Textile, Apparel Employment

ket share to overseas productions. Ap-
parel imports not only grew rapidly, but
comprised a large share of total sales.
This import growth led to large-scale em-
ployment declines.

The apparel industry was particularly
hard hit by imports from developing
countries. Less developed countries tra-
ditionally have begun industrialization
with the apparel and textiles industries
because raw materials are relatively com-
mon, and because the two industries re-
quire less capital than most other manu-
facturing activities.” Thus, developing
countries with an abundance of cheap la-
bor but very little capital can produce tex-
tiles and apparel products.

An example of this type of industrial-
ization policy can be seen in Japan fol-
lowing World War II. Faced with the de-
struction of much of their manufacturing
base, the Japanese focused on the textiles
and apparel industries to rebuild. In
1950, textiles accounted for 24 percent
of total shipments and 48 percent of ex-
ports. By 1980, the figures had dropped
to 5.2 and 4.8 percent. Textiles and ap-
pare] declined in importance as Japan
became more industrialized and wage
pressures grew. Japanese industrial
policy focused more on high technology
industries with larger profit margins.
Japanese textile producers today are simi-
lar to U.S. producers: they are more capi-
tal intensive, and they also manufacture
more expensive fabrics.

1970

Textile Gnd apparel imports as a propertion of

domestic consumption, 1970 an 88
Textiles 1988
(in percent)

46

Apparel

(in percert)

52

[9] Domestic
imports

SOURCE: U.S. Department of Commerce

Developing countries rapidly in-
creased their share of the world export market in apparel. In
1965, world apparel exports totaled $3 billion and develop-
ing countries supplied only 14 percent; by 1991, world ap-
parel exports totaled $119 billion and developing countries
supplied 59 percent. The developing economies in Asia
(China, Korea, Mongolia, and Vietnam) supplied half of
the world’s apparel exports in 1991, while the United States
supplied less than 3 percent. At the same time, the Unites
States received 19.4 percent of world exports, including a
third of the exports from developing countries.'* (See table
2 and chart 5.)

Despite the loss of international market share in the
1970's, U.S. apparel exports increased in value. During the
first half of the 1980's, apparel exports declined as the value
of the dollar rose (in 1984, U.S. apparel exports accounted

66 Monthly Labor Review August 1995.

for only 1.8 percent of world apparel exports), and grew
modestly in the latter half. But in contrast to the textiles
industry, the apparel industry never experienced a trade sur-
plus. In 1989, exports accounted for only 4 percent of total
shipments (the same ratio as for textiles), and were over-
whelmed by imports. The industry’s trade imbalance has
steadily worsened since 1980. In 1992, the apparel industry’s
trade deficit was nearly $26 billion, eight times greater than
the textile industry’s imbalance, and the worst imbalance of
all the manufacturing industries. (See chart 6.)

The apparel industry’s practice of using manufacturing
workers in Caribbean countries contributed to a portion of
increased imports. “Sourcing,” or “807 Sourcing,” as it is
called in the apparel industry, refers to cutting material in
the United States and assembling it in other nations.'? The



to substantially reduce the time needed for design. Modular
manufacturing consists of units or small teams of employees
who produce an entire garment. This team system has in-
creased quality and minimized downtime in many plants.”

Dean Vought, president of Textile and Clothing Technol-
ogy Corp., an independent research firm, believes that
“advances in manufacturing technology, while needed and
welcome, have a limited impact. . the wide variety of style
changes and limp fabrics that must be accommodated in
manufacturing make it unlikely that we could reduce direct
labor content by more than 25 percent through all currently
conceivable mechanization and automation.” That still
May not be enough to compete with low wage countries.
Vought emphasized that resources may be better spent “on
developing technology to reduce calendar time rather than
cost. Time, service and more accurate response to consumer
demand are where we have an advantage that can be
strengthened through technology.” Thus, computer inte-
grated man-ufacturing in the apparel industry may be fo-
cused on time-saving techniques. This type of technology
takes the form of improved communications, data manipu-
lation, graphics, video imaging, and satellite transmissions
and can be used in product development, marketing and cus-
tomer service.”

