Number: RL32350
Title: Deindustrialization of the U.S. Economy: The Roles of Trade, Productivity, and Recession
Authors: Craig K. Elwell, Government and Finance Division 
Abstract: Manufacturing seems to be a steadily diminishing presence in the American economy, producing a falling share of Gross National Product and employing a smaller share of the labor force. Many see this as a loss of something vital to providing "good" jobs and advancing economic well being. On the other hand, deindustrialization has occurred in varying degrees in most industrial economies and can be seen as a natural outcome of economic progress and a rising living standard. When examined from the standpoint of real output and level of employment, the U.S. manufacturing sector has shown considerable stability over the last 20 years. Because the apparent deindustrialization has been coincident with a rising level of international trade, particularly recent increases in trade with many low-wage, developing economies, there is an inclination to see causality running from rising trade to a faltering manufacturing sector. Yet economic analysis indicates that while a rising level of trade can have adverse consequences for particular industries, it is unlikely to adversely affect the whole manufacturing sector. Increased imports may hurt some industries, but the increased exports needed to pay for those imports helps other industries. Therefore, across all tradeable goods producing industries there is no net loss of jobs. Moreover, exporting industries tend to pay higher wages than import competing industries.
Pages: 27
Date: April 15, 2004