Michael J. Hicks, PhD

Director, Center for Business and Economic Research 

George and Frances Ball Distinguished Professor of 

Economics, Miller College of Business

Srikant Devaraj, MS, MBA, PMP

Senior Research Associate and Project Manager, 

Center for Business and Economic Research

© June 2015 Ball State University

Manufacturing

in America

The Myth and the Reality of
2

The Manufacturing Base

The Great Recession of 2007-2009 was very damaging to the production of goods in the United States. This should not be surprising 

because consumer durable goods and business plant and equipment 

are among the most sensitive sectors of the economy to a cyclical 

downturn (Eaton, et. al. 2011). The recession offered a remarkably 

large decline in national manufacturing production with an accompanying disruption in employment and earnings across manufacturing regions of the United States. 

Still, national manufacturing production, in inflation-adjusted 

dollars, remains on a steady and long-term growth path. By 2014, 

the manufacturing economy had completely recovered with record 

levels of production. The country’s growth of manufacturing production has been a constant feature of the economy throughout the 

past century. See Figure 1.

Leading the growth in manufacturing production has been the 

growth of durable goods purchased by households and business at 

home and abroad. As with manufacturing as a whole, 2013 was a 

record year for the production of consumer durables. The production of consumer non-durables; goods used for less than a year such 

as clothing and food products have remained static for a decade or 

longer. See Figure 2.

The persistent growth of manufacturing production, when 

adjusted for inflation, has been an important and consistent 

contributor to output in the United States. The notion that manufacturing in the United States is in decline is factually incorrect. 

Indeed, it is almost certain that 2015 will again offer a year of record 

manufacturing production, displacing 2014 as the previous record 

year. However, manufacturing production growth has been mixed 

across sectors, as recent history clearly suggests.

From the last peak of the pre-recession year (2006) to the end of 

the recession (June 2009) all manufacturing sectors except transportation equipment experienced output declines. The demand for military equipment during this period sustained that sector. The deepest 

declines were in wood products, textiles, and apparels. These are both 

durable and non-durable goods, the latter of which are least sensitive 

to the business cycle, but highly impacted by international trade. 

Source: Board of Governors of the Federal Reserve System (U.S.)

Source: Author calculations.

Figure 1. U.S. Manufacturing Production Index, 1919-2014

Figure 2. U.S. Durable and Non-Durable Goods, 1987-2013

0

20

40

60

80

100

120

1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s

Jan 1919

Mar 2015

TREND LINE

0

0.5 T

1.0 T

1.5 T

2.0 T

2.5 T

Nondurable goods manufacturing

All manufacturing Durable goods manufacturing

1987 1990 1995 2000 2005 2010 2014ESTIMATED

The production and shipment of goods in the United States is a large, important, 

and growing part of the economy. Despite the continued growth and long-term health 

of manufacturing, significant misconceptions remain about the sector’s demand for 

labor and how it has changed in recent decades. 

In this brief, we identify and explain a major source of misunderstanding in 

manufacturing. In the first section, we focus on what effects productivity change, 

domestic demand, and foreign trade have on U.S. manufacturing employment. We 

then discuss policy dimensions of these findings. We begin with a brief overview of 

manufacturing in the United States.
3

During the recovery through our most recent data of 2013, all 

sectors except printing and printed goods recovered. The largest 

gains were in metals, machinery, automobiles, apparel, and petroleum. Over the entire period 2006-2013, manufacturing grew by 

17.6 percent, or at roughly 2.2 percent per year. This is modestly 

slower than the economy as a whole, which grew by 19.4 percent 

over the same period, or 2.4 percent per year on average. Growth 

during the 2006-2013 period varied dramatically by sector, as 

reported in Table 1. 

Growth in manufacturing remains positive and the sector as a 

whole has appeared strong and resilient over the past several decades. 

