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Accounting for the Secular "Decline" of U.S. Manufacturing


  • Bharat Trehan

    () (Economic Research Department Federal Reserve Bank of San Francisco)

  • Milton Marquis


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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bharat Trehan & Milton Marquis, 2005. "Accounting for the Secular "Decline" of U.S. Manufacturing," 2005 Meeting Papers 455, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:455

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    References listed on IDEAS

    1. Miles S. Kimball & John G. Fernald & Susanto Basu, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, vol. 96(5), pages 1418-1448, December.
    2. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March.
    3. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    4. 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.
    5. Ana L. Revenga, 1992. "Exporting Jobs?The Impact of Import Competition on Employment and Wages in U. S. Manufacturing," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 255-284.
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    Cited by:

    1. Matteo Iacoviello & Fabio Schiantarelli & Scott Schuh, 2011. "Input And Output Inventories In General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 1179-1213, November.

    More about this item


    Productivity; technological change;

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General


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