Quick response manufacturing follows the time-oriented
concept that quicker is better, and is becoming the norm in
the apparel and textiles industry. Quick response programs
use computers to speed the goods, services, and information
in domestic apparel production, tying apparel producers with
textile suppliers and retailers." Quick response has become
important in the apparel industry because more retailers are
demanding it as they seek to minimize inventories and mark-
downs while restocking popular items. For apparel manu-
facturers to provide retailers with goods on a quick-turn-
around basis, they must be able to receive their manufactur-
ing inputs quickly. Therefore, this chain of demand is re-
quiring closer partnerships among retailers, appare! manu-
facturers, and textile manufacturers.

Quick response helps the U.S. apparel industry to com-
pete against foreign manufacturers. Many retailers have little
contro] over the quality of the products they purchase from
abroad, and many times the quality of the products is not
consistent among shipments. Quick response gives domes-
tic manufacturers an advantage because they can deliver bet-
ter quality items more quickly. The link between manufac-
turers and retailers also provides incentives for producers to
deliver better quality items. One survey of apparel manufac-
turers found that 61 percent of respondents had quick re-
sponse programs with their retail partners in 1991, up from

51 percent in 1990, while 32 percent had such programs
with their textile partners, up from 23 percent in 1990.

All of the above technologies and trends are combining to
enable producers to create better quality products, more
quickly and for less money in both industries. In a time of
rapidly changing economies, and with prospects of freer
trade on the horizon, these practices can enable the textiles
and apparel industry to maintain, or perhaps increase, their
share of the world market.

In sum, employment has declined in the textile and apparel
industries over the past two decades—together they have lost
more than 750,000 jobs. Although the industries are closely
linked, their operations are very different. The textiles in-
dustry is concentrated, automated, and efficient. Because the
apparel industry is still very labor intensive, despite new
technologies, it has difficulty competing with foreign pro-
ducers in low-wage countries. The apparel industry also is
Not as concentrated as the textiles industry, In the United
States in 1987, 21,000 apparel companies shipped goods
valued at $64 billion. The textiles industry had only 5,000
companies producing $63 billion in shipments.

Between 1949 and 1991, labor productivity in the textiles
industry grew at an average annual rate of 3.9 percent, much
faster than the annual average rate of 2.5 percent for all
manufacturing. Labor productivity in the apparel industry
grew at an annual average rate of only 2.2 percent during
the same time period, slightly slower than the rate for all
manufacturing.

Imports in the textile industry gained about 5 percentage
points of domestic market share from 1970 to 1993, rising
from 4.5 percent to 9 percent. The apparel industry, by con-
irast, saw imports rise from about 5 percent to 31 percent
during the same period. Textile production continues to reach
new heights, but apparel production has not returned to its
peak level that occurred in 1987. Industrial production in
the apparel industry is off 6 percent from its July 1987 peak,
according to December 1994 data.

Although the apparel industry continued to lay off work-
ers in 1994, employment in textiles was relatively flat. Over
the long term, declines are expected to continue, particu-
larly in apparel. Competition will be even fiercer with
stepped up global trade and the lifting of import restrictions.
Labor-saving and time-saving technologies will help domes-
tic manufacturers compete against low-wage countries to
maintain (and perhaps expand) domestic and world market
share. Therefore, emerging technologies and opening mar-
kets should be the main forces behind the employment trends
in the next 10 years. ao

Monthly Labor Review August 1995 71



Textile, Apparel Employment

Developing and developed countries’ share of
the world export market, In percent, 1965-90

Textiles Apparel
Year Developing |Developed | Developing | Developed
market market market market

|economies |economies| economies | economies

16.0 76.4 148 69.7
15.4 776 24.1 63.5
17.6 746 32.0 54.5
224 698 36.5 51.2
28.0 62.2 479 41.5
39.0 59.1 56.4 413

Nore: Based on sic 65 for textiles and site 84 for apparel.
Source: United Nations

ment in the textiles and apparel industries, perhaps the most
influential will be the trade policy agreed to in the General
Agreement on Tariffs and Trade (GATT). With the support of
the United States, the Multi-Fiber Arrangement will be
phased out over 10 years. This arrangement has been the
textiles and apparel trade agreement in effect among most
nations since 1974, and has been renegotiated and ratified
four times, most recently in 1986.