The story is not uniform. Houseman (2010, 2013) reports that much 

of the recent growth concentrated in computers and electronics might 

be overstated by failure to appropriately measure productivity growth 

in these sectors. Still, the strong recovery in more traditional sectors 

suggests a broader recovery than might have been expected. That is 

not the belief among many observers who feel manufacturing in the 

United States is in sectoral decline. We believe a contribution to the 

myth of manufacturing decline is the state of labor usage in manufacturing. It is to that issue we now turn our attention. 

What Happened to Manufacturing Jobs?

The size of American manufacturing as represented by the total 

value of goods produced (GDP) has enjoyed a healthy growth trend 

almost since the founding of the republic. This trend continued 

throughout the last several decades, across recessions and trade 

agreement regimes. However, employment over the same period 

was largely stagnated. 

To understand what has occurred within manufacturing, it is 

helpful to review the accounting of employment. To do so we 

outline the relationship: E = f (C,M,X,P), where employment in 

domestic manufacturing is a function of the domestic consumption 

of manufactured goods C, imports M, exports X, and the productivity of workers P. The change in manufacturing employment over 

time is expressed as...

dE/dt = wc (dC/dt) - wM (dM/dt) + wx (dX/dt) - dP/dt (1)

...which is a familiar relationship between demand for goods, the 

net export of goods, and how many workers are required to produce 

the goods that are sold and consumed. A more complete understanding of the role of each of these changes can be derived by isolating 

each of the potential effects on overall manufacturing employment. 

Changes in Productivity

We begin by examining productivity. The most common measure 

of productivity is the average product of labor, which is simply the 

value of all goods manufactured in the U.S. divided by the number 

of workers. In 2012, the average product of labor for all manufacturing was $149,299, but ranged from a low of $45,930 for manufacturers of apparel and leather goods to $733,861 for petroleum 

and coal products manufacturing. 

Sectors Recession

2006-2009

Recovery

2009-2013

Overall

2006-2013

All manufacturing -11.5% 32.9% 17.6%

Durable goods manufacturing -18.9% 36.8% 10.9%

Wood products -43.0% 35.9% -22.5%

Nonmetallic mineral products -28.8% 13.6% -19.1%

Primary metals -28.6% 80.4% 28.8%

Fabricated metal products -11.1% 23.6% 9.8%

Machinery -12.5% 45.7% 27.5%

Computer and electronic 

products -14.4% 3.3% -11.6%

Electrical equipment, 

appliances, and components -13.1% 17.5% 2.0%

Motor vehicles, bodies and 

trailers, and parts -39.0% 87.8% 14.6%

Other transportation equipment 17.5% 29.9% 52.7%

Furniture and related products -30.0% 11.1% -22.3%

Miscellaneous manufacturing -0.7% 15.1% 14.4%

Nondurable goods manufacturing -3.6% 29.4% 24.7%

Food and beverage and tobacco 

products 16.6% 17.5% 37.0%

Textile and textile product mills -35.1% 21.3% -21.3%

Apparel, leather, and allied 

products -48.7% 67.8% -13.9%

Paper products -4.4% 6.3% 1.6%

Printing and related activities -17.0% -5.5% -21.6%

Petroleum and coal products -10.1% 66.0% 49.1%

Chemical products -5.5% 26.0% 19.1%

Plastics and rubber products -20.3% 30.7% 4.2%

Table 1. Manufacturing Sector Performance, 2006-2013

Source: U.S. Bureau of Economic Analysis

“While manufacturing sectors 

are experiencing healthy 

growth in their production, 

their employment numbers 

remain largely stagnated.”
4

From 1998 through 2012, productivity grew in all sectors when 

adjusted for inflation. That growth was highest in the production 

of computer and electronic products, a remarkable 829 percent 

growth, and ranged as little as 6.0 percent for nonmetallic mineral 

product manufacturing. Overall production of goods and services in 

these sectors rose by 32 percent, but there was great sectoral variation. See Table 2. 

Growth in manufacturing production was led by computer 

and electronics, but double-digit growth occurred in automobiles, 

transportation equipment, miscellaneous products, primary metals 

machinery, electrical equipment, and food. Much of this productivity 

increase was spawned by growth in the industrial use of information technology (see Hicks 2013; Fernald 2009). Major declines in 

inflation adjusted production occurred in the manufacturing of minerals, fabricated metals, furniture, textiles, apparel, paper, and plastics.

