Report | Jobs and Unemployment

Manufacturing Job Loss: Trade, Not Productivity, Is the Culprit

Issue Brief #402

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Press release

The United States lost 5 million manufacturing jobs between January 2000 and December 2014. There is a widespread misperception that rapid productivity growth is the primary cause of continuing manufacturing job losses over the past 15 years. Instead, as this report shows, job losses can be traced to growing trade deficits in manufacturing products prior to the Great Recession and then the massive output collapse during the Great Recession.

Specifically, between 2000 and 2007, growing trade deficits in manufactured goods led to the loss of 3.6 million manufacturing jobs in that period. Between 2007 and 2009, the massive collapse in overall U.S. output hit manufacturing particularly hard (real manufacturing output fell 10.3 percent between 2007 and 2009). This collapse was followed by the slowest recovery in domestic manufacturing output in more than 60 years. Reasonably strong GDP growth over the past five years has not been sufficient to counter these trends; only about 900,000 of the 2.3 million manufacturing jobs lost during the Great Recession have been recovered. In addition, resurgence of the U.S. trade deficit in manufactured goods since 2009 has hurt the recovery of manufacturing output and employment.

In short, the collapse in demand during the Great Recession and ensuing glacial recovery was responsible for most or all of the 1.4 million net manufacturing jobs lost between 2007 and 2014. Between 2007 and 2014, productivity growth slowed noticeably, and manufacturing output experienced no net, real growth.

Manufacturing employment: From stability to decline

Between 1970 and 2000, manufacturing employment was relatively stable, ranging from 16.8 to 19.6 million, and generally remaining between 17 and 18 million, as shown in Figure A. However, this relationship broke down in the early 2000s, a period of rapidly growing trade deficits. At that time, manufacturing employment began a prolonged collapse, falling to a low of 11.5 million in February 2010, and recovering by December 2014 to 12.3 million, where it has remained. Overall, manufacturing lost 5 million jobs between January 2000 and December 2014.

Figure A

U.S. manufacturing employment, January 1970–December 2014 (millions of jobs)