The Multi-Fiber Arrangement, a network of bilateral trade
agreements, operates outside the regulations of Garr, and al-
lows countries to place import quotas on textiles and apparel
products that, under Gart, would not be permitted. The Multi-
Fiber Arrangement permits importing countries to place
quotas on apparel and textile products from selected coun-
tries to avoid domestic market disruption. While the arrange-
ment has undoubtedly protected some domestic jobs, it was
criticized by consumer groups, several academics, and pro-
ponents of free trade because of its cost to consumers and its
protectionist type quotas. A study by William Cline found
that 214,000 jobs were saved in the apparel industry due to
the Multi-Fiber Arrangement, at a cost to consumers of
$46,000 annually per job.*> A separate study by Gary Clyde
Hufbauer, Diane Berliner, and Kimberly Ann Elliott found
that the Multi-Fiber Arrangement had saved 460,000 jobs in
the apparel industry at a consumer cost of $39,000 per job.

With the phase-out of the Multi-Fiber Arrangement, tex-
tile and apparel trade will be conducted under rules and regu-
lations of GATT. The phase-out of the Multi-Fiber Arrange-
ment will allow increased imports by releasing some prod-
ucts from quota limits at set intervals, while the quota limits
on the remaining protected products are raised each year.
These regulations will be set for participating countries and
should allow for freer trade of textile and apparel products
among these countries, As a result of the phase-out, import
restrictions will be eliminated 10 years after it is enacted.”

Several groups have estimated the impact on employment
from the phase-out of the Multi-Fiber Arrangement, but es-

68 Monthly Labor Review August 1995

timates vary dramatically. Estimating effects on employment
is difficult because several important facets of the agreement
have not yet been decided.” For example, the status of quota
limits for products from China is unknown because that
country is not a member of GATT.” Estimating demand for
U.S. products from foreign countries that will have freer
markets also is difficult. In a study published in January
1992, Wharton Economic Forecasting Associates states that
the “direct and indirect impact on the textile and apparel
industries is estimated to be a job loss of 647,000... .”.*
A study by the American Textile Manufacturers Institute
estimates that number of jobs will fall by 1.4 million dur-
ing the same period, leaving only 300,000 jobs in the indus-
tries.*! However, the U.S. International Trade Commis-
sion estimated that eliminating all import quotas and tariffs
would reduce employment in the two industries by between
230,000 and 290,000, The Congressional Budget Office
notes that the losses may be even lighter than the trade
commission estimates because the commission’s study did
not take into account the proposal that all industrialized
countries remove their restrictions at the same time; the
continued application of import quotas to countries that are
not members of GATT, such as Taiwan and China; and that
tariffs on the products may still remain even after quotas are
removed.”

The apparel industry, which is far more labor intensive
and less competitive internationally than the textile indus-
try, will probably sustain most of the losses from the new
trade environment. As noted, the textiles industry does not
suffer from severe import competition as does the apparel
industry, but is affected more indirectly: less domestic ap-
parel production means fewer domestic textiles are needed.

A possible advantage of the new agreements would be the
opening of markets in developing countries that restrict im-
ports of U.S. textile and apparel products. Because the U.S.
textiles industry uses fairly efficient production processes,
demand from foreign apparel producers could increase.

NAFTA, Future employment levels also will be affected by
the North American Free Trade Agreement (NaFTa). The
agreement, which took effect January 1, 1994, created a free-
trade zone among the United States, Canada, and Mexico.
NAFTA is expected to contribute to employment declines in
the apparel industry but may generate job growth in the tex-
tiles industry.

With the relatively cheap labor that is available in Mexico,
some apparel manufacturers are likely to move their opera-
tions south to be more competitive. Narra also may cause
apparel manufacturers to slowly discontinue 807 sourcing
operations in the Caribbean as they reinvest in Mexico, where
finished products would not be subject to duties. A study by
the International Trade Commission concluded that a free


FERRET Capital investment by the apporel and textiles industries in constant dollars, 1965-92

Thousands
$4,000

Thousands

1965 1967 1969 1971 1973 1975 1977

Source: U.S. Department of Commerce

14,000
i Apparel
[ Textiles

3,000

1979 1984

product is then imported back to the United States, with du-
ties paid only on the value added, and shipped by the U.S.
manufacturer for sale.” Thus, the count of imports includes
the value added by assembly in these sourcing arrangements.