Changes to production are determined domestically by several 

factors. Overall demand for products, along with productivity 

changes that increase the quantity demanded of product will influence the dollar value that is sold. International demand for U.S. 

products will add to overall GDP growth, while consumption by 

American households of imported goods that compete with U.S. 

firms will reduce GDP. International competition is dependent on 

production costs and productivity and transport costs of goods. 

A closer examination of productivity yields some interesting 

insights as well. In 1998, the inflation-adjusted output per worker 

was much lower than it is today. This is due to a variety of factors, 

chief among them being the automation and information technology advances absorbed by these sectors over this time period. The 

higher output per worker has meant firms could lower their price 

for goods. Very clear examples of this are the price indices for different types of consumer electronics. See Figure 3. 

The increase in productivity and decrease in price facilitates an 

increased quantity demand by consumers. But to evaluate the effects 

of productivity growth on employment, we focus on a period from 

2000 to 2010, which was the largest decline in manufacturing employment in U.S. history. Here we calculated the total employees needed 

to produce the 2010 levels of production, but using 2000-level worker 

productivity. Of course this isn’t actually the lost jobs to productivity; because without higher productivity, the quantity of the products 

purchased by consumers would not have risen; so this should be viewed 

Figure 3. Price Indices for Consumer Electronics for 

Export and in the European Union, 1992-2015

Sector

Avg Product 

of Labor 

2013

Change 

in APL 

1998-2012

GDP 

Growth 

1998-2012

All manufacturing $149,299 90% 32%

Durable goods manufacturing $137,515 130% 61%

Wood products $60,304 64% -4%

Nonmetallic mineral products $97,525 6% -24%

Primary metals $122,629 80% 15%

Fabricated metal products $94,038 13% -9%

Machinery $128,824 48% 10%

Computer and electronic 

products $244,473 829% 462%

Electrical equipment, 

appliances, and components $131,452 71% 10%

Motor vehicles, bodies and 

trailers, and parts $170,427 121% 37%

Other transportation equipment $172,147 46% 23%

Furniture and related products $62,438 17% -35%

Miscellaneous manufacturing $122,776 73% 44%

Nondurable goods manufacturing $170,999 49% 3%

Food and beverage and tobacco 

products $129,311 15% 11%

Textile and textile product mills $59,555 31% -50%

Apparel, leather, and allied 

products $45,930 63% -50%

Paper products $135,377 16% -30%

Printing and related activities $76,263 76% 4%

Petroleum and coal products $733,861 11% 3%

Chemical products $395,718 60% 30%

Plastics and rubber products $99,297 31% -10%

Table 2. Average Product of Labor, Productivity Growth, 

and GDP Growth, 1998-2012

Source: U.S. Bureau of Labor Statistics and Statistical Office of the European 

Communities

Source: U.S. Bureau of Economic Analysis

0

30

60

90

120

150

Consumer electronics (European Union)

Electronic integrated circuits and micro assemblies 

1990s 2000s 2010s

Semiconductor and other electronic component 

Computer and electronic product 

Dec 1992

Mar 2015

“Had we kept 2000-levels of productivity and applied them to 2010-levels of 

production, we would have required 20.9 million manufacturing workers. 

Instead, we employed only 12.1 million.”
5

as an illustration of the impacts of productivity growth. Had we kept 

2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. 

Instead, we employed only 12.1 million.

As Table 3 makes clear, the growth in production per worker 

played a significant role in the change in national manufacturing 

employment in the past decade for which we have complete data. 

To more fully explore the impact of trade, changes to domestic 

demand for goods, and productivity growth, we return to the jobs 

equation mentioned earlier. From Equation 1 we can calculate the 

job losses attributable to trade (exports minus imports), changes in 

domestic demand for goods, and changes to productivity. However, 

we make one modification to the productivity and export analysis. 

Firms mix labor, capital, and raw materials to produce goods. 