Date Manufacturing employment (millions of jobs)
1970-01-01 18.424
1970-02-01 18.361
1970-03-01 18.36
1970-04-01 18.207
1970-05-01 18.029
1970-06-01 17.93
1970-07-01 17.877
1970-08-01 17.779
1970-09-01 17.692
1970-10-01 17.173
1970-11-01 17.024
1970-12-01 17.309
1971-01-01 17.28
1971-02-01 17.216
1971-03-01 17.154
1971-04-01 17.149
1971-05-01 17.225
1971-06-01 17.139
1971-07-01 17.126
1971-08-01 17.115
1971-09-01 17.154
1971-10-01 17.126
1971-11-01 17.166
1971-12-01 17.202
1972-01-01 17.283
1972-02-01 17.361
1972-03-01 17.447
1972-04-01 17.508
1972-05-01 17.602
1972-06-01 17.641
1972-07-01 17.556
1972-08-01 17.741
1972-09-01 17.774
1972-10-01 17.893
1972-11-01 18.005
1972-12-01 18.158
1973-01-01 18.276
1973-02-01 18.41
1973-03-01 18.493
1973-04-01 18.53
1973-05-01 18.564
1973-06-01 18.606
1973-07-01 18.598
1973-08-01 18.629
1973-09-01 18.609
1973-10-01 18.702
1973-11-01 18.773
1973-12-01 18.82
1974-01-01 18.788
1974-02-01 18.727
1974-03-01 18.7
1974-04-01 18.702
1974-05-01 18.688
1974-06-01 18.69
1974-07-01 18.656
1974-08-01 18.57
1974-09-01 18.492
1974-10-01 18.364
1974-11-01 18.077
1974-12-01 17.693
1975-01-01 17.344
1975-02-01 17.004
1975-03-01 16.853
1975-04-01 16.759
1975-05-01 16.746
1975-06-01 16.69
1975-07-01 16.678
1975-08-01 16.824
1975-09-01 16.904
1975-10-01 16.984
1975-11-01 17.025
1975-12-01 17.14
1976-01-01 17.287
1976-02-01 17.384
1976-03-01 17.47
1976-04-01 17.541
1976-05-01 17.513
1976-06-01 17.521
1976-07-01 17.524
1976-08-01 17.596
1976-09-01 17.665
1976-10-01 17.548
1976-11-01 17.682
1976-12-01 17.719
1977-01-01 17.803
1977-02-01 17.843
1977-03-01 17.941
1977-04-01 18.024
1977-05-01 18.107
1977-06-01 18.192
1977-07-01 18.259
1977-08-01 18.276
1977-09-01 18.334
1977-10-01 18.356
1977-11-01 18.419
1977-12-01 18.531
1978-01-01 18.593
1978-02-01 18.639
1978-03-01 18.699
1978-04-01 18.772
1978-05-01 18.848
1978-06-01 18.919
1978-07-01 18.951
1978-08-01 19.006
1978-09-01 19.068
1978-10-01 19.142
1978-11-01 19.257
1978-12-01 19.334
1979-01-01 19.388
1979-02-01 19.409
1979-03-01 19.453
1979-04-01 19.45
1979-05-01 19.509
1979-06-01 19.553
1979-07-01 19.531
1979-08-01 19.406
1979-09-01 19.442
1979-10-01 19.39
1979-11-01 19.299
1979-12-01 19.301
1980-01-01 19.282
1980-02-01 19.219
1980-03-01 19.217
1980-04-01 18.973
1980-05-01 18.726
1980-06-01 18.49
1980-07-01 18.276
1980-08-01 18.414
1980-09-01 18.445
1980-10-01 18.506
1980-11-01 18.601
1980-12-01 18.64
1981-01-01 18.639
1981-02-01 18.613
1981-03-01 18.647
1981-04-01 18.711
1981-05-01 18.766
1981-06-01 18.789
1981-07-01 18.785
1981-08-01 18.748
1981-09-01 18.712
1981-10-01 18.566
1981-11-01 18.409
1981-12-01 18.223
1982-01-01 18.047
1982-02-01 17.981
1982-03-01 17.857
1982-04-01 17.683
1982-05-01 17.588
1982-06-01 17.43
1982-07-01 17.278
1982-08-01 17.16
1982-09-01 17.074
1982-10-01 16.853
1982-11-01 16.722
1982-12-01 16.69
1983-01-01 16.705
1983-02-01 16.706
1983-03-01 16.711
1983-04-01 16.794
1983-05-01 16.885
1983-06-01 16.96
1983-07-01 17.059
1983-08-01 17.118
1983-09-01 17.255
1983-10-01 17.367
1983-11-01 17.479
1983-12-01 17.551
1984-01-01 17.63
1984-02-01 17.728
1984-03-01 17.806
1984-04-01 17.872
1984-05-01 17.916
1984-06-01 17.967
1984-07-01 18.013
1984-08-01 18.034
1984-09-01 18.019
1984-10-01 18.024
1984-11-01 18.016
1984-12-01 18.023
1985-01-01 18.009
1985-02-01 17.966
1985-03-01 17.939
1985-04-01 17.886
1985-05-01 17.855
1985-06-01 17.819
1985-07-01 17.776
1985-08-01 17.756
1985-09-01 17.718
1985-10-01 17.708
1985-11-01 17.697
1985-12-01 17.693
1986-01-01 17.686
1986-02-01 17.663
