ADVERTISEMENT
blog header

The Shrinking Manufacturing Industry in America

By Katie Bardaro, PayScale.com

This blog post is sponsored by GE but views expressed are those of PayScale.com.


How has the workforce changed in America since 1960? GE recently released an interactive data visualization titled, “Working in America?” which examines employment trends in 12 sectors over the last 50+ years (from 1960 to 2011). Not surprisingly, manufacturing showed up as an industry that has experienced dramatic ups and downs in the last five decades – and the drama continues.

Manufacturing Since the 1960s

In 1960, manufacturing was the highest employing sector with ~15.4 million employees, representing 21 percent of the total labor force. By 2011, its labor force percentage had reduced to nearly a third of its former glory – dropping to only 7.5 percent of the total labor force. This drop puts the manufacturing sector in the sixth position behind now heavier hitters like trade, transportation, & utilities; government; education & health services; professional & business services; and leisure & hospitality for total number of workers in 2011.

GE-visualization-manufacturing-industry
Image credit: Periscopic

Several economic developments have contributed to this long-term decline in labor force representation for manufacturing. Among these, two stand out:

  1. Technological Innovation
    In the early 20th century, Henry Ford revolutionized the auto manufacturing industry by using the assembly line. This mass production technique was picked up by other firms and remained the main way to manufacture goods in bulk through the 1970s. During this period of time, employment in the manufacturing sector remained on top. Then, in the early 1980s, the use of industrial robots started to propagate throughout U.S. manufacturing firms. By automating production through the use of industrial robots, the need for human labor greatly decreased. As more companies realized the benefit of production automation over increased human labor (e.g., higher productivity, lower variable costs, continuous precision in repetitive tasks, etc.), the representation of workers in this sector fell.

  2. Outsourced Labor
    Growth in foreign markets, most notably China, who produce and export less expensive manufactured goods have chipped away at the domestic production of manufactured goods. In fact, according to the Curious Cat Economics Blog, China has now overtaken the U.S. in total manufacturing output:

    Curious-Cat-Economics-Blog-Graph

    This type of trend (increased output from China) is largely driven by the cheaper labor costs in China ($3.10/hour in China vs. >$15.00/hour in the U.S. for manufacturing labor.) In turn, these cheap labor costs are driving up the prevalence of U.S. companies outsourcing labor. In fact, a Wall Street Journal report found that U.S. corporations cut domestic workforces by 2.9 million employees and hired 2.4 million employees overseas over the last decade. (Note: this is for all industries, not just manufacturing.)

What About the Great Recession?

As you are likely aware, the manufacturing sector of the economy took a big hit in the Great Recession (December of 2007 through June of 2009). Many factories closed their doors, while others laid off a significant portion of their workforce. In fact, GE’s “Working in America?” visualization shows this significant decrease in manufacturing employment as the number of employees in this sector decreased from 13.4 million workers in 2008 to 11.8 million workers in 2009 (a drop of 12 percent).

The sharp decline in demand for the manufacturing workers had a significant impact on the pay in this industry. As with any typical good, a fall in demand results in a drop in price. In this case, the drop in price was represented by a fall in wages. The PayScale Index, which tracks trends in compensation over time, shows nominal pay for full-time employees in the manufacturing industry fell by almost 2 percent from Q4 2008 to Q2 2009.

Quarterly Compensation Trends for Manufacturing Industry
The PayScale Index uses 2006 average total cash compensation as a baseline.
Manufacturing Industry
Pay trends in the manufacturing industry aggregate all jobs in that industry – everything from managers to accountants to janitors to the assembly line workers. If we instead just look at the pay trends for manufacturing specific jobs, the news is even worse. Between Q4 2008 and Q2 2009, pay for these jobs fell by almost 4 percent.
Quarterly Compensation Trends for Manufacturing & Production Jobs
The PayScale Index uses 2006 average total cash compensation as a baseline.
Manufacturing & Production Jobs
Hints of a Recovery

 There may be good news on the horizon, however, as The PayScale Index hints at a recovery in the manufacturing sector. Over the last year (Q1 2011 to Q1 2012), pay has increased by almost 2 percent and is finally above its previous peak in Q4 2008. Since higher pay tends to signal higher demand for labor and vice versa, 2012 might bring with it increased employment in the manufacturing sector and stop the decline experienced over the last 50 years.

For more, join the discussion about #WorkingInAmerica on Twitter.

Comment

  1.    
     
     
      
       
Find Out Exactly What You
Should Be Paid
Job Title:
Years in Field/Career:
Location:
United States (change)
- OR -
ADVERTISEMENT
SEARCH
SUBSCRIBE TO THIS BLOG
subscribe
SOCIALIZE WITH US
Facebook Twitter LinkedIn Google Plus Pinterest
JOIN OUR NEWSLETTER
go!
Compensation Today