Although this practice began in the late 1960's, the
amount of shipments allowed to reenter the United States
was limited by quotas. In 1985, under new bilateral agree-
ments with the Caribbean Basin countries,” unlimited ac-
cess was negotiated for firms that, in addition to cutting the
material in the United States, also used U.S.-made material.
This new sourcing agreement is termed 807a, a traditional
type of outsourcing. Firms in the United States operate un-
der 807 and 807a sourcing methods. As a result of this lift-
ing of import quotas, imports from the Caribbean Basin have
grown rapidly. Between 1987 and 1992, imports under the
807 sourcing programs increased by 180 percent, to $3.8
billion in 1992. Nevertheless, this was still just 14 percent of
total U.S. apparel imports.”

Despite the use of labor that is outside the United States,
determining the precise impact on jobs is impossible. Many
industry leaders—in the American Apparel Manufacturers
Association, the U.S. Department of Commerce, and other
organizations and agencies—believe that, without the prac-
tice of 807 sourcing, many U.S. apparel manufacturers

would go out of business, causing a significant loss of jobs
in the industry. Because of this arrangement, domestic manu-
facturers have been able to take advantage of the relatively
cheap labor in Mexico and the Caribbean to manufacture
apparel products that are more competitively priced com-
pared with East-Asian products. For this reason, 807 sourc-
ing may have reduced the demand for imports from Asia,
protecting the employment of domestic workers who con-
tribute to some parts of the manufacturing process. As a re-
sult, although some apparel assembly jobs in the United
States have moved to the Caribbean Basin or Mexico, even
more might have been lost to East-Asian imports without
this legislation.

Meanwhile, the apparel industry is still confronted by
growing imports. While imports under section 807 are com-
prising a larger share of total imports, most imports con-
tinue to come from developing Asia (nearly 80 percent in
1990.8 In 1992, apparel imports accounted for 31 percent
of domestic consumption.

Employment outlook and trade agreements

Gatr and the Multi-Fiber Arrangement. Among the factors
that are expected to have a substantial impact on employ-

Monthly Labor Review August 1995 67



Textile, Apparel Employment

Developing countries’ share of world exports in apparel products, 1965-92

x billions In ions
Ko) 30
25 3
20 20
15 15
10 10
5 5
L oO
1970 1972 1974 1976 1978
SOURCE: Department of Commerce _|

age U.S. apparel worker earned $6.77 an hour; a similarly
skilled worker in the former Soviet Union earned $0.36.
As incomes rise, however, the appeal of U.S. clothing could
attract buyers in these same countries.

Productivity

Even if the current trade regime were to remain unchanged,
the industries’ employment levels would still be expected to
decline. The Bureau of Labor Statistics estimates that, de-
pending on the economy’s growth, the textiles industry will
jose between 85,000 and 160,000 jobs between 1992 and
2005, while losses in the apparel industry will range from
240,000 to 350,000.” Under the current trade regulations,
the Wharton estimate is that the textile and apparel indus-
tries, combined, will lose 400,000 jobs during the 1993-
2002 period. This estimate also is based on expected pro-
ductivity increases and the domestic industries’ competi-
tive disadvantages.

Productivity will continue to have a major impact on em-
ployment in the 1990’s, Productivity advances will continue
to build on the uses of computer integrated manufacturing
and quick response. Use of computer integrated manufac-

76 Monthly Labor Review August 1995

turing already has begun in the textiles industry. A fully com-
puter-integrated spinning mill that virtually eliminates the
need for laborers already has been established in Japan. The
entire process, from placing bales in the opening line to load-
ing trucks for shipment, is achieved without human hands
touching the material; maintaining and controlling the entire
plant requires only nine employees.

In the United States, many plants use some form of com-
puter integration in manufacturing. For example, a Moun-
tain City, TN, automated yarn spinning plant produces 600,000
pounds per week of cotton yarn with fewer than 200 employ-
ees. The only handling of material occurs when cotton is un-
loaded from trucks and when packed yarn is reloaded for de-
livery.** Computer integrated manufacturing reduces labor
costs and enhances quality and reduces error. Optical scan-
ning can detect errors and alert operators immediately.

