Manufacturing and the Middle Class

In the 1950s, the U.S. manufacturing sector was the driving force of the economy, employing more than a third of the private sector workforce. The total number of U.S. manufacturing jobs peaked in 1979 at 19.5 million.¹ By September 2009, there were only 11.7 millions jobs in the manufacturing sector, and manufacturing employed less than 10 percent of the U.S. workforce.² Over the past decade, the manufacturing sector has been decimated as firms closed down or moved overseas.

Even while losing millions of job over the past decade, U.S. manufacturers have been among the most productive in the world.

The importance of the manufacturing sector to the rise of the middle class in the United States should not be overlooked. For Americans growing up in poverty, manufacturing jobs provided one of the few pathways out, allowing “low-skill” workers to own homes, put their children through college, and retire with dignity and a measure of financial security. A high school diploma was valued but not a requirement for landing a job that could put one on a solid career track. This era has vanished as competition from abroad has placed an increasingly higher premium on the value of education in the manufacturing sector.

In an interview with Bread for the World Institute, Laura Rios, a native of Lorain, OH, explained how manufacturing provided jobs to her and her husband straight out of high school in the late 1970s. “We were a generation that didn’t need a skilled job to make a good living. All we wanted for ourselves was a high school diploma. We knew people who had dropped out of school and walked into these living-wage jobs.” In the 1990s, the plant where Laura and her husband worked closed and moved overseas. They and their three children spent a year in poverty as the family struggled to rebuild their lives. It’s a familiar story in the Rust Belt, but the Rios family was lucky. With help from a government program for displaced workers, Laura and her husband went to college, found good jobs, and returned to the middle class. But many of their peers never recovered.

Several factors explain why the manufacturing sector has lost so many jobs. One, of course, is globalization and the greatly expanded pool of labor from the developing world and Eastern Europe competing for jobs. Firms could relocate their operations overseas, paying foreign workers a fraction of the wages they had had to pay Americans. The expansion of global trade has lifted millions of people in developing countries out of extreme poverty and contributed to significant reductions in world hunger. In no way does this minimize the pain experienced by displaced U.S. workers, but the benefits to developing countries are quite real. A preponderance of the jobs transferred to workers overseas have been in low-skill manufacturing—for example, the apparel and textile industries, which together accounted for 40 percent of the U.S. manufacturing jobs lost between 2000 and 2007.³ Imported apparel rose from 50 percent of the U.S. market in 1999 to 66 percent in 2003 to 73 percent in 20 07.⁴

Eighty feet above the ground, workers perform maintenance on a wind turbine at a USDA research station.

Another factor contributing to lost jobs in manufacturing has been an overvalued dollar in international currency markets, which provided cheaper products made overseas to U.S. consumers while at the same time making U.S. products less competitive overseas. Since the mid-1990s, U.S. policies have promoted an overvalued dollar, which is believed to be necessary to control inflation. Many monetary policy economists regard full employment as a threat to keeping inflation low, and job losses in export-oriented sectors like manufacturing are tolerated as a quid pro quo to hold down inflation.

Estimates of the competitive advantage that an overvalued dollar gives U.S. trading partners range from 10 to16 percent.⁵ The resulting trade deficits cost millions of domestic manufacturers their jobs. In terms of the effect on the broader economy, though, trade deficits caused a reallocation of jobs more than a decline in overall employment. Displaced manufacturing workers moved into other industries, such as services, where they earned significantly less income. The average manufacturing job still pays 20 percent more than the national average for all jobs, suggesting that manufacturing remains crucial to sustaining a healthy middle class.⁶ The influx of displaced manufacturing workers into lower-wage labor markets has also put downward pressure on wages in all low-wage jobs.

One more factor that undermines the competitiveness of U.S. manufacturers is health care policy. The United States spends much more for health care than any of its major trading partners. The effects of this are nowhere more apparent than in an export-oriented sector like manufacturing. If U.S. health care costs were comparable to those of other developed countries, it would translate into a 4.6 percent cost advantage for U.S. manufacturers relative to these trading partners.⁷

It is important to mention two often-heard but overstated explanations given for the loss of U.S. manufacturing jobs: unions and automation. Unionization within the U.S. workforce peaked in the 1970s and has been declining steadily since—so high union participation did not coincide with manufacturing job losses. The steepest decline in unionization occurred well before the dollar became overvalued in the mid-1990s.

Others argue that improvements in technology increased productivity and made routine jobs obsolete, thus contributing to job losses. It is true to an extent that automation has lowered the need for labor, but again, this was something that was more of a factor in earlier decades. More recently, significant productivity gains have been confined largely to a couple of subsectors—computers and electronic products—that constitute about 10 percent of the U.S. manufacturing sector.⁸ Moreover, as economists Daniel Luria and Joel Rogers write, “If ‘routine’ [jobs] were being shed, we would expect substantial growth in the average wages for U.S. manufacturing workers, since the “routine”—low-paying—ones were eliminated. But that is not the case.” From 1990 to 2005, hourly wages grew barely at all (by 0.38 percent annually).⁹ Rather than stemming from the loss of jobs to overseas workers, the anemic growth in wages is directly associated with the decline in union participation, resulting in the weakening of workers’ bargaining power.

Hourly Compensation of Production Workers in Manufacturing

Per Capita Health Care Costs, 2006

Issues