De-Industrialization
Why Manufacturing Continues To Decline
By Roger Doyle

SHIFT OF WORK The winners and losers in manufacturing jobs in major cities and counties, 1954-1997: San Jose, Calif. +222,000 Orange County, Calif. +200,000 Phoenix +128,000 Jersey City, N.J. -107,000 Newark, N.J. -108,000 Pittsburgh -139,000 Cleveland -162,000 Philadelphia -262,000 Detroit -312,000 Chicago -404,000 New York (5 counties) -740,000

Around 1970 the U.S. entered a new phase in which manufacturing, the engine of American prosperity, began to falter. The problem, felt particularly in the North, sometimes came with little warning to workers, as factories suddenly closed or moved to less unionized areas, such as the Sunbelt and overseas. More typically, however, there was a gradual reduction in Northern jobs as corporations failed to invest in improved plants and technology. The U.S. lost 9 percent of its manufacturing jobs between 1967 and 2001, but in the industrial heartland--the Northeast and the Midwest -- the loss reached more than 40 percent. Because of phenomenal increases in output per worker, manufacturing output rose sharply. But as the chart shows, a steadily decreasing proportion of American workers was employed in manufacturing. This process is markedly similar to the historical decline of farming, in which a progressively smaller number of people produced an expanding volume of goods.
 
The traditional argument for the cause of deindustrialization is competition from low-wage labor in developing countries. But according to a theory proposed by Robert Rowthorn of the University of Cambridge and Ramana Ramaswamy of the International Monetary Fund, deindustrialization is a natural consequence of economic progress in all developed economies. In their view, imports from developing countries have a relatively minor role; rather, faster productivity growth in manufacturing as compared with services plays the major part. Because factory procedures can be standardized more readily than those in the office and the store, manufacturing productivity rises far more quickly than productivity in the service sector. As manufacturing becomes more efficient, service industries absorb an increasing proportion of laid-off factory workers. This process is consistent with the tendency of middle-class consumers in affluent societies to spend an increasing portion of personal income on services as their appetite for goods nears satiation.
 
A theoretical implication of the Rowthorn-Ramaswamy thesis is that aggregate productivity growth of all sections of the economy could slow as workers shift to the less efficient service sector, a circumstance that could lead to a slowdown in the growth of living standards. A second implication is that as unionized factory workers shift to the service sector, which tends to be lower-paying and nonunionized, income disparities will increase -- a result that apparently has happened.
 
Rowthorn states that in the U.S. the decline in manufacturing jobs has been unnecessarily accelerated by policy decisions, a position long held by American labor economists. Thomas Palley of the AFL-CIO, who accepts the logic of the Rowthorn-Ramaswamy thesis, believes that the absolute decline in U.S. manufacturing -- 2.5 million jobs in the last third of the 20th century--traces to, among other things, the perpetuation of an overvalued dollar, which makes it difficult for American goods to compete overseas, and to a U.S. policy that opens domestic markets while offering manufacturers incentives to move abroad.
 
Policy at the local level may have exacerbated the trend toward destabilization. New York City in the 1950s had the largest concentration of manufacturing jobs in the country, but the natural forces of deindustrialization were reinforced by the city's post-World War II policy of favoring "clean" businesses such as banks and brokerage houses. And so, instead of encouraging the preservation of well-paying factory jobs, the city promoted the biggest office-building boom on the planet. The number of manufacturing jobs, meanwhile, fell from almost a million in the 1950s to about 200,000 in 2001.

How De-Industrialization Has Affected Communities

PAY BELOW PAR Pay of manufacturing production workers in 1997 as a percent of average pay in: Los Angeles 68 Chicago 82 San Jose, Calif. 73 Orange County, Calif. 76 New York City 46 Houston 88 Phoenix 85 Detroit 111 San Diego 84 Cleveland 105 Philadelphia 91 Pittsburgh 103 Boston 89 U.S. Metro- politan Areas 88   SOURCE: US Census Bureau, Census of Manufacturers. Data are for the home counties of cities. In 1997 production  workers accounted for 72 percent of all manufacturing employment.

The blue-collar middle class in the U.S. was built on manufacturing production jobs, but their number has dwindled. In major cities of the North, as the chart shows, the decline has been particularly steep. Furthermore, pay for these jobs, unlike that for highly skilled workers such as engineers, has declined relative to the national average. Several decades ago the typical production-line job did not require advanced skills but was unionized and so paid at or above the average. By 1997, however, production-line pay dropped below the average in most areas of the U.S., except where unions were still strong, such as in Detroit.
 
As manufacturing jobs dried up and older workers took early retirement, young people, instead of becoming assemblers or machine operators, became janitors and waiters. Such service-sector positions generally paid less than production work. The better-paying jobs were in hard-to-reach suburbs.
 
These disincentives left many young men unemployed. At about the same time, for reasons that are still not completely understood but that may include a dearth of eligible wage-earning men, the number of unmarried teenage mothers soared. Generally, these girls were not only economically insecure but lacked parenting skills, and so it is not surprising that their children tended to be disadvantaged. The children, moreover, grew up in neighborhoods that were coming apart. Churches, social clubs and unions -- especially in black communities -- were dissolving, in part because higher-income people fled, depriving the areas of key resources and role models for children. Black newspapers, once a vibrant force in many communities, all but disappeared.
 
These developments contributed to the surge in youth gangs and crime beginning in the 1960s. Other changes fed the crime wave, such as a large increase in the number of young men between the ages of 18 and 35, the most crime-prone age group, and the increasing availability of illegal drugs, particularly crack, which appeared in the 1980s.
 
Loss of jobs, together with a shortage of affordable housing that followed neighborhood gentrification and failure to maintain existing housing, added to the rising number of homeless people beginning in the 1970s. The legally mandated emptying of psychiatric hospitals was a factor in escalated homelessness, though apparently not a precipitating cause.
 
There are signs of improvement throughout the country as a whole. The number of babies born to teenage mothers has followed a downward trend since 1994; the poverty rate is below the level of a decade ago; drug use is down from the high levels of the 1980s; and most significantly, crime rates have plummeted since 1992.
 
But other signals suggest that the legacy of deindustrialization lingers. Wages of the bottom quarter of Americans have improved little in the past 25 years, and unions, which provided a measure of stability to working-class neighborhoods, have been severely weakened. According to the U.S. Conference of Mayors, homelessness and hunger went up sharply last year. Perhaps the most troubling news is that employment among young, undereducated black males fell from 62 percent in 1979 to 52 percent by the period 1999-2000, a development that probably traces in part to the decline of manufacturing production jobs.

 
Rodger Doyle can be reached at: rdoyle2@adelphia.net