Fully automated apparel plants are only in the early stages
of development. A fully operational computer integrated man-
ufacturing system has the potential to reduce the time needed
to complete a season’s line from 30 weeks to between 5 and 6
weeks.» Many apparel manufacturers already have started
using computer-aided design systems and modular manufac-
turing. These systems have allowed garment manufacturers


Textile, Apparel

Lauren A. Murray

Lauren A. Murray is an
economist formerly with
‘the Division of Monthly
Industry Employment
Statistics, Bureau of
Labor Statistics.

Unraveling employment trends
in textiles and apparel

Both of these industries continue
to shed large numbers of workers;

although textiles and apparel are closely related,

the reasons for their job losses,

and the prognosis for their future, differ

he US. textiles and apparel industries

l employ about 1.6 million U.S. workers—

1 in 10 manufacturing workers and more

than the auto and aircraft industries combined."

Textiles and apparel reached employment peaks

Jong ago and both have been influenced by simi-

Jar forces, including productivity, foreign trade,

competition and business cycles. While employ-

ment losses have affected the two industries, the
duration and depth of those losses differ.

The textiles industry produces base products
such as threads, yarn, and cordage and woven
fabrics, carpets, and rugs; in contrast, the ap-
parel industry produces finished clothing prod-
ucts made from base fabrics. Employment in the
textiles industry peaked in 1948, 25 years be-
fore the apparel industry. The textiles industry
has lost one-half of its employment base since
its peak level; the apparel industry has trimmed
one-third of its jobs since its peak in 1973. And
since 1970, the industries have lost 30 percent
of their combined work force; in the current
expansion, the industries have failed to par-
ticipate in the strong cyclical growth that has
been prevalent in much of manufacturing. (See
table 1.)

Although the textiles and apparel industries
are closely related, different reasons account for
their respective job losses. Both industries will
continue to face intense global competition in
the current decade, and, while some manufac-
turers may become more profitable, employment
will most likely continue to fall.

62 Monthly Labor Review August 1995

This article focuses on the employment trends
in textiles and apparel over the past half cen-
tury, with an emphasis on developments since
the 1970's. The underlying causes of the pro-
tracted employment declines in each industry are
examined and some of the issues that wil! affect
future employment needs are discussed.

Long-term trends

Employment in the U.S. textiles industry
reached an all-time high of 1.3 million jobs in
June 1948, reflecting the overwhelming domi-
nance of the United States in the world economy
following World War II. Employment subse-
quently declined through several business cycles,
with new levels rarely returning to 1 million.
However, this long-term decline in employment
is not reflected in a corresponding drop in pro-
duction. On the contrary, production increased
by nearly 190 percent between 1948 and 1994
while employment dropped by nearly 50 per-
cent.? (See chart 1.) Labor productivity grew by
180 percent in the textiles industry between 1950
and 1973.) In contrast, the apparel industry ex-
perienced productivity growth of only 73 per-
cent during that same period, which was more
in line with total manufacturing labor produc-
tivity growth of 84 percent. Thus, labor produc-
tivity growth in the textiles industry was twice
the rate of all of manufacturing, while labor pro-
ductivity growth in the apparel industry lagged
behind other manufacturing.


Textile, Apparel Employment

Footnotes

) Employment data are from the Current Employment Statistics Survey and
appear in Employment, Hours, and Earnings, United States, 1909-1990, Vol-
ume I1, Bulletin 2370, and Employment, Hours, and Earnings, United States,
1981-93, Bulletin 2429 (Bureau of Labor Statistics, 1991 and August).

? Production data from Federal Reserve Statistical Release, Industrial Pro-
duction and Capacity Utilization, (Federal Reserve System), various issues.

> Productivity data based on unpublished data from the Office of Productiv-
ity and Technology, Bureau of Labor Statistics, September 1992, Productivity
data for apparel and textiles are available only through 1991.

‘William R. Cline, The Future of World Trade in Textiles and Apparel
(Washington, Institute for International Economics, 1987), table 2.5.

Centre on Transnational Corporations, Transnational Corporations in the
Man-made Fibre, Textile and Clothing Industries (United Nations, 1987), p.
13.