1986-03-01 17.624
1986-04-01 17.616
1986-05-01 17.593
1986-06-01 17.53
1986-07-01 17.497
1986-08-01 17.489
1986-09-01 17.498
1986-10-01 17.477
1986-11-01 17.472
1986-12-01 17.478
1987-01-01 17.465
1987-02-01 17.499
1987-03-01 17.507
1987-04-01 17.525
1987-05-01 17.542
1987-06-01 17.537
1987-07-01 17.593
1987-08-01 17.63
1987-09-01 17.691
1987-10-01 17.729
1987-11-01 17.775
1987-12-01 17.809
1988-01-01 17.79
1988-02-01 17.823
1988-03-01 17.844
1988-04-01 17.874
1988-05-01 17.892
1988-06-01 17.916
1988-07-01 17.926
1988-08-01 17.891
1988-09-01 17.914
1988-10-01 17.966
1988-11-01 18.003
1988-12-01 18.025
1989-01-01 18.057
1989-02-01 18.055
1989-03-01 18.06
1989-04-01 18.055
1989-05-01 18.04
1989-06-01 18.013
1989-07-01 17.98
1989-08-01 17.964
1989-09-01 17.922
1989-10-01 17.895
1989-11-01 17.886
1989-12-01 17.881
1990-01-01 17.797
1990-02-01 17.893
1990-03-01 17.868
1990-04-01 17.845
1990-05-01 17.797
1990-06-01 17.776
1990-07-01 17.704
1990-08-01 17.649
1990-09-01 17.609
1990-10-01 17.577
1990-11-01 17.428
1990-12-01 17.395
1991-01-01 17.33
1991-02-01 17.211
1991-03-01 17.14
1991-04-01 17.093
1991-05-01 17.07
1991-06-01 17.044
1991-07-01 17.015
1991-08-01 17.025
1991-09-01 17.01
1991-10-01 16.999
1991-11-01 16.961
1991-12-01 16.916
1992-01-01 16.839
1992-02-01 16.829
1992-03-01 16.805
1992-04-01 16.831
1992-05-01 16.835
1992-06-01 16.826
1992-07-01 16.819
1992-08-01 16.783
1992-09-01 16.761
1992-10-01 16.751
1992-11-01 16.758
1992-12-01 16.769
1993-01-01 16.791
1993-02-01 16.805
1993-03-01 16.795
1993-04-01 16.772
1993-05-01 16.766
1993-06-01 16.742
1993-07-01 16.739
1993-08-01 16.741
1993-09-01 16.769
1993-10-01 16.778
1993-11-01 16.8
1993-12-01 16.815
1994-01-01 16.855
1994-02-01 16.862
1994-03-01 16.897
1994-04-01 16.933
1994-05-01 16.962
1994-06-01 17.01
1994-07-01 17.026
1994-08-01 17.081
1994-09-01 17.115
1994-10-01 17.144
1994-11-01 17.186
1994-12-01 17.217
1995-01-01 17.262
1995-02-01 17.265
1995-03-01 17.263
1995-04-01 17.278
1995-05-01 17.259
1995-06-01 17.247
1995-07-01 17.218
1995-08-01 17.24
1995-09-01 17.247
1995-10-01 17.216
1995-11-01 17.209
1995-12-01 17.231
1996-01-01 17.208
1996-02-01 17.229
1996-03-01 17.193
1996-04-01 17.204
1996-05-01 17.222
1996-06-01 17.226
1996-07-01 17.223
1996-08-01 17.255
1996-09-01 17.252
1996-10-01 17.268
1996-11-01 17.277
1996-12-01 17.284
1997-01-01 17.297
1997-02-01 17.316
1997-03-01 17.34
1997-04-01 17.349
1997-05-01 17.362
1997-06-01 17.387
1997-07-01 17.389
1997-08-01 17.452
1997-09-01 17.465
1997-10-01 17.513
1997-11-01 17.556
1997-12-01 17.588
1998-01-01 17.619
1998-02-01 17.627
1998-03-01 17.637
1998-04-01 17.637
1998-05-01 17.624
1998-06-01 17.608
1998-07-01 17.422
1998-08-01 17.563
1998-09-01 17.557
1998-10-01 17.512
1998-11-01 17.465
1998-12-01 17.449
1999-01-01 17.427
1999-02-01 17.395
1999-03-01 17.368
1999-04-01 17.344
1999-05-01 17.333
1999-06-01 17.295
1999-07-01 17.308
1999-08-01 17.287
1999-09-01 17.281
1999-10-01 17.272
1999-11-01 17.282
1999-12-01 17.28
2000-01-01 17.284
2000-02-01 17.285
2000-03-01 17.302
2000-04-01 17.298
2000-05-01 17.279
2000-06-01 17.296
2000-07-01 17.322
2000-08-01 17.287
2000-09-01 17.23
2000-10-01 17.217
2000-11-01 17.202
2000-12-01 17.181
2001-01-01 17.104
2001-02-01 17.028
2001-03-01 16.938
2001-04-01 16.802
2001-05-01 16.661
2001-06-01 16.515
2001-07-01 16.382
2001-08-01 16.232
2001-09-01 16.117
2001-10-01 15.972
2001-11-01 15.825
2001-12-01 15.711
2002-01-01 15.587
2002-02-01 15.515
2002-03-01 15.443
2002-04-01 15.392
2002-05-01 15.337
2002-06-01 15.298
