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Manufacturing on the Ropes

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Snapshot for September 20, 2006.

Manufacturing on the Ropes

By Jared Bernstein and  L. Josh Bivens 

Recent downsizing among American automakers raises the broader question: how has American manufacturing been faring in recent years? Answer: Badly. In terms of both employment and wages, it’s been tough going for most workers in the sector.

Employment in the sector cratered during the last recession and following jobless recovery and has failed to recover since. Further, while manufacturing productivity has been particularly strong in recent years, real wages of blue-collar workers in this sector have declined steeply.

While we should expect manufacturing jobs to decline as a share of all jobs (mostly because productivity growth runs faster in manufacturing than in other sectors), the level of manufacturing employment in August 2006 (14.2 million) is near lows not seen since the 1950s.

Figure A shows the level of factory employment in previous peak years, along with the most recent month. While each peak has seen a new low, the current drop-off is truly staggering: since the last manufacturing peak year (1998), employment in the sector is down 3.4 million.

(Figure A)

Though factory employment has clearly been hemorrhaging, we might expect the strong productivity growth in manufacturing to show up in the real wages of the factory workers still on the job. But Figure B reveals steep wage losses since late 2003 for blue-collar workers. Over the past 12 months, the average real wage of these workers is down 2.7%; for all non-managers, real wages were flat over the last year.

(Figure B)

Given that the U.S. trade deficit (which has reached a historically high 6% of GDP) is driven overwhelmingly by manufactured goods trade, reducing this deficit will require a huge increase in domestic manufacturing production. The sooner this process begins, the less wrenching it will be, and the sooner manufacturing’s job recovery can occur. For now, the sector that will provide the engine to re-balancing the economy continues to sputter and stall.A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues, Snapshots are updated every Wednesday.


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