* Fariborz Ghadar, William H. Davidson, and Charles S. Feigenoff, U.S.
Industrial Competitiveness, The Case of the Textile and Apparel Industries
(Lexington, a, Lexington Books, D.C. Heath and Co., 1987), pp. 19-20.

7 Data are “corporate profits before taxes” obtained from U.S. Department
of Commerce, Bureau of Economic Analysis, National Income and Products
Accounts, 1959-1988, vol. 2, ( July 1992), table 6.17.

* Constant-dollar shipments were deflated using the Producer Price Index
for textile and apparel products. The base year is 1982.

¥ Some of the larger consolidations were West Point-Pepperell’s acquisition
of J.P. Stevens and Cluett, Peabody & Co.; the subsequent acquisition of West
Point-Pepperell by a majority stockholder of Fruit of the Loom; the merger of
‘Spring Industries and M. Lowenstein; and the sale of Cannon Mills to Fieldcrest,
becoming Fieldcrest Cannon. Standard and Poor's Industry Surveys, Nov.
28, 1991, pp. T76-177.

°° The information on leveraged buy-outs was primarily obtained from Stan-
dard and Poor's Industry Surveys, Nov. 28, 1991, pp. 76-177.

"' United Nations Centre on Transnational Corporations, Transnational
Corporations in the Man-made Fibre, Textile and Clothing Industries, p. 80.

Cline, The Future of World Trade, table 5.5. The high level of import,
penetration in the European countries also reflects a higher degree of
intraindustry trade in the European Economic Community.

All international trade statistics are based on Standard Industrial Trade Class-
ification codes 65 for textile products and 84 for apparel products. strc 65 in-
cludes fabricated textile products; SIC 22 does not. strc 84 includes only cloth-
ing while sic 23 includes clothing and fabricated textile products. Therefore,
sic’s 22 and 23 are not strictly comparable to sitc’s 65 and 84.

° Exports From Manufacturing Establishments, 1988 and 1989, AR89-1
(Bureau of the Census, November 1992), p. 30.

'4 Bureau of Labor Statistics, Office of Employment and Unemployment
Statistics, unpublished data. Data available beginning in 1976.

'S'The labor productivity rates may be overstated because some U.S. apparel
products are shipped to the Caribbean or Mexico for assembly or other work,
and then shipped to the United States where they are included in the U.S.
industry's total shipments. Therefore, some labor used in manufacturing the
product may not be included in the productivi .

\6This figure was derived using the annual average aggregate hours from
the Current Employment Statistics Survey and total shipments from the Bu-
reau of the Census.

*’ Ghadar and others, U.S. Industrial Competitiveness, pp. 16-17.

*8 Monthly Bulletin of Statistics. vol. XXXY, no. 5, special table D, and vol.
XI, no. 2, special table C and various other issues including special tables C
and D. (New York, United Nations, Department of Economic and Social De-
‘velopment, Statistical Division, May 1981). The makeup of countries included
in the developing economies has changed as centrally planned economies, such
as Eastern European countries, shift to open markets.

8 “The term 807 refers to a tariff paragraph in Schedule 8 of the U.S. Tariff
‘Code that defines the covered articles as follows: ‘Articles assembled abroad in.
whole or in part of fabricated components, the product of the United States,
which a) were exported in condition ready for assembly without further fabri-
cation, b) have not lost their physical identity in such articles by change in
form, shape or otherwise, and c) have not been advanced in value or improved
in condition abroad except by being assembled and except by operations inci
dental to the assembly process such as cleaning, lubricating, and painting.”
See U.S, Apparel Imports Under 807 (Arlington, vA, American Apparel Manu-

72 Monthly Labor Review August 1995

facturers Association, undated). p. 1.

* Although most of tariff code 807 imports are from the Caribbean Basin,
the same agreementis in effect with Mexico andis called Special Regime. These
imports from Mexico still enter the United States under tariff code 807 and any
reference here to 807 imports includes imports from the Caribbean and Mexico.

Belize, Costa Rica, the Dominican Republic, El Salvador, Guatemala,
Haiti, Honduras, and Jamaica are the primary countries in the Caribbean Basin
initiative.

2+U S$. 807 Apparel Imports,” Table 1.

3 Monthly Bulletin of Statistics, vol. XLV11, no. 5 (New York, United Na-
tions, Department of Economic and Social Development, Statisticals Division),
special table D .