That mix changes as a result of technology or process improvements, which are generally viewed as productivity based. They may 

also change the inputs if relative prices change. Typically, there are 

changes to both the relative price of inputs and the relative productivity of capital and labor, so the net effect may be a change in 

productive inputs. However, one factor that is not immediately 

susceptible to productivity changes are raw materials. So, changes in 

the cost share of raw materials typically reflect a price change. Often 

that price change is due to a relatively less expensive substitute 

acquired through trade. 

This is not well captured in the import and export data, and 

imposes some statistical bias into the productivity estimates (Houseman, Kurz, Lengermann, and Mandel 2011). In an effort to adjust 

for some of this bias, we subtract from the productivity the change 

in materials purchased for each sector. In this way we capture the 

potential shift of input purchases from domestic to foreign firms.

The data for this calculation come from the GDP components 

for 2006-2013 (U.S. Census Bureau). We focus only on the most 

likely foreign purchases in manufacturing (materials inputs), 

though the other two elements (energy and services) may also have 

a foreign source. This is an imperfect adjustment, but in most cases 

it reduces the productivity measure by very small shares. Only three 

of these estimates reduced the productivity impact by more than 5.0 

Sector Potential 2010 Employment 

at 2000 Productivity Levels

Actual 2010 

Employment 

Jobs Not Filled 

Due to Productivity 

Actual Job Losses 

2000-2010

All manufacturing 20,269,410 12,102,900 8,166,510 -5,647,700

Durable goods manufacturing 13,580,191 7,424,800 6,155,391 -3,737,200

Wood products 572,628 389,500 183,128 -274,900

Nonmetallic mineral products 416,758 391,500 25,258 -177,000

Primary metals 517,519 372,100 145,419 -248,500

Fabricated metal products 1,448,268 1,330,100 118,168 -478,200

Machinery 1,452,225 1,037,700 414,525 -447,400

Computer and electronic products 5,037,889 1,118,900 3,918,989 -693,700

Electrical equipment, appliances, and components 581,560 369,600 211,960 -233,700

Motor vehicles, bodies and trailers, and parts 1,270,690 684,700 585,990 -627,100

Other transportation equipment 900,717 666,200 234,517 -89,400

Furniture and related products 413,311 391,500 21,811 -327,700

Miscellaneous manufacturing 1,091,628 673,000 418,628 -139,600

Nondurable goods manufacturing 6,946,974 4,678,100 2,268,874 -1,910,500

Food and beverage and tobacco products 2,076,249 1,687,100 389,149 -119,200

Textile and textile product mills 312,183 255,100 57,083 -345,200

Apparel, leather, and allied products 338,835 232,300 106,535 -370,500

Paper products 447,955 396,500 51,455 -210,300

Printing and related activities 852,049 553,000 299,049 -318,600

Petroleum and coal products 159,194 112,900 46,294 -9,100

Chemical products 1,233,424 807,100 426,324 -186,500

Plastics and rubber products 826,979 634,100 192,879 -351,100

Table 3. Potential Manufacturing Productivity Employment Effects, 2010

Source: U.S. Bureau of Economic Analysis and U.S. Bureau of Labor Statistics

“The growth in production per 

worker played a significant 

role in the last decade’s 

change in manufacturing 

employment.”
6

percent. These were in textiles and apparels and in computer and 

electronics. This latter industry is the one most clearly identified by 

Houseman, et. al. for suffering the offshoring bias of this type. 

Our results appear in Table 4. Losses in productivity and trade 

varied dramatically by sector, with those sectors most heavily 

exposed to international competition suffering the greatest declines. 

Other estimates of trade-related job losses have been performed 

within recent years. Some of these studies have provided historically 

large estimates of trade displacement relative to productivity growth 

(Scott 2011; Atkinson 2012). The most scholarly work in this area 

(Ocemoglu, et. al. 2014) estimates employment losses in the United 

States due to imports from 1999-2013 in the 2.0 million to 2.4 million range. This estimate includes impacts beyond direct manufacturing. Our estimates reported here are consistent with the estimate 

offered by Ocemoglu. For example, our job loss estimates only cover 

2000-2010, while the Ocemoglu, et. al. estimates include 1999 

and 2011-2013 impacts of imports. During this time, we estimate 

roughly 750,000 jobs (13.4 percent of lost jobs) were due to direct 

imports and import substitution. 

