For the most of 2013 and in his State of the Union address this year, President Obama has supported the idea that investment in the manufacturing sector is a part of the solution to the high unemployment figures in the US. This type of thinking might have worked in the 1950s when employment in a factory was reasonably accessible but it doesn’t account for the changes to the US and global economy.
Historical figures (see table below) show that although there has been an increase in the value of output in the manufacturing sector the goods have been produced by fewer employees with the numbers falling from 19 million in 1980 to 12 million in 2012.
The employment growth has been in the service sector with a third of the total providing services to the manufacturing sector. It is thought that over 50% of the work in the manufacturing sector is services- based e.g. management, sales, support etc. As is obvious with most manufacturing industries, companies have spent more on technology and have been looking to replace labour with machines. As a result of more capital, output per worker in the whole economy increased by 85% between 1980 and 2012. However within manufacturing this increase in productivity amounted to 189%.
If manufacturing is going to generate more jobs there needs to be a greater focus on retraining workers, improvements in infrastructure and agreements that encourage foreign direct investment. Nevertheless are these reforms worthwhile as the manufacturing industry makes up for only 10% of US GDP and employs 10% of the labour force? Would the service sector be a better option?
The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.