statistics (2014a)
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Table 9 shows manufacturing jobs lost by state and jobs lost as a share of total state employment. The states hardest hit by manufacturing job loss (measured by share of state employment lost) were North Carolina (9.7 percent, 360,000 jobs lost), Mississippi (8.5 percent, 95,600 jobs), Arkansas (8.1 percent, 89,900 jobs), Rhode Island (7.9 percent, 36,000 jobs), Michigan (7.6 percent, 340,000 jobs), Tennessee (7.3 percent, 191,700 jobs), Ohio (6.8 percent, 368,500 jobs), South Carolina (6.6 percent, 117,100 jobs), New Hampshire (6.6 percent, 38,700 jobs), and Alabama (6.1 percent, 114,600 jobs).
Eight states have lost more than 200,000 manufacturing jobs since 1998: California (604,800 jobs lost, 4.5 percent), Ohio (368,500 jobs, 6.8 percent), North Carolina (360,000 jobs, 9.7 percent), New York (342,500 jobs, 4.2 percent), Michigan (340,000 jobs, 7.6 percent), Illinois (330,500 jobs, 5.6 percent), Pennsylvania (314,000 jobs, 5.7 percent), and Texas (200,400 jobs, 2.3 percent).
The Midwest and some southern states have been particularly hard hit by the collapse of manufacturing. Those states are also well positioned for a manufacturing recovery if the structural causes of the manufacturing decline are reversed, including the elimination of currency manipulation (Scott 2014b) which would substantially reduce or eliminate the U.S. trade deficit in manufactured goods. In addition to the growth of the U.S. trade deficit, other structural problems in manufacturing that remain to be addressed are the stagnation of public investment in infrastructure (Bivens 2014) and research and development, and inadequate tax, education, and energy policies (McCormick 2013).
Historically weak manufacturing recoveries
For the manufacturing sector, the last two business cycles have resulted in historically weak business cycle recoveries. In all business cycles between World War II and the year 2000, manufacturing had recovered at least 95 percent of prerecession employment within six and one-half years (26 quarters) after the previous business cycle peak, as shown in Figure C. For all 10 previous postwar recoveries prior to the 2009 business cycle, the average employment recovery at this point was 97.4 percent. However, the recoveries of 2001 and 2009 lagged far behind all previous business cycles. When the 2001 recovery ended in 2007, employment stood at only 82.2 percent of the prerecession level. This is reflected in the steady decline in employment between 2000 and 2007, as shown in Figure B earlier.
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Figure C
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Manufacturing employment in recessions and recoveries
Quarters since recession began (peak = 0)
1982
1991
2001
2009
Average of post-WWII, pre-2009 cycles
0
1
1
1
1
1
1
0.981385
0.989407
0.978733
0.995517
0.983851
2
0.958041
0.975812
0.954275
0.98546
0.962505
3
0.93699
0.966881
0.930384
0.970848
0.947621
4
0.91585
0.963917
0.911409
0.94596
0.935201
5
0.893679
0.960631
0.901343
0.900208
0.930206
6
0.891137
0.953022
0.891944
0.863108
0.929574
7
0.900329
0.953381
0.880547
0.845272
0.939741
8
0.914428
0.950964
0.868934
0.836718
0.946888
9
0.931585
0.949302
0.854933
0.832962
0.953629
10
0.945222
0.951474
0.844495
0.837566
0.961019
11
0.955729
0.949378
0.841049
0.840353
0.958245
12
0.961259
0.948811
0.839228
0.841613
0.961452
13
0.961205
0.951511
0.841852
0.846896
0.966083
14
0.958556
0.955684
0.842106
0.8515
0.970489
15
0.952262
0.961179
0.840638
0.855038
0.973636
16
0.946751
0.967127
0.838151
0.856444
0.97665
17
0.944048
0.97332
0.836819
0.862623
0.984601
18
0.941826
0.977871
0.834254
0.86713
0.957645
19
0.937666
0.977776
0.833686
0.869408
0.961816
20
0.933132
0.976247
0.8349
0.869069
0.96576
21
0.932118
0.975359
0.834998
0.872219
0.970466
22
0.932901
0.974887
0.831688
0.87205
0.973684
23
0.935265
0.975265
0.824991
0.871541
0.976506
24
0.940777
0.821975
0.875055
0.981302
25
0.947871
0.87789
0.986574
26
0.950431
0.880458
0.974274
27
0.883948
Note: The zero quarter represents the peak of prior business cycle (as defined by the National Bureau of Economic Research). At the zero quarter, the manufacturing employment is indexed to one. The proceeding values therefore represent the percent change in manufacturing employment as the values enter recession and then the recovery.
