I covered this topic eight years ago (http://econlives.blogspot.com/2015/11/) and, given the goverment's industrial policies emphasizing support for manufacturing, it is now a good time to revisit it. My argument then was that the idea that reshoring manufacturing would bring back jobs was misleading. Production and shipments were increasing but the number of jobs was mostly declining, even though jobs may have increased in a few short periods.
The recent push towards manufacturing has resulted in a surge in the construction of manufacturing structures. In the seven-year period between 2015 and 2021, spending for manufacturing construction averaged $77 billion annually. Spending jumped to $117 billion last year, and is currently running at over $206 billion. That is, more than twice the two years ago pace. Historically, manufacturing was 7% of all private construction but this year it has nearly doubled to 13% of the total.
All of this construction should lead to increases in manufacturing output and employment. Although the extent to which employment will increase is unclear. It depends on, among other factors, on the specific manufacturing industry where construction is taking place, and on how capital intensive is the investment effort.
The chart below shows manufacturing employment back to 1939, where we have indicated a few economic events or government policies impacting the manufacturing sector. We must keep in mind that their effect on employment is not immediate, but takes some time to work itself through the economy. For example, the signing of the NAFTA agreement on January 1994 did not result in the "giant sucking sound" of jobs lost to Mexico, predicted by Ross Perot during his failed presidential campaign. Manufacturing jobs continued to rise for at least another four years until the "dot com" recession around the turn of the century drove manufacturing employment and production down.
Economic recessions do show a clear impact typically with a contemporaneous decline in employment. This is partly because changes in employment are one of the key factors used to define an economic recession.
Manufacturing employment drops during recessions, sometimes very dramatically. For the twelve recessions covered in the chart above, manufacturing employment fell at twice the rate of overall private jobs. For the period covered in the chart, private jobs fell an average 4.5% in recessions, but manufacturing dropped a larger 8.5%. In only one recession, the "Covid" one early in 2020, we find manufacturing employment falling less than overall employment.
Looking back at the Great Recession, that is between December 2007 through June 2009, we find that the number of manufacturing jobs fell by over two million, or a 15% drop in under two years. The decline in manufacturing jobs was more than twice the drop in private sector employment overall, which saw a 6.5% reduction during the recession.
But since mid-2009, when the recession was officially over, manufacturing jobs have increased by 1.2 million. That is, today there are 10.5% more jobs than were back at the bottom of the recession. Despite these gains employment is still a long way from the pre-recession, December 2007 level of 13.7 million jobs- that is 786 thousand more jobs than today.
Looking at a shorter time period, shown by the chart above, we see in the left panel the trend in number of manufacturing jobs since January 2010. Employment rose roughly one percent annually until reaching a high of 12.8 million in January 2019. It declined slowly for the following twelve months until February 2020 when the government-mandated Covid shutdown caused a collapse in manufacturing employment, bringing it down to 11.41 million. Note employment is lower than in Feb/Mar of 2010 at the bottom of the 2007-09 recession.
The economy rebounded sharply when the economy opened up around June 2020. While manufacturing employment rose just 0.1% monthly between 2010 and 2019, the monthly increase between April 2020 and December of last year jumped to 0.4%. By the end of last year it exceeded pre-pandemic level, but growth has stagnated this year, as can be seen in the right panel of the chart above. Growth flattened and, in fact, we can visually appreciate a modest declining trend. The surge in employment ended at the beginning of this year.
Manufacturing continues to lose ground
Even though manufacturing employment has generally increased since 2010, ignoring the sharp drop during Covid, the sector has lost ground compared to total employment.
The services sector has gained importance, with service jobs replacing all the goods-producing ones. Among all goods-producing industries manufacturing posts the biggest declines. Its share all jobs fell 24% over the last 75 years. This decline is much greater than most other sectors, the next highest drop is the Federal Government whose employment share is currently only 2.3% lower than in 1948, and Information down 2.0%.
Within services, Professional & Business Services has gained the most. Currently, it accounts for 23.0 million jobs, that is 14.6% of total employment. This sector represented 6.5% of all jobs back in 1948 and it currently is holds the largest number of jobs, even exceeding government employment which had the most workers until February 2022.
Wages in Manufacturing Jobs
A key claim of the government's industrial policy is that it supports investments in manufacturing with the promise of "high-paying" jobs. However, "high-paying" depends on which specific industry within manufacturing sector gets the support. Also, whether the emphasis is on all workers or just production workers.
Overall, manufacturing jobs post an average hourly wage of $32.87, that is 12% higher than average for all private sector workers. However, all production and nonsupervisory workers, that is "blue collar" workers, have an hourly wage of $27.87 or 9% below the average for all private business workers.
The chart below displays data for "all workers" in a number of industries in manufacturing, with the vertical axis displaying the average hourly wage, and the number of jobs change since 2010 along the horizontal axis. Each circle is a manufacturing industry with the area of the circle reflecting the number of jobs- bigger circles indicate greater employment. Note that we duplicate some of the data in the chart. That is, some circles reflect industries that may be included in other circles. Such is the case for Aircraft, shown at the top of the chart, which is included in the Aerospace circle shown immediately below.
We can see there are many industries within manufacturing whose wages are below the national average. There is no clear pattern and very low correlation between industry size and average wage, or employment change and average wage. We are as likely to see a large industry, i.e. a bigger circle, with high or low wages. Nonetheless, it's clear that the more technical industries, e.g. Computers, demand higher wages than more prosaic industries such as Food or Apparel.
We said above that there is a wide range in manufacturing wages among the individual segments or industries. They range from a low average wage of $23.21 an hour for Animal Slaughter, or $23.36 for Seafood Processing. Note that the data exclude benefits or any other payments outside the stated hourly wage.
At the high end of the range we find workers in Aircraft manufacturing earn an average of $53.28 an hour. Manufacturing of Semiconductors & Electronic Components command $46.49 an hour, and manufacturing workers in instruments for Navigation, Measurement and Control make an average $45.28 an hour.
In the chart below we show the range in hourly wages of the major industry groups within manufacturing. Note that the manufacturing groups shown include several industries. For instance, Transportation Equipment with an average wage of $38.06 includes Aircraft Manufacturing with an average $53.28, Motor Vehicles ($38.26), Vehicle Parts ($29.41) among others.
Government support of manufacturing thus has a different impact on which sector or industry is chosen. Even picking a sector that currently pays relatively high wages, such as Motor Vehicles contains several industries feeding it with lower than average wages. Manufacturing industries feeding it include Vehicle Body Work with $29.54 hourly wage, Vehicle Parts with $29.41, and Vehicle Electric Equipment manufacturers with a $28.00 hourly wage.
