5. Manufacturing’s Role

Within the United States, the manufacturing sector played a dominant role in the 1960s that has been declining over time. We can see this in Figure 7 below.

We can follow this indicator of employment for the US as a whole from 1947 to nearly the present. The dotted brown line is the number of workers (in millions) employed in the manufacturing sector. The actual number of workers in manufacturing in the US rose to nearly 20 million workers by 1979 but then began a downward trend that by 2019 had 13 million workers employed in the sector.

While the number of workers stayed nearly constant over time, the share of workers in manufacturing (the solid blue line) fell continuously from 37 percent of total workers in 1947 to 10 percent of workers in 2019.

There were two important factors that explain these evolutions. The first is technological innovation: the productivity of workers in the manufacturing sector increased rapidly during this period, so that the same number of workers could produce increasingly greater quantities of manufactured goods. Beginning in 1979, smaller numbers of continually more productive workers could satisfy increasing demand for manufactured goods.

The second is the increased supply of low-cost manufactured goods from foreign suppliers. Competition from foreign manufacturers increased with the fall in transport costs internationally and with the reduction in tariffs and trade barriers negotiated under the General Agreement of Tariffs and Trade (GATT) and its successor the World Trade Organization (WTO). The US also entered the US-Canada-Mexico Free Trade Agreement in 1995. Competition from low-cost manufacturers was employment-reducing for the US in two ways: it led to closure of some US factories, and it led to labor-saving investments by the manufacturers remaining in business so that they could produce more output with fewer workers.

North Carolina is the manufacturing state. If we rank the US states in terms of their share of employees in manufacturing, we will find that North Carolina ranked #1 on that list in the 1980s and early 1990s. Figure 8 below illustrates this for years beginning in 1990 (the first year for which comparable data are available).

The red dashed line indicates the share of employment in manufacturing for the United States as a whole: it is very similar to the blue solid line in Figure 7. (This diagram represents non-farm employment, so the percentages are not quite the same.) The green solid line represents the comparable manufacturing share for North Carolina beginning in 1990. As is evident, manufacturing’s share in non-farm employment declined more rapidly in North Carolina than in the US as a whole. Indiana (not pictured) took the #1 ranking in 1997, while Wisconsin (not pictured) moved into the #2 position in 1999. North Carolina remains an above-average employer in manufacturing, but with less than 11 percent of its employment in that sector.

You’ll find much more about manufacturing in North Carolina in Alfred Stuart’s section of the Encyclopedia of North Carolina. You can also learn more about the interplay of increased productivity and import competition from my research article Import Price Pressure and Firm Productivity and Employment.

To return to our immediate question: does the reduction in manufacturing’s share in the North Carolina economy explain the per capita income puzzle? We’ll turn to that in the next installments.