On the menu today: This is Dominic Pino filling in for Jim Geraghty. There will be no Morning Jolt tomorrow in observance of Good Friday.
A Reality Check for U.S. Manufacturing
There’s a lot of doom and gloom about U.S. manufacturing, with constant talk of how jobs only disappear, and we don’t make anything here anymore. The trend that these talking points describe is real, and it was very apparent from the late ’90s to the late ’00s, but it has mostly stopped.
Manufacturing employment as a percentage of total employment in the U.S. has been declining pretty steadily since the mid-’50s. It peaked at around 32 percent in 1953. It halved to 16 percent in 1990. In the 20 years from 1990 to 2010, it nearly halved again, from 16 percent to 9 percent.
But that steady drop basically stopped in 2010. In the 15 years since 2010, manufacturing’s share of total employment has only dropped by one percentage point, from 9 percent to 8 percent. Here’s a graph to illustrate:
That’s because the number of U.S. manufacturing jobs, with the exception of the Covid years, increased from 2010 to 2022. That’s right, the supposedly hollowed-out industry that only loses jobs actually gained jobs for most of the past 15 years.
That doesn’t come close to undoing the enormous job losses in the manufacturing sector from 1998 to 2010. And inconveniently for politicians, a lot of the manufacturing jobs gains since 2010 haven’t gone to swing states, but rather to states that aren’t competitive in presidential elections. Many of the manufacturing jobs that politicians promise to bring back to Pennsylvania have already come back . . . in Texas:
Pennsylvania (solid blue line) and Texas (dashed green line) had basically the same number of manufacturing jobs in 1990. Texas has slightly more today than it did then. Pennsylvania has about 400,000 fewer.
While this shift in regional industry composition is politically annoying, there’s no reason to treat it as a problem for the country in general. Earlier in American history, manufacturing moved from the Northeast to the Midwest; now it is moving from the Midwest to the South.
So if manufacturing’s employment share stopped declining in 2010, and the number of manufacturing workers has actually been increasing since 2010, why aren’t we seeing a manufacturing boom? Because 2010 is also the year that manufacturing labor productivity stopped increasing:
A U.S. manufacturing worker in 2010 was twice as productive as a U.S. manufacturing worker in 1990. A U.S. manufacturing worker in 2025 is slightly less productive than a U.S. manufacturing worker in 2010.
This is an example of why targeting job growth is not a very good economic policy. There are all sorts of ways to create jobs that don’t make people better off. There’s the famous example of Milton Friedman surveying a construction site in China and being told by the authorities that the workers were using shovels instead of machinery so that more people could have jobs. Friedman suggested that if they really wanted to create jobs, they should give them spoons instead of shovels.
A bookstore in Chelsea, Mich., recently moved to a new location about a block away, and to transport its 9,100 books, a few hundred people stood in a line on the sidewalk and passed each book to one another. This was just a fun publicity stunt, of course, but if creating jobs was your sole economic goal, it would be a good policy to ban trucks and force all goods to be transported this way.
The problem with U.S. manufacturing, to the extent that there is one, is that it isn’t destroying enough jobs. When all those jobs were being destroyed in the ’90s and ’00s, the workers who were left were becoming much more productive. Output has been rising despite workers becoming slightly less productive over the past 15 years, only because employment has been increasing.
The U.S. has actually succeeded in raising the number of manufacturing jobs over the past 15 years, but it has done so in effect by doing a milder form of giving construction workers spoons or having people transport books by hand. That’s not a policy success, and more obsession with increasing the number of manufacturing jobs will make the situation worse, not better. American manufacturing needs more automation and technological advancement to increase worker productivity, which is ultimately what increases worker pay and quality of life.
But Why Has Manufacturing’s Share of Employment Fallen?
At the same time as U.S. manufacturing’s employment share has fallen, China has become the world’s largest manufacturer. The Chinese Communist Party has engaged in industrial policy to encourage manufacturing. It’s tempting to believe that if not for the plotting of a foreign dictatorship, U.S. manufacturing would still be what it was. The real story, though, has a lot more to do with what naturally happens to the structures of economies as they develop.
As long as modern economics has existed, economists have been thinking about stages of development. In his Lectures on Jurisprudence, Adam Smith divided economic development into four stages: the age of hunters, the age of shepherds, the age of agriculture, and the age of commerce. It was conjectural history when Smith wrote it, but we now know it lines up pretty well with what modern anthropologists say about humans’ advancement from hunter-gatherer bands to nation-states.