2002-07-01 15.256
2002-08-01 15.171
2002-09-01 15.119
2002-10-01 15.06
2002-11-01 14.992
2002-12-01 14.912
2003-01-01 14.866
2003-02-01 14.781
2003-03-01 14.721
2003-04-01 14.609
2003-05-01 14.557
2003-06-01 14.493
2003-07-01 14.402
2003-08-01 14.376
2003-09-01 14.347
2003-10-01 14.334
2003-11-01 14.316
2003-12-01 14.3
2004-01-01 14.29
2004-02-01 14.279
2004-03-01 14.287
2004-04-01 14.315
2004-05-01 14.342
2004-06-01 14.332
2004-07-01 14.33
2004-08-01 14.345
2004-09-01 14.331
2004-10-01 14.332
2004-11-01 14.307
2004-12-01 14.287
2005-01-01 14.257
2005-02-01 14.273
2005-03-01 14.269
2005-04-01 14.25
2005-05-01 14.256
2005-06-01 14.227
2005-07-01 14.226
2005-08-01 14.203
2005-09-01 14.175
2005-10-01 14.192
2005-11-01 14.187
2005-12-01 14.193
2006-01-01 14.21
2006-02-01 14.209
2006-03-01 14.214
2006-04-01 14.226
2006-05-01 14.203
2006-06-01 14.213
2006-07-01 14.188
2006-08-01 14.159
2006-09-01 14.125
2006-10-01 14.075
2006-11-01 14.041
2006-12-01 14.015
2007-01-01 14.008
2007-02-01 13.997
2007-03-01 13.97
2007-04-01 13.945
2007-05-01 13.929
2007-06-01 13.911
2007-07-01 13.889
2007-08-01 13.828
2007-09-01 13.79
2007-10-01 13.764
2007-11-01 13.757
2007-12-01 13.746
2008-01-01 13.725
2008-02-01 13.696
2008-03-01 13.659
2008-04-01 13.599
2008-05-01 13.564
2008-06-01 13.504
2008-07-01 13.43
2008-08-01 13.358
2008-09-01 13.275
2008-10-01 13.147
2008-11-01 13.034
2008-12-01 12.85
2009-01-01 12.561
2009-02-01 12.38
2009-03-01 12.208
2009-04-01 12.03
2009-05-01 11.862
2009-06-01 11.726
2009-07-01 11.668
2009-08-01 11.626
2009-09-01 11.591
2009-10-01 11.538
2009-11-01 11.509
2009-12-01 11.475
2010-01-01 11.46
2010-02-01 11.453
2010-03-01 11.453
2010-04-01 11.489
2010-05-01 11.525
2010-06-01 11.545
2010-07-01 11.561
2010-08-01 11.553
2010-09-01 11.563
2010-10-01 11.562
2010-11-01 11.585
2010-12-01 11.595
2011-01-01 11.618
2011-02-01 11.653
2011-03-01 11.67
2011-04-01 11.7
2011-05-01 11.712
2011-06-01 11.724
2011-07-01 11.742
2011-08-01 11.766
2011-09-01 11.771
2011-10-01 11.776
2011-11-01 11.774
2011-12-01 11.799
2012-01-01 11.834
2012-02-01 11.857
2012-03-01 11.899
2012-04-01 11.916
2012-05-01 11.93
2012-06-01 11.941
2012-07-01 11.965
2012-08-01 11.961
2012-09-01 11.948
2012-10-01 11.951
2012-11-01 11.947
2012-12-01 11.961
2013-01-01 11.98
2013-02-01 12.002
2013-03-01 12.006
2013-04-01 12.006
2013-05-01 12.007
2013-06-01 12.005
2013-07-01 11.983
2013-08-01 12.011
2013-09-01 12.022
2013-10-01 12.04
2013-11-01 12.072
2013-12-01 12.086
2014-01-01 12.102
2014-02-01 12.122
2014-03-01 12.131
2014-04-01 12.142
2014-05-01 12.154
2014-06-01 12.177
2014-07-01 12.191
2014-08-01 12.205
2014-09-01 12.214
2014-10-01 12.237
2014-11-01 12.282
2014-12-01 12.301
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Employment growth in any sector is equal to the difference between growth in output and productivity (output per hour of work).1 Over the long run, output growth spurs employment while productivity growth dampens it. Between 1989 and 2000, manufacturing output and productivity growth averaged, respectively, 3.7 percent and 4.1 percent per year. As a result, the two largely offset one another and manufacturing employment was relatively stable, declining 0.3 percent per year, as shown in Figure B. In these figures output refers to the rate of growth of real gross domestic product in manufacturing (BLS 2015b), productivity growth is the average change in output per worker hour in the given period, and employment is a measure of total hours worked in manufacturing (BLS 2008).