Ocemoglu, et. al. approach included general equilibrium 

effects, they also estimated the impact of lower employment in 

manufacturing on other sectors. One way to approximate this 

is to apply a general multiplier from an economic input-output 

model (or short-run general equilibrium effects). That would yield 

manufacturing-related job losses due to imports of roughly 1.6 

million workers economy wide. If we adjust Ocemoglu, et. al. 

estimates to the shorter time period we examine, we get between 

1.4 million and 1.7 million jobs lost during that time period due 

to import growth. This is an unusually close estimate using two 

very different methods of assessment. 

Summary

Manufacturing has continued to grow, and the sector itself remains 

a large, important, and growing sector of the U.S. economy. Employment in manufacturing has stagnated for some time, primarily due 

to growth in productivity of manufacturing production processes. 

Three factors have contributed to changes in manufacturing 

employment in recent years: Productivity, trade, and domestic 

demand. Overwhelmingly, the largest impact is productivity. 

Almost 88 percent of job losses in manufacturing in recent years 

can be attributable to productivity growth, and the long-term 

changes to manufacturing employment are mostly linked to the 

productivity of American factories. Growing demand for manufacturing goods in the U.S. has offset some of those job losses, but 

the effect is modest, accounting for a 1.2 percent increase in jobs 

beyond what we would expect if consumer demand for domestically manufactured goods was flat.

Source: Author calculations using data from the U.S. Census Bureau

Note: In this table, the motor vehicles and transportation sectors are aggregated and are represented as one sector due to incomplete data.

Sector Production Change 

Per Worker Actual Job Losses

Job Loss Share Job Gain Share

Trade Productivity Domestic Demand

All manufacturing 67.5% 5,647,700 13.4% 87.8% 1.2%

Durable goods manufacturing 82.9% 3,737,200 12.3% 88.2% 0.5%

Wood products 47.0% 274,900 14.4% 81.9% -3.6%

Nonmetallic mineral products 6.5% 177,000 12.8% 90.4% 3.2%

Primary metals 39.1% 248,500 -3.3% 76.7% -26.7%

Fabricated metal products 8.9% 478,200 6.9% 97.7% 4.5%

Machinery 39.9% 447,400 0.8% 99.6% 0.4%

Computer and electronic products 350.3% 693,700 18.8% 117.7% 36.5%

Electrical equipment, appliances, and components 57.3% 233,700 19.0% 88.1% 7.1%

Transportation and motor vehicles 64.1% 716,500 5.5% 85.5% -9.0%

Furniture and related products 5.6% 327,700 40.2% 81.1% 21.3%

Miscellaneous manufacturing 62.2% 139,600 21.7% 76.7% -1.6%

Nondurable goods manufacturing 48.5% 1,910,500 12.3% 90.0% 2.3%

Food and beverage and tobacco products 23.1% 119,200 4.3% 96.8% 1.1%

Textile and textile product mills 22.4% 345,200 9.5% 97.6% 7.0%

Apparel, leather, and allied products 45.9% 370,500 44.6% 58.5% 3.1%

Paper products 13.0% 210,300 1.7% 93.2% -5.0%

Printing and related activities 54.1% 318,600 -2.1% 101.8% -0.3%

Petroleum and coal products 41.0% 9,100 13.3% 77.1% -9.6%

Chemical products 52.8% 186,500 1.4% 101.1% 2.5%

Plastics and rubber products 30.4% 351,100 7.4% 100.5% 7.9%

Table 4. Impact of Productivity, Trade, and Domestic Demand for Manufactured Goods, 2000-2010
7

Exports lead to higher levels of domestic production and employment, while imports reduce domestic production and employment. 