Smith was sensitive to the fact that Britain, where he lived, was one of the countries furthest along that development path in the late 1700s when he was writing, and that other countries weren’t as far along. Even though different places have different cultures and different economies, Smith thought they would all generally follow the four stages, albeit at different speeds.
This same pattern of thought informs economists today. And there’s good empirical evidence to support the idea that countries pass through similar stages as they become richer. The industrial revolution, occurring after Smith’s death, added a new stage, and then deindustrialization and the transition to services in the richest countries added another.
Rather than Smith’s four stages, one of the descriptions economists use today of development has three stages, and their names emphasize that they occur in roughly the same order everywhere in the world: Primary (agriculture), secondary (industry), and tertiary (services).
Like Britain in the 1700s, the U.S. today is one of the countries furthest along this path of development, with services making up a large share of employment and output. Countries such as India are currently in the process of moving from agriculture to industry. Countries such as Ethiopia are still mostly agricultural.
China, contrary to JD Vance’s descriptions of “peasants” and “slave labor,” is an upper-middle-income country. It is in the early stages of the transition from industry to services that the U.S. began to experience decades ago. The economist word for this passage from the secondary stage to the tertiary stage is “tertiarization.”
The economists Xilu Chen, Guangyu Pei, Zheng Michael Song, and Fabrizio Zilibotti look at this transition in a recent paper called “Tertiarization Like China” for the National Bureau of Economic Research. It used to be true that China’s secondary employment share was unusually high for a country at its stage of development, but this is no longer the case. In recent years in China, there has been a surge in tertiary employment, bringing China’s secondary employment share in line with what other countries have done at similar levels of GDP per worker.
That’s still a much higher share than in the U.S., but that’s because China is poorer than the U.S. and not as far along the development path. When the U.S. was at a similar stage of development, it had a similar share of secondary employment.
The paper includes this very helpful series of graphs to visualize the stages of development for many different countries:
The graphs compare the percentage of the workforce employed in each of the three types of sectors with a country’s wealth as measured by GDP per worker. The top three graphs are comparing China to rich countries, and the bottom three are comparing China to other non-rich countries.
The rich countries illustrate the general trend much more cleanly, since they are the furthest along. As countries become richer, employment in the primary sector, agriculture, declines. That’s because the industrial revolution kicks off, and employment in the secondary sector, industry, increases. But at the same time, employment in the tertiary sector, services, also begins to increase. Eventually, the tertiary sector begins to eat away at the secondary sector as well.
And so we see, in basically every rich country, a hump shape in its secondary employment share. The primary employment share falls, the tertiary employment share rises, and the secondary employment share rises then falls. Because the U.S. is so rich, it is very far along the right side of the hump, with a very low share of its workforce in industry.
China is the red line on the graphs. As you can see, China is following the same path that the rich countries did; it’s just not as far along. It is currently reaching its peak employment share in industry and has seen a surge in its employment share in services, illustrated by the upward tick in the red line in graph (c).
Politically, China has seemed immune to international trends toward democracy, but economically, it has not been immune to international trends of development. This is a key point: If China had the same level of GDP per worker as it does today, but it was a democracy instead of a dictatorship, manufacturing’s share of China’s output and workforce would probably be about the same as it is in real life.
China is an upper-middle-income country with 1.5 billion people; of course it has the world’s largest manufacturing output. When the U.S. was at a similar stage of economic development, it had the world’s largest manufacturing output, too. A few decades from now, India will probably have the world’s largest manufacturing output as its enormous population passes from agricultural to industrial employment and more of China’s workforce passes from industry to services. These things happen as countries become richer, and it’s basically impossible to turn back the clock because people don’t want to live in a poorer country.
ADDENDUM: Happy Easter, which I can safely say to Western and Eastern Christians this year for the first time since 2017. Easter will next be the same date for both in 2028. The reason for the usual discrepancy in dates is too complicated to explain briefly, but you can read a full explanation here. It says, “Over time, the celebration of Orthodox Pascha will drift later into spring, into summer, and beyond. Unless action is taken, the year AD 2698 will be the final time that Orthodox Pascha and Western Easter occur on the same day.”