Source: Author's analysis of data from the Bureau of Labor Statistics (2014a)
Source: The recession dates are defined by the National Bureau of Economic Research. Their business cycles can be found at: http://www.nber.org/cycles/cyclesmain.html
Manufacturing employment data are from the Bureau of Labor Statistics' Current Employment Statistics public data series.
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The Great Recession was unusual both because of the length and depth of the manufacturing employment decline. Although nearly 800,000 manufacturing jobs have been added since the employment trough in February 2010, manufacturing employment continues to lag behind all pre-2000 business cycles (author’s analysis of Bureau of Labor Statistics 2014c). Employment in the most recent period (the third quarter of 2014) quarter reached only 88.4 percent of its prerecession level (at the end of 2007). If employment had recovered to the level of the average postwar recovery, then an additional 1.2 million manufacturing jobs would have been created by this point in the recovery.
Reversing the manufacturing job losses by addressing currency manipulation and other challenges
The weak manufacturing recovery is a product of both international and domestic challenges that the manufacturing sector faces. The U.S. trade deficit in manufactured goods increased from $319.5 billion in 2009 to $449.3 billion in 2013 (USITC 2014 and author’s analysis), an increase of 40.6 percent. Measured as a share of GDP, the manufactured goods trade deficit increased by 0.5 percentage points of GDP in this period, which significantly retarded the growth of manufacturing output and employment during the recovery from the 2009 recession (Bureau of Economic Analysis 2014a; USITC 2014; author’s analysis). Currency manipulation by China, Japan, and other countries is one of the leading causes of growing U.S. trade deficits (Scott 2014b). Weak growth of domestic demand is also a major contributor to the relatively weak manufacturing recovery. More than six and one-half years after the start of the Great Recession, unemployment remained well above prerecession levels, and the United States had a jobs shortfall (the number of jobs needed to keep up with growth in the potential labor force) of nearly 6 million (Economic Policy Institute 2014, and Bivens and Shierholz, 2014).
The U.S. goods trade deficit is likely to exceed $730 billion in 2014 (U.S. Census Bureau 2014b and author’s analysis). Elimination of currency manipulation by a group of about 20 countries, with China as the linchpin, could reduce the U.S. trade deficit by between $200 and $500 billion within three years. This would increase U.S. GDP by between 2.0 percent and 4.9 percent, and create between 2.3 million and 5.8 million U.S. jobs. Approximately 40 percent of the jobs gained would be in manufacturing, which would gain between 891,500 and 2.3 million jobs (Scott 2014b).
Conclusion
The manufacturing sector has struggled to expand as the United States has become more integrated into the global marketplace. A lack of supportive U.S. trade and currency policies and inadequate industrial and energy policies harm the nation’s ability to meet future challenges that will require a solid manufacturing base. The sector is poised to play a key role in reducing greenhouse gas emissions and the reliance on imported energy, but new policies are also needed to achieve progress in these areas. The United States must develop a comprehensive set of transportation and energy policies to increase energy efficiency and renewable energy production in order to take full advantage of the new opportunities.
The manufacturing sector is also of vital importance in maintaining our innovative capacity. Reinvestment in U.S. research, development, energy, and manufacturing policies can also stimulate growth in a wide swath of states in the U.S. heartlands that have been hardest hit by the manufacturing crisis.