Figure B

Average annual change in output, productivity, and employment growth in U.S. manufacturing, 1989–2014

Output Productivity Employment (hours)
1989–2000 3.7% 4.1% -0.3%
2000–2007 0.5% 3.7% -3.1%
2007–2014 0.0% 1.7% -1.6%
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Between 2000 and 2007, productivity growth declined slightly, relative to the previous decade, falling from 4.1 percent per year in the 1990s to 3.7 percent per year.2 Domestic output growth dropped to only 0.5 percent per year. As a result, employment fell 3.1 percent per year between 2000 and 2007. Although not shown in the graph, overall, total hours declined 19.3 percent between 2000 and 2007, and 3.6 million manufacturing jobs were lost in this period.

Clearly, the sharp drop in the rate of growth of manufacturing output between 2000 and 2007 was responsible for the huge decline in manufacturing employment. Had output grown at the same rate of 3.7 percent per year that it did in the 1990s, employment would have been stable in this period. As discussed in the next section, rapid growth of the manufacturing trade deficit was the most important cause of the slow rate of annual growth in manufacturing output between 2000 and 2007.

Manufacturing productivity growth slowed noticeably between 2007 and 2014, falling to 1.7 percent per year, as shown in Figure B. This is explained, in part, by stagnation in manufacturing output, which did not change at all over this period. The stagnation of manufacturing output over this seven-year period reflects the massive collapse of output during the Great Recession, which hit manufacturing particularly hard (real manufacturing output fell 10.3 percent between 2007 and 2009), followed by the slowest recovery in total domestic output (GDP) in more than 60 years. The Great Recession and weak domestic recovery are the primary causes of the 1.4 million manufacturing jobs lost between 2007 and 2014. Overall the 1.7 percent average annual growth in productivity and the 0.0 percent rise in annual output explain the 1.6 percent annual rate of decline in manufacturing employment (hours) in the 2007–2014 period shown in Figure B.

The effects of growing trade deficits on manufacturing employment

Exports boost the demand for U.S. output while imports reduce demand for U.S. output. More than three-fourths of all U.S. traded goods are manufactured products, so goods trade most directly affects manufacturing output.3 Thus, increases in net exports (the trade balance) increase the demand for manufactured products, and increases in net imports (the trade deficit) reduce the demand for manufactured goods. The U.S. has run a goods trade deficit in every year since 1974 (U.S. Census Bureau 2015a).

The U.S. had a relatively small and stable manufacturing trade deficit between 1989 and 1997; it never exceeded $131 billion annually, and it never exceeded 1.7 percent of GDP (as shown in Figure C; dollars and share of GDP are shown on the left and right axes, respectively) in the wake of the dollar crisis in the mid-1980s (Scott 2009, Figure A). The U.S. manufacturing trade deficit began to rise sharply after the Asian financial crisis of 1997–1998 (Nanto 1998). The manufacturing trade deficit peaked at $558.5 billion in 2006 (and crested at 4.1 percent of GDP in 2005), as shown in Figure C.

Figure C

U.S. manufacturing goods trade deficit, 1989–2014

Manufacturing deficit as a share of GDP [seriesoptions yaxis2] Manufacturing deficit
1989 1.7% $97.7
1990 1.1% 64.9
1991 0.5% 32.5
1992 0.7% 47.7
1993 1.1% 72.4
1994 1.4% 103.7
1995 1.5% 113.8
1996 1.4% 110.7
1997 1.5% 130.6
1998 2.1% 186.5
1999 2.7% 259.0
2000 3.1% 317.2
2001 2.9% 304.1
2002 3.3% 362.6
2003 3.5% 403.1
2004 4.0% 487.4
2005 4.1% 541.4
2006 4.0% 558.5
2007 3.7% 532.2
2008 3.1% 456.2
2009 2.2% 319.5
2010 2.8% 412.7
2011 2.8% 440.6
2012 2.8% 458.7
2013 2.7% 448.1
2014 3.0% 514.6
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Source: EPI analysis of U.S. International Trade Commission (2015) and Bureau of Economic Analysis (2015a)

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The trade deficit in manufactured goods fell sharply in the wake of the Great Recession to $319.5 billion (2.2 percent of GDP) in 2009, a nominal decline of 40 percent between 2007 and 2009. This sharp decline was due, in part, to the financial crisis, which greatly restricted the availability of short-term trade finance (Wynn 2009). Trade flows recovered as the economy began to recover in 2010, and the manufacturing trade deficit reached $514.6 billion in 2014 (3.0 percent of GDP). The resurgence of the U.S. trade deficit in manufactured goods since 2009 has hurt the recovery of manufacturing output and employment.