* Four multi-fiber arrangements were negotiated between 1973 and 1986
(MFA I - MFA IV). The Multi-Fiber Arrangement was not negotiated and rati-
fied again upon its expiration in 1991 because most countries had agreed that it
would be eliminated, But until negotiations for elimination of the arrangement
were completed, MFA FV was extended.

% Cline, The Future of World Trade, p. 193.

% Gary Clyde Hufbauer, Diane Berliner, and Kimberly Ann Elliott, Trade
Protection in the United States: 31 Case Studies (Washington, Institute for
International Economics, 1986), p. 148.

® The information on the schedule of the Multi-Fiber Arrangement phase-
‘out was obtained from “Multilateral Trade Negotiations, The Uruguay Round,”
UR-91-0185 (New York, Trade Negotiations Committee, General Agreement
on Tariffs and Trade Secretariat, December 20,1991).

TM Three studies from the Wharton Economic Forecasting Association, Ameri-
can Textile Manufacturers Institute, and U.S. International Trade Commission
assume that import quotas will be lifted from all countries.

® According to the Executive Summary, Results of the Garuruguay Round
of Multilateral Trade Negotiations “China will not be permitted to sign the
agreement on textiles and clothing until it becomes a member of GarT, and, until
then, will not be the beneficiary of any quota liberalization by the United States.”

% “The Impact of Eliminating the Multi-Fiber Arrangement on the U.S.
Economy, Isolating the Textile and Appare! Components of Gat" (Philadel-
phia, the WEFA Group, 1992).

3! Carlos Moore, “Phasing Out the Multi-Fiber Arrangement in the Uruguay
Round: The Impact on U.S. and Foreign Producers” (Washington, Dc, Ameri-
can Textile Manufacturers Institute, March 1991).

»“Trade Restraints and the Competitive Status of the Textile, Apparel, and
Nonrubber Footwear Industries” (Congressional Budget Office, 1991).

“Potential Effects of a North American Free Trade Agreement on Appare!
Investment incBERA Countries” Report to the U.S. Trade Representative (Wash-
ington, United States Intemational Trade Commission, July 1992) p. 72.

+4 “Potential Impact on the U.S. Economy and Selected Industries of the
North American Free-Trade Agreement,” Publication 2596 (Washington, U.S.
International Trade Commission, January, 1993) p. 8-3.

3S“ brighter day is dawning for U.S. textiles in 1993,” Textile World, Janu-

ary 1993, p. 40.

%The hourly wage figure for workers in the former Soviet Union was ob-
tained from “Labor costs - From Pakistan to Portugal,” Bobbin Magazine,
September 1992, pp. 116-119.

» James C. Franklin, “Industry output and employment,” Monthly Labor
Review, November 1993, p, 54, table 50.

> “Mountain City: Oh, What a Mill!” Textile World, June 1991, p. 50.

>The Impact of Technology on Apparel, Part 1,” 1991 Report of the
nical Advisory Committee, American Apparel Manufacturers Associ
p.12.

“ Industry Trade and Technology Review (Washington, U.S. International
Trade Commission, October, 1992), p. 9.

Time is of the Essence at [TC},” Bobbin Magazine, May 1992, p. 24.

* Industry Trade and Technology Review (Washington, U.S. International
Trade Commission, October, 1992), p. 9.

© Ibid. p.9

“ 1987 Census of Manufacturers: Concentration Ratios in Manufactur-
ing. MC87-S-6 (Bureau of the Census, February 1992), table 5.

ch-
Hion,



trade agreement would introduce incentives that favor ap-
parel investment shifts from Caribbean Basin countries to
Mexico; but the study could not quantify any effects of this
shift.” According to this study, companies that already have
invested heavily in the Caribbean may invest in Mexico to
remain competitive, although this would require large capi-
tal expenditures.