About the author
Robert E. Scott joined the Economic Policy Institute in 1996 and is currently director of trade and manufacturing policy research. His areas of research include international economics, trade and manufacturing policies and their impacts on working people in the United States and other countries, the economic impacts of foreign investment, and the macroeconomic effects of trade and capital flows. He has published widely in academic journals and the popular press, including The Journal of Policy Analysis and Management, The International Review of Applied Economics, and The Stanford Law and Policy Review, as well as The Los Angeles Times, Newsday, USA Today, The Baltimore Sun, The Washington Times, and other newspapers. He has also provided economic commentary for a range of electronic media, including NPR, CNN, Bloomberg, and the BBC. He has a Ph.D. in economics from the University of California at Berkeley.
Acknowledgments
The author thanks Will Kimball for research assistance and Ross Eisenbrey and Josh Bivens for comments. This research was made possible by support from the Alliance for American Manufacturing.
Endnotes
1. Based on state GDP estimates, as reported in Table 5.
2. Gross output measures are depressed during recessions by inventory accumulation, as shipments decline faster than output (value added).
3. The manufacturing share of total gross output in all industries was 20.0 percent in 2013. Total gross output double-counts the output of many industries. For example, purchased services and commodities consumed by manufacturing are part of the gross output of those industries, as well as the manufacturing sector. In addition, a share of gross manufacturing output is also part of the gross output of other sectors (for example, trucks and tractors consumed by the agriculture and transportation industries). The true economic impact of manufacturing likely falls between its share of gross output (20.0 percent in 2013) and its share of gross domestic product, which is the sum of value added in all domestic sectors of the economy (35.4 percent in 2013, as shown in Figure A). The sources for these calculations are the Bureau of Economic Analysis (2014a and 2014b) and author’s analysis.
4. The value added data shown in Figure A are based on national estimates of value added in manufacturing. In 2013, manufacturing had a slightly smaller share of national GDP (12.1 percent) than it did of total state GDP (12.5 percent, as shown in Table 5). This gap reflects underlying differences in GDP accounting at the state and national levels (Bureau of Economic Analysis 2014a, 2014b, and author’s analysis).
5. Estimates of total employment supported by U.S. manufacturing output are based on author’s analysis of U.S. input-output and domestic employment requirements data (BLS-EP 2014a and 2014b).
6. The U.S. manufacturing trade deficit increased from $130.6 billion in 1997 (1.5 percent of GDP) to $449.3 billion in 2013 (2.7 percent of GDP), an increase of 1.2 percentage points of GDP (USITC 2014, Bureau of Economic Analysis 2014a, and author’s analysis).
7. Using pooled 2009–2011 data, Scott (2013, Table 1 at 6) found that 47.7 percent of manufacturing workers had a high school degree or less, while only 37.6 percent of workers in all industries had this level of education. Thus the non-college share in manufacturing was 26.9 percent greater than in all industries.
8. Table 8 reports average wages for a pooled, cross section of workers from the CPS ORG data groups for 2012 and 2013 (U.S. Census Bureau, various years). Wages for workers surveyed in 2012 were inflation adjusted for comparison with 2013 data.
References
Bivens, Josh. 2003. Updated Employment Multipliers for the U.S. Economy. Economic Policy Institute Working Paper #268.
Bivens, Josh. 2014. The Short- and Long-Term Impact of Infrastructure Investments on Employment and Economic Activity in the U.S. Economy. Economic Policy Institute Briefing Paper #374.
Bivens, Josh. 2015, forthcoming. Updated Employment Multipliers for the U.S. Economy. Economic Policy Institute Working Paper.
Bivens, Josh, and Heidi Shierholz. 2014. Lagging Demand, Not Unemployability, is Why Long-term Unemployment Remains So High. Economic Policy Institute Briefing Paper #381.
Bureau of Economic Analysis. 2014a. Annual Industry Accounts: Gross Domestic Product (GDP) by Industry. Spreadsheet downloaded Nov. 21.
Bureau of Economic Analysis. 2014b. Regional Economic Accounts: Gross Domestic Product by State. Spreadsheet downloaded Nov. 21.
Bureau of Economic Analysis. 2014c. “Frequently Asked Questions: What is Gross Output by Industry and How Does it Differ from Gross Domestic Product by Industry?”