The manufacturing trade deficit increased sharply in 2014 (up 14.8 percent from 2013), threatening the manufacturing recovery. Recent increases in the real value of the dollar, which rose 19.7 percent against a basket of major currencies between December 2013 and March 2015, threaten to depress U.S. exports and increase imports, leading to future growth in U.S. trade deficits in manufactured goods and other products (Board of Governors of the Federal Reserve System 2015).

The U.S. trade deficit in manufactured products increased 15.7 percent ($25.7 billion) in the first quarter of 2015 (U.S. Census Bureau 2015b). Continued growth in the manufactured goods trade deficit would put downward pressure on manufacturing output and employment going forward.

The relationship between manufacturing output and trade in manufactured goods

Figure D examines the relationship between real (price adjusted) output and the trade deficit in manufactured products. Output in this figure represents real value added in manufacturing. Value added is the sum of direct contributions to the value of manufactured products, including compensation of employees (labor), gross operating surplus (capital), and taxes on production and imports, minus subsidies. The sum of value added over all sectors of the economy is equal to total gross domestic product.

Figure D

Real value added of U.S. manufacturing, 1989–2014 (trillions of dollars)

Actual and balanced manufacturing trade Counterfactual: 3.7% growth through 2014 Actual value added
1989 $1.197 1.076 1.076
1990 1.138 1.062 1.062
1991 1.096 1.046 1.046
1992 1.144 1.081 1.081
1993 1.219 1.124 1.124
1994 1.331 1.198 1.198
1995 1.388 1.248 1.248
1996 1.429 1.287 1.287
1997 1.547 1.365 1.365
1998 1.715 1.431 1.431
1999 1.872 1.509 1.509
2000 1.994 1.603 1.603
2001 1.941 1.662 1.539
2002 2.040 1.724 1.554
2003 2.147 1.787 1.632
2004 2.319 1.853 1.738
2005 2.357 1.922 1.777
2006 2.433 1.993 1.865
2007 2.446 2.066 1.925
2008 2.209 2.142 1.869
2009 2.046 2.221 1.727
2010 2.188 2.303 1.818
2011 2.172 2.388 1.823
2012 2.195 2.476 1.837
2013 2.223 2.568 1.863
2014 2.340  2.663  1.924 
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Source: EPI analysis of Bureau of Economic Analysis (2015a) and U.S. International Trade Commission (2015)

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Value added differs significantly from output as measured in Figure B, earlier. Output as reported in Figure B is from the Bureau of Labor Statistics, and is based on a national accounting formula that is derived from the Bureau of Economic Analysis’s National Income and Product Accounts. According to the BLS (2008, 1-2), “the output measures represent deliveries of final goods and services by the sector to domestic households, investment, government and nonprofit institutions, and net exports to other countries.” Essentially, this measure includes value added and intermediate goods and services (domestic and imported) used to produce goods for final demand, but excludes value added produced for use as intermediate inputs in other sectors. Since sales of intermediates to other sectors are excluded from the BLS output series, the BLS output index grew much more slowly than value added between 2000 and 2007. Output increased 0.5 percent per year in the BLS productivity series in this period (Figure B, above). Real value added in manufacturing increased 2.6 percent per year, as shown by the underlying data for Figure D.

Figure D includes several measures of real manufacturing value added (output) and trade. The solid bottom line reports real U.S. manufacturing value added. The growth of manufacturing output slowed dramatically after 2000, which sharply reduced manufacturing employment, as shown above. This confirms the slowdown in manufacturing output growth shown in Figure B, above.

The dotted line is a counterfactual forecast that shows what manufacturing value added would have been had manufacturing output continued to grow at the same rate that it did between 1989 and 2000 (3.7 percent per year, as shown in Figure B). Recall from Figure B that productivity grew 3.7 percent per year between 2000 and 2007, so if output had also grown at that 3.7 percent rate, or faster, manufacturing employment would have remained roughly stable in that period, as it was in the 1990s.