The difference between these, or net exports, has been negative since 

1980, and has contributed to roughly 13.4 percent of job losses 

in the U.S. in the last decade. Our estimate is almost exactly that 

reported by the more respected research centers in the nation. 

Manufacturing production remains robust. Productivity growth 

is the largest contributor to job displacement over the past several 

decades. This leads to a domestic policy consideration.

What Does This Mean for Policy?

Several analysts have made recommendations regarding manufacturing promotion. We lean heavily upon Houseman 2014 for a 

balanced set of concerns. 

Exchange rates clearly play a part of the role of manufacturing 

import substitution and employment displacement. Any nonmarket factor which influences dollar valuation should be diligently 

opposed by international trade agencies and agreements. 

U.S. national corporate income tax rates are the highest of the 

OECD nations, and clearly impose a disincentive for transnational 

corporate location in the U.S. The government should consider 

lowering barriers to headquarter and manufacturing facility location 

through a reduction of federal corporate tax rates. 

Sustainable manufacturing employment growth requires high 

levels of human capital. The nation and individual states should 

actively support education reforms at the secondary and tertiary 

level that prepare students for employment opportunities in 

manufacturing, which will be large due to job turnover among the 

baby boom share of the manufacturing labor force (see Hicks and 

Devaraj 2014). Human capital interventions should also begin at 

the pre-K level, focusing on skills that enable acquisition of the 

mathematical and cognitive skills required of the modern manufacturing workforce. n

References

Atkinson, Robert D., Luke Stewart, Scott 

Andes and Stephen Ezell. 2012. “Worse 

than the Great Depression: What Experts 

Are Missing about American Manufacturing Decline.” The Information 

Technology & Innovation Foundation, 

March. 

Eaton, Jonathan, Samuel Kortum, Brent 

Neiman, and John Romalis. 2011. 

“Trade and the Global Recession.” No. 

w16666. National Bureau of Economic 

Research.

Fernald, John. 2009. “A Quarterly, Utilization Adjusted Series on Total Factor 

Productivity.” Manuscript. San Francisco: 

Federal Reserve Bank of San Francisco.

Hicks, Michael J. 2013. Manufacturing Productivity Through the Great 

Recession: What Does It Mean for the 

Future?” Center for Business and Economic Research, Ball State University. 

Hicks, Michael J. and Srikant Devaraj. 

2014. “Manufacturing and Labor Market 

Frictions.” Center for Business and Economic Research, Ball State University. 

Houseman, Susan N. 2014. “The Role 

of Manufacturing in a Jobs Recovery.” 

Washington, D.C.: Center on Budget 

and Policy Priorities.

Houseman, Susan, Christopher Kurz, Paul 

Lengermann, and Benjamin Mandel. 

2011. “Offshoring Bias in U.S. Manufacturing.” The Journal of Economic Perspectives: 111-132.

Acemoglu, Daron, David Dorn, Gordon 

H. Hanson, and Brendan Price. 2014. 

“Import Competition and the Great US 

Employment Sag of the 2000s.” No. 

w20395. National Bureau of Economic 

Research. 

Pierce, Justin R., and Peter K. Schott. 

2012. “The Surprisingly Swift Decline of 

US Manufacturing Employment.” No. 

w18655. National Bureau of Economic 

Research. 

Scott, Robert. 2011. “Growing U.S. Trade 

Deficit with China Cost 2.8 Million Jobs 

between 2001 and 2010.” Economic 

Policy Institute, September 20. 

Photo Credits

Flickr Creative Commons. Pete Markham 

(pg 1). USDA Gov (pg 3).

Production Credits

Victoria Meldrum, manager of publications 

and web services, Center for Business and 

Economic Research, Ball State University.

Authors

Michael J. Hicks, PhD, director, Center 

for Business and Economic Research, 

Ball State University. George and Frances 

Ball distinguished professor of economics, Miller College of Business, Ball State 

University.

Srikant Devaraj, MS, MBA, PMP, senior 

research associate and project manager, 

Center for Business and Economic 

Research, Ball State University.