Manufacturing, Productivity, and Labor

CHAPTER THEME The manufacturing sector in the United States declined (relative to other sectors) throughout much of the twentieth century. In 1950, manufacturing, as shown in Table 29.1, accounted for 28 percent of gross domestic product (GDP); by 2010, manufacturing accounted for 12 percent. The decline in the manufacturing sector was the result of the faster growth in the demand for services and the increasing ability of consumers to purchase manufactured goods more cheaply from abroad.

A portrait of relative decline, however, should not lead to the idea that the sector was stagnant. New industries arose and displaced old ones. New production techniques were adopted. Waves of mergers and acquisitions eliminated old firms and created new giants. An energy crisis forced firms to alter long-established practices. “Downsizing” altered the relationship between employer and employee. Antitrust policies were increasingly modified by the ideas of economists.

The decline in the importance of manufacturing in total output was mirrored in employment. In 1950, manufacturing employed a quarter of the labor force; by 2007, it employed less than 10 percent. In addition to this and other changes on the demand side of the labor market, there were also important changes on the supply side. A moral awakening in the 1960s reshaped the labor market. Discriminatory barriers that had confined many women, African Americans, and members of other minorities to the margins of American economic life were reduced, and immigration laws were changed to eliminate quotas that restricted immigration from certain parts of the world. Partly as a result of the decline in restrictive barriers, the labor force participation rate of women, including women with young children, rose dramatically. Labor unions reached a peak in power and membership in the 1950s only to see their influence wane in the following decades. Finally, in the later part of the century, these changes produced a slowdown in the growth of real wages, particularly for workers with relatively low skills, which left a disturbing legacy for the twenty-first century.