The counterfactual provides a baseline for evaluating the effects of changes in trade on the net demand for manufactured products in the United States. The top solid line in Figure D is the sum of domestic manufacturing output plus net manufactured imports into the United States (i.e., imports minus exports).4 It is a measure of both domestic demand for domestic manufactured products and net imports of manufactured products.

Between 2000 and 2008, the top line lies above the counterfactual, indicating that had manufacturing trade been balanced, growth would have been sufficient to ensure stable or growing manufacturing employment in the 2000–2007 period. In fact, had the manufacturing trade balance simply remained constant between 2000 and 2007, the manufacturing value added would have increased 3.6 percent per year, roughly in line with the growth of productivity (3.7 percent, as shown in Figure B). The real value of the trade deficit in manufactured goods increased from $391 billion in 2000 to a peak of $568 billion in 2006 before receding to $521 billion in 2007, as shown by the underlying data in Figure D.5 Thus, the growth in the manufacturing trade deficit was responsible for all, or virtually all, of the 3.6 million manufacturing jobs lost between 2000 and 2007. Manufacturing job loss in this period accounts for 72 percent, or nearly three-fourths, of all manufacturing jobs lost between 2000 and 2014.

There was no growth in real manufacturing output between 2007 and 2014. This was shown in Figure B (using BLS output data) and in Figure D (real manufacturing value added was essentially unchanged over this seven-year period). Real manufacturing value added declined sharply between 2007 and 2009 (down 10.3 percent), and then recovered only slowly. However, growth of the manufacturing trade deficit after 2009 (as shown in Figure C) also contributed to the slow growth of manufacturing output.

The longest postwar manufacturing recession prior to 2007 occurred in the 1979–1983 period (Bureau of Economic Analysis 2015b). By 1984 (five years after the start of this recession), manufacturing output had exceeded its previous peak. Thus, the net loss of manufacturing employment between 2007 and 2014 shown above is largely explained by the collapse in manufacturing output during the Great Recession and the subsequent weak recovery in domestic demand for manufactured products. Therefore, slow growth in the wake of the Great Recession is responsible for most or all of the 1.4 million net manufacturing jobs lost between 2007 and 2014, 28 percent of total manufacturing jobs lost between 2000 and 2014.

Conclusion: Ending the Great Recession in manufacturing

The leading cause of growing U.S. trade deficits is currency manipulation, which distorts trade flows by artificially lowering the cost of U.S. imports and raising the cost of U.S. exports. More than 20 countries, led by China, have been spending about $1 trillion per year buying foreign assets to artificially suppress the value of their currencies (Bergsten and Gagnon 2012). Ending currency manipulation can create between 2.3 million and 5.8 million jobs for working Americans, and about 40 percent of those jobs (between 891,500 and 2.3 million) would be in manufacturing (Scott 2014).

We also need to reform and aggressively enforce U.S. fair trade laws in order to reduce or eliminate the flood of illegally dumped and subsidized imports of steel and many other manufactured products (Stewart et al. 2014).

The United States also has a major infrastructure shortfall. The American Society of Civil Engineers (2014) has estimated that the United States needs to invest $3.6 trillion in rebuilding U.S. infrastructure by 2020. Bivens (2014) has estimated that a debt-financed investment of $250 billion per year could create up to 3 million new jobs, and that these jobs could be sustained for over seven years. Construction and manufacturing are two of the most prominent input supplier sectors in infrastructure investment packages. As a first step, Congress needs to approve a multi-year extension of federal transportation funding, which is currently being held up in the House of Representatives (Laing 2015).

Infrastructure investment could also reduce the demand shortfall that has impeded recovery from the Great Recession. As of July 2015, 2.9 million jobs are still needed to create enough payroll employment to absorb the excess unemployment and labor-force growth that has occurred since the previous business cycle peak in December 2007 (EPI 2015).

Taken together, steps to eliminate trade deficits (by ending currency manipulation and unfair trade) and rebuild U.S. infrastructure could easily generate sufficient demand for manufactured products to return most or all of the 5 million manufacturing jobs lost between 2000 and 2014. Growing trade deficits and the shortfall in demand caused by the Great Recession, and not productivity growth, are the major causes of manufacturing job loss in this period.

Acknowledgments

The author thanks Josh Bivens for comments, and William Kimball for research assistance.

