more effective foreign competition has led to increasing manufactured-goods trade deficits and the loss of 7 million U.S. manufacturing jobs since 1980. Our position as the world's leading manufacturing economy is about to be lost to China because of a lack of effective measures in tax and trade policies.A recent Wells-Fargo report tells a different story:
The number of manufacturing jobs in the United States peaked at nearly 20 million in June 1979, which represented more than 20 percent of the workforce at that time (Figure 1). . .The report's answer: increased investment in information technology has made U.S. manufacturing far more efficient.
In terms of factory output, however, the U.S. industrial sector is alive and well. Even as the number of manufacturing jobs has dropped by 40 percent since 1979, manufacturing output has nearly doubled over that period. Despite the widespread perception that "everything" is made in China, the United States remains the world’s largest industrial producer. According to the United Nations, value added in the U.S. manufacturing sector in 2008 totaled $1.83 trillion. The comparable figure in China was $1.79 trillion.
A sharp decline in manufacturing employment coupled with a sizable increase in output implies a marked rise in labor productivity in the industrial sector. Indeed, labor productivity in the manufacturing sector has more than doubled since 1987, significantly outpacing productivity growth in other sectors of the U.S. economy (Figure 2).
source: Wells-Fargo, What Really Drives Growth in the Industrial Sector?
I agree, though the share of GDP from manufacturing has declined over the last decade. Further, the non-wage costs of hiring the additional marginal employee -- i.e., various payroll taxes -- may over-encourage the substitution of capital for labor. Still, as prof Mark Perry of Carpe Diem observes, "it's the dramatic increase in the productivity of American workers that helps explain the loss of millions of manufacturing jobs, and this [should be] a cause for optimism, not pessimism."
(via Cafe Hayek)