Employment Deindustrialization: Understanding Jobless Growth in the Manufacturing Industry

Deindustrialization in advanced countries (especially in the United States) has been discussed since the 1980s, but what we actually have observed is a distinct pattern of employment deindustrialization rather than a severe decline in the output share of manufacturing. Meanwhile, the service industry’s share of GDP has been growing in most advanced countries, and some policymakers argue that future growth strategies for advanced economies should focus on the service sector. In this article, I reassess the role of the manufacturing industry in the overall economy’s production growth and employment through a cross-country comparison. Then, I focus on the manufacturing industry in South Korea to illustrate how the sector has produced more with fewer workers, leading to the recent emergence of a jobless growth pattern. I use firm-level data in South Korea to show increased production despite the fact that fewer workers in the manufacturing industry are associated with higher capital inputs. Exports have a weak but positive impact on mitigating jobless growth, so that the manufacturing industry grows without losing too many jobs when exports augment the scale of production to a sufficient degree. If we adopt new capital-intensive production technology to aim for growth in the manufacturing industry with adequate job creation, then the industry should exhibit a large scale effect that overrides the capital-labor substitution effect.