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Factors Underlying the Decline in Manufacturing Employment since 2000 1 (December 2008)

handle is hein.congrec/cbo9530 and id is 1 raw text is: A series ofissue summaries from the Congressional Budget Office DECEMBER 23, 2008 Factors Underlying the Decline in Manufacturing Employment Since 2000 The manufacturing sector of the U.S. economy has expe- rienced substantial job losses since 2000. During the recession of 2001 and its immediate aftermath, employ- ment in the manufacturing sector fell by about 2.9 mil- lion jobs, or 17 percent. Even after overall employment began to improve in 2004, the decline in manufacturing employment persisted. By the end of 2007, with the slowing of economic growth, employment in the sector had edged down further, by half a million jobs. And, as of November 2008, employment in manufacturing had fallen yet again, by slightly more than 600,000 jobs (see Figure 1). 1 A significant number of additional losses is likely given the current weakness in the economy. Although the decline in manufacturing employment in recent years is not a departure from long-standing trends-the sector's share of total employment has been falling steadily for more than half a century-the reces- sion of 2001 hit manufacturing particularly hard. And, in sharp contrast to the pattern observed during previous expansions, employment in manufacturing (as reflected in the total number of hours worked) did not recover as it usually does following a recession.2 1. Manufacturing employment had already fallen by 700,000 jobs by the time the 2001 recession started, after reaching a cyclical peak in 1998. Thus, this most recent decline in manufacturing employ- ment is now a decade-long phenomenon. The figure reported for the number of jobs lost in 2008-slightly more than 600,000-is based on monthly data between December 2007 (the most recent business-cycle peak, as determined by the National Bureau of Eco- nomic Research) and November 2008. By contrast, the figures in the third column of Table 1 are based on quarterly data through the third quarter of 2008. 2. Indeed, the Congressional Budget Office anticipated that at least some of the jobs lost in manufacturing between 2000 and 2003 would return as the expansion and recovery of overall employment took hold. See Congressional Budget Office, WhatAccounts for the Decline in Manufacturing Employment, Issue Brief (February 2004). The substantial decline in manufacturing employment that has occurred since 2000 has affected virtually all 21 industries that make up the sector (see Table 1).3 Although the rate of net job losses in specific industries varied between 2000 and early 2004, most experienced declines of at least 10 percent. Between early 2004 and 2007, many industries continued to record job losses, albeit at a slower pace than was seen earlier in the decade. The decline since mid-2006 can be attributed largely to a weakened demand for housing-and for the durable goods (such as wood products and furniture) associated with that industry-and to ongoing restructuring in the auto industry, which, in turn, has been affected by what, until quite recently, were high gasoline prices.4 Only two industries, fabricated metal products and machinery, showed signs of significant recovery through the end of 2007. The steep decline in manufacturing employment since 2000 is associated with two interrelated developments: rapid gains in productivity (output per hour) in U.S. manufacturing and increased competition from foreign producers. Competition from overseas helped spur U.S. firms to boost productivity, but that competition has also dampened demand for goods produced in the United States, despite domestic manufacturers' efforts to reduce costs through productivity enhancements. Clearly, the decline in employment has caused a great deal of hardship for many workers in the manufacturing sector and for the communities that have been affected. 3. As identified in the North American Industry Classification Sys- tem (NAICS). The NAICS classifies all establishments on the basis of the production process they use, in contrast to the previ- ous U.S. Standard Industrial Classification system, in which some establishments were classified using different criteria (such as the type of customer). 4. See Congressional Budget Office, Effects of Gasoline Prices on Driving Behavior and Vehicle Markets (January 2008).

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