About the author

Robert E. Scott is director of trade and manufacturing policy research at the Economic Policy Institute. He joined EPI as an international economist in 1996. Before that, he was an assistant professor with the College of Business and Management at the University of Maryland at College Park. His areas of research include international economics and trade agreements 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 a Ph.D. in economics from the University of California-Berkeley.

Endnotes

1. Productivity equals output or labor input, or l = Y/L, where l = labor productivity, Y equals total output, and L equals the total labor input (in hours). In terms of rates of change, dl = dY – dL, where d stands for the derivative (or the annual rate of growth) of each of the terms in the previous equation. Rearranging terms yields dL = dY – dl.

2. Total hours worked and total employment follows a similar trend. Between the fourth quarter of 2000 and the fourth quarter of 2007, total hours fell 19.3 percent; between December 2000 and December 2007, total employment declined 20.0 percent (BLS 2015b).

3. Manufactured goods made up 87.7 percent of U.S. goods exports and 77.8 percent of U.S. goods imports in 2014 (USITC 2015). Crude oil imports made up an additional 14.1 percent of U.S. goods imports in 2014.

4. Net manufactured imports equal -1 times the manufacturing trade deficit. It is a measure of the leakage of demand to foreign producers of manufactured products. Nominal manufacturing trade data have been converted to real dollars in Figure D using GDP price deflators for goods imports and exports (Bureau of Economic Analysis 2015c).

5. The real manufacturing trade balance is equal to the difference between “actual and balanced manufacturing trade” and “actual” in Figure D.

References

American Society of Civil Engineers. 2014. 2013 Report Card for America’s Infrastructure.

Bergsten, C. Fred, and Joseph E. Gagnon. 2012. Currency Manipulation, the US Economy, and the Global Economic Order. Peterson Institute for International Economics, Policy Brief 12-25.

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.

Board of Governors of the Federal Reserve System. 2015. “Foreign Exchange Rates – H.10, Price-adjusted Major Currencies Dollar Index—Monthly Index.”

Bureau of Economic Analysis. 2015a. “Annual Industry Accounts: Gross Domestic Product (GDP) by Industry.”

Bureau of Economic Analysis. 2015b. “Historical Industry Accounts Data: GDP by Industry Accounts.”

Bureau of Economic Analysis. 2015c. “National Data: GDP & Personal Income.”

Bureau of Labor Statistics (BLS). 2008. “Technical Information about the BLS Major Sector Productivity and Cost Measures.” March 11. [PDF].

Bureau of Labor Statistics (BLS). 2015a. “Current Employment Statistics. Employment, Hours and Earnings — National [CES database].

Bureau of Labor Statistics (BLS). 2015b. “Labor Productivity and Costs: Major Sector Productivity and Costs.”

Economic Policy Institute. 2015. “Recession Has Left in Its Wake a Jobs Shortfall of 3 Million: Payroll Employment and the Number of Jobs Needed to Keep Up with the Growth in the Potential Labor Force.” The State of Working America, July 2.

Eldridge, Lucy P., and Michael J. Harper. 2010. “Effects of Imported Intermediate Inputs on Productivity.” Monthly Labor Review. June. [PDF]

Laing, Keith.  2015.  “House Dems Lament Latest Highway Patch.”  The Hill, July 30.

Nanto, Dick K. 1998. “The 1997-98 Financial Crisis.” Congressional Research Service Report for Congress. February 6.

Scott, Robert E. 2009. Re-balancing U.S. Trade and Capital Accounts. Economic Policy Institute Working Paper #286.

Scott, Robert E. 2014. Stop Currency Manipulation and Create Millions of Jobs: With Gains across States and Congressional Districts. Economic Policy Institute Briefing Paper No. 372.

Stewart, Terence P., Elizabeth Drake, Jessica Wang, Stephanie Bell and Robert E. Scott. 2014. Surging Steel Imports Put Up To Half a Million U.S. Jobs at Risk. Economic Policy Institute Briefing Paper #376.

U.S. Census Bureau. 2015a. “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.”

U.S. Census Bureau. 2015b. “U.S. International Trade in Goods and Services (FT900).”

U.S. International Trade Commission (USITC). 2015. “USITC Interactive Tariff and Trade DataWeb.”

Wynn, Mark. 2009. “The Financial Crisis, Trade Finance and the Collapse of World Trade.” Globalization of Monetary Policy Institute 2009 Annual Report. Federal Reserve Bank of Dallas.

 


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