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US Manufacturing: Understanding Its Past and Its Potential Future

Author

Listed:
  • Martin Neil Baily
  • Barry P. Bosworth

Abstract

The development of the US manufacturing sector over the last half-century displays two striking and somewhat contradictory features: 1) the growth of real output in the US manufacturing sector, measured by real value added, has equaled or exceeded that of total GDP, keeping the manufacturing share of the economy constant in price-adjusted terms; and 2) there is a long-standing decline in the share of total employment attributable to manufacturing. The persistence of these trends seems inconsistent with stories of a recent or sudden crisis in the US manufacturing sector. After all, as recently as 2010, the United States had the world's largest manufacturing sector measured by its valued-added, and while it has now been surpassed by China, the United States remains a very large manufacturer. On the other hand, there are some potential causes for concern. First, though manufacturing's output share of GDP has remained stable over 50 years, and manufacturing retains a reputation as a sector of rapid productivity improvements, this is largely due to the spectacular performance of one subsector of manufacturing: computers and electronics. Second, recently there has been a large drop in the absolute level of manufacturing employment that many find alarming. Third, the US manufacturing sector runs an enormous trade deficit, equaling $460 billion in 2012, which is also very concentrated in trade with Asia. Finally, we consider the future evolution of the manufacturing sector and its importance for the US economy. Many of the largest US corporations continue to shift their production facilities overseas. It is important to understand why the United States is not perceived to be an attractive base for their production.

Suggested Citation

  • Martin Neil Baily & Barry P. Bosworth, 2014. "US Manufacturing: Understanding Its Past and Its Potential Future," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 3-26, Winter.
  • Handle: RePEc:aea:jecper:v:28:y:2014:i:1:p:3-26
    Note: DOI: 10.1257/jep.28.1.3
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    File URL: http://www.aeaweb.org/jep/ds/2801/2801-0003_ds.zip
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    References listed on IDEAS

    as
    1. Lawrence Edwards & Robert Z. Lawrence, 2013. "Rising Tide: Is Growth in Emerging Economies Good for the United States?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 5003.
    2. Koopman, Robert & Wang, Zhi & Wei, Shang-Jin, 2012. "Estimating domestic content in exports when processing trade is pervasive," Journal of Development Economics, Elsevier, vol. 99(1), pages 178-189.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The decline of manufacturing
      by ? in FRED blog on 2014-04-21 18:00:53

    Citations

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    Cited by:

    1. Robert Z. Lawrence, 2017. "Recent Manufacturing Employment Growth: The Exception That Proves the Rule," NBER Working Papers 24151, National Bureau of Economic Research, Inc.
    2. Sharma Shalendra D., 2014. "The Global Economic Imbalances: The Dangers of Not Rebalancing," New Global Studies, De Gruyter, vol. 8(2), pages 1-24, July.
    3. repec:aea:aecrev:v:107:y:2017:i:5:p:337-42 is not listed on IDEAS
    4. Wolfgang Dauth & Sebastian Findeisen & Jens Suedekum, 2017. "Trade and Manufacturing Jobs in Germany," American Economic Review, American Economic Association, vol. 107(5), pages 337-342, May.
    5. David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 205-240, October.
    6. Kamal, Fariha & Lovely, Mary E., 2017. "Import competition from and offshoring to low-income countries: Implications for employment and wages at U.S. domestic manufacturers," Journal of Asian Economics, Elsevier, vol. 48(C), pages 100-119.
    7. Theodore H. Moran & Lindsay Oldenski, 2014. "The US Manufacturing Base: Four Signs of Strength," Policy Briefs PB14-18, Peterson Institute for International Economics.
    8. repec:eee:tefoso:v:129:y:2018:i:c:p:261-274 is not listed on IDEAS
    9. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of U.S. Manufacturing Employment," Finance and Economics Discussion Series 2018-023, Board of Governors of the Federal Reserve System (U.S.).
    10. Gould, Eric D, 2015. "Explaining the Unexplained: Residual Wage Inequality, Manufacturing Decline, and Low-Skilled Immigration," CEPR Discussion Papers 10649, C.E.P.R. Discussion Papers.
    11. Susan N. Houseman & Brad J. Hershbein, 2018. "Understanding the Decline of U.S. Manufacturing Employment," Upjohn Working Papers and Journal Articles 18-287, W.E. Upjohn Institute for Employment Research.
    12. Ildikó Magyari, 2017. "Firm Reorganization, Chinese Imports, and US Manufacturing Employment," Working Papers 17-58, Center for Economic Studies, U.S. Census Bureau.
    13. Lawrence, Robert Z., 2018. "Recent US Manufacturing Employment: The Exception that Proves the Rule," Working Paper Series rwp18-002, Harvard University, John F. Kennedy School of Government.
    14. Naudé, Wim & Nagler, Paula, 2017. "Technological Innovation and Inclusive Growth in Germany," IZA Discussion Papers 11194, Institute for the Study of Labor (IZA).
    15. Paul Corrigan, 2017. "Terms-of-Trade and House Price Fluctuations: A Cross-Country Study," Staff Working Papers 17-1, Bank of Canada.

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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