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Accounting for the secular “decline” of U.S. manufacturing

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Milton Marquis
Bharat Trehan

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Abstract

The share of employment in manufacturing as well as the relative price of manufactures has declined sharply over the postwar period, while the share of manufacturing output relative to GDP has remained roughly constant. Household preferences turn out to play a key role in reconciling this behavior with a closed-economy, two-sector model with differential rates of productivity growth. We show that the data imply that households are not willing to substitute between the two goods at all and also that this inference is independent of whatever the income elasticity of demand for services might be. Because we are unable to account for the entire decline in employment over this period, we expand the model to allow for manufactured exports. While this does not change our estimate of the elasticity of substitution, it does improve the model’s ability to explain the decline in relative employment in the 1990s. However, larger errors in the 1970s remain unexplained.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 2005-18.

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Date of creation: 2005
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Handle: RePEc:fip:fedfap:2005-18

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Keywords: Manufactures ; Employment ; Productivity ; Economic conditions - United States;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Robert Rowthorn & Ramana Ramaswamy, 1999. "Growth, Trade, and Deindustrialization," IMF Staff Papers, Palgrave Macmillan Journals, vol. 46(1), pages 2. [Downloadable!] (restricted)
  2. Zvi Griliches, 1992. "Output Measurement in the Service Sectors," NBER Books, National Bureau of Economic Research, Inc, number gril92-1.
  3. Susanto Basu & John Fernald & Miles Kimball, 2002. "Are Technology Improvements Contractionary?," Harvard Institute of Economic Research Working Papers 1986, Harvard - Institute of Economic Research. [Downloadable!]
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  4. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  5. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March. [Downloadable!] (restricted)
  6. Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall. [Downloadable!] (restricted)
  7. Dale W. Jorgenson, 2001. "Information Technology and the U. S. Economy," Harvard Institute of Economic Research Working Papers 1911, Harvard - Institute of Economic Research. [Downloadable!]
  8. Revenga, Ana L, 1992. "Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. Manufacturing," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 255-84, February. [Downloadable!] (restricted)
  9. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
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  1. Matteo Iacoviello & Fabio Schiantarelli & Scott Schuh, 2007. "Input and Output Inventories in General Equilibrium," Boston College Working Papers in Economics 658, Boston College Department of Economics, revised 23 Oct 2009. [Downloadable!]
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