Bureau of Labor Statistics. 2014a. Current Employment Statistics. Employment, Hours and Earnings — National [CES database]
Bureau of Labor Statistics. 2014b. “Multi-factor Productivity Statistics, Output Per Hour, Manufacturing Sector” (NAICS 311-339). http://data.bls.gov/cgi-bin/surveymost?mp
Bureau of Labor Statistics. 2014c. “State and Metro Area Employment, Hours & Earnings: Employment, Hours and Earnings – State and Metro Area” (Current Employment Statistics – CES).
Bureau of Labor Statistics. 2014d. “Union Members—2013.” [News release]. http://www.bls.gov/news.release/pdf/union2.pdf
Bureau of Labor Statistics, Employment Projections program (BLS–EP). 2014a. “Special Purpose Files—Employment Requirements; Chain-Weighted (2005 dollars) Real Domestic Employment Requirements Table for 2001″ [DAT file, converted to Excel sheet and Stata data file].
Bureau of Labor Statistics, Employment Projections program (BLS–EP). 2014b. “Special Purpose Files—Industry Output and Employment Projections: Industry Output” [DAT File, converted to Excel sheet and Stata data file].
Economic Policy Institute. 2014. “Recession has Left in its Wake a Job Shortfall of Nearly 6 Million.” The State of Working America— Economic Indicators.
McCormick, Richard. 2013. Remaking America. Washington, D.C.: Alliance for American Manufacturing.
Mishel, Lawrence. 2012. Unions, Inequality, and Faltering Middle-class Wages. Economic Policy Institute Issue Brief #342.
Scott, Robert E. 2013. Trading Away the Manufacturing Advantage: China Trade Drives Down U.S. Wages and Benefits and Eliminates Good Jobs for U.S. Workers.” Economic Policy Institute Briefing Paper #367.
Scott, Robert E. 2014a. China Trade, Outsourcing and Jobs: Growing U.S. Trade Deficit with China Cost 3.2 Million Jobs between 2001 and 2013, With Job Losses in Every State. Economic Policy Institute Briefing Paper #385.
Scott, Robert E. 2014b. Stop Currency Manipulation and Create Millions of Jobs: With Gains across States and Congressional Districts. Economic Policy Institute Briefing Paper #372.
U.S. Census Bureau. Various years. Current Population Survey Outgoing Rotation Group microdata. Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics [machine readable microdata file]. Washington, D.C.: U.S. Census Bureau. http://www.bls.census.gov/ftp/cps_ftp.html#cpsbasic
U.S. Census Bureau. 2013. “American Community Survey: Special Tabulation over 45 industries, Covering 435 Congressional Districts and the District of Columbia (113th Congress Census Boundaries), Plus State and US Totals Based on ACS 2011 1-year file” [spreadsheets received March 6].
U.S. Census Bureau. 2014a. “Foreign Trade, Historical Series, U.S. International Trade in Goods and Services — Annual goods (BOP Basis), services, and total balance, exports and imports, 1960–present.” Spreadsheet, downloaded Nov. 12.
U.S. Census Bureau. 2014b. “U.S. International Trade in Goods and Services – (FT900): Exhibit 1- U.S. International Trade in Goods and Services.” Spreadsheet downloaded Nov. 21.
U.S. International Trade Commission (USITC). 2014. “USITC Interactive Tariff and Trade DataWeb.”
Wolfe, Raymond M. 2014. “Business R&D Performance in the United States Tops $300 Billion in 2012.” National Science Foundation, Inforbriefs, NSF 15-303. October 28.
Table 1
Table 1 (continued)
U.S. total and manufacturing employment, by region and state, 2013
Employment
Manufacturing share of total employment
Total
Manufacturing
UNITED STATES*
136,540,700
12,013,800
8.8%
NORTHEAST
25,627,500
1,864,300
7.3%
New England
7,033,100
602,400
8.6%
Connecticut
1,655,700
163,800
9.9%
Maine
601,700
50,500
8.4%
Massachusetts
3,358,100
250,400
7.5%