The textiles industry would probably not undergo the same
shift in its manufacturing base. Because the textiles industry
is much less labor intensive than the apparel industry, U.S.
companies would not have the same incentive to relocate pro-
duction. Further, the United States is the largest supplier of
textile goods to Mexico’s clothing manufacturers and, for
apparel products to remain duty-free throughout the free-
trade zone, the apparel products must be made from North
American fiber, spun in North American mills. With an effi-
cient production process in place, U.S. textiles manufactur-
ers would benefit from increased production in the free-trade
zone. The U.S. textiles manufacturers are more efficient than
Mexican textile manufacturers, and the elimination of tariffs
would make U.S. textile products more attractive to Mexican
apparel producers. Mexican textile manufacturers could, in
the long run, invest in better facilities, but the large capital
outlays required for efficient plants, coupled with a water

supply that is inadequate for dyeing and finishing yarns will
impede investments in the near future.* This will provide
further stimulus to the U.S. textiles industry. In addition,
NAFTA will boost production and imports of U.S.-made
fabrics, according to the Wharton Economic Forecasting
Associates.**

The impact of NAFTA on imports, exports, and employ-
ment would be expected to occur incrementally over many
years. During 1994, the first year after Narra took effect, an-
nual average employment in textiles was relatively flat for
the third consecutive year, and declines in apparel contin-
ued. Both developments were in line with expectations for
employment trends under NaFTA.

Eastern Europe. The changing political and economic sta-
tus of Eastern Europe also may negatively affect employment
prospects for apparel. With the opening of Eastern European
markets, these countries have the ability to become bigger
players internationally. Unlike many apparel workers in East
Asia, those in Eastern European countries are very skilled.
This level of skill, coupled with the very low wages, may
allow these countries to produce more expensive apparel prod-
ucts, such as tailored suits and coats, at a fraction of the price
paid by U.S. manufacturers. For example, in 1991 the aver-

| Chart 5. imports and exports of apparel products, 1965-91

SOURCE: United Nations

Percent Percent
70 70
60 + 6
50 fF SO
« 0
wWeE 30

}
aot 20
; a | * ;
Co) i)
1965 1970 1975 1980 1985

Monthly Labor Review August 1995 69

,


The apparel industry

Employment in the apparel industry de-
clined significantly in the 1970's and
1980's. Technology introduced in this
period was less revolutionary than that
in the textiles industry. Most likely, ap-
parel imports had the principal influence
on employment. Apparel employment
peaked in 1973 with production peaking
in July 1987; both production and em-
ployment have continued to decline in the
1990’s.

Productivity and structural changes.
Technological innovations in the apparel
industry during the 1970’s and 1980's
were less sweeping and more incremen-
tal than changes in the textiles industry.
Examples of technologies that were de-
veloped in the 1970's and 1980s are pro-
grammable sewing machines that allow
Operators to work more than one machine
at a time, Computer Aided Design (CAD)
that reduces lead time, and computer con-
trolled cutting of material. Labor produc-
tivity increased by 26 percent between

EER eroyinor and production in apparel, 1950-94

Employment, Production,
1987=100 1987=100
150 -] 150
135 Employment 136
120 | 120
105 F ~] 105
90 T | 90
Production
75 4 75
60 | + 60
asl: das
g DF 9
1950 1955 1960 1965 1970 1975 1980 1985 1990 1994
SOURCES: Employment data from the Bureau of Labor Statistics; production
data from the Federal Reserve Board

1969 and 1979; this was slightly less than
the 33-percent rate for all manufacturing.

In the 1970's, the apparel industry spent more on capital
investments than it had during the 1950’s and 1960’s com-
bined. However, the industry still spent at only two-fifths of
the textiles industry’s rate, primarily due to a lack of new
technology. (See chart 4.) The new technology that was avail-
able to apparel manvfacturers was not as powerful or expen-
sive as that available to textile manufacturers. However, an-
other reason for the low level of spending, and perhaps the
limited new technology available, can be explained by the
structure of the apparel industry: firms in the apparel indus-
try are typically smaller and more disconnected than firms
in the textiles industry. For example, 23,600 domestic ap-
Parel establishments employed about 1.3 million people in
January 1976. By contrast, about 7,300 textile establishments
employed slightly more than 900,000 workers. Twenty-four
percent of textile workers were employed in establishments
of more than 1,000 employees in 1976 compared with only 8
percent in the apparel industry; at the other extreme, nearly
20 percent of apparel workers were employed in establish-
ments of fewer than 50 workers, versus less than 7 percent
of textile workers."

The size of many apparel firms was often an obstacle to
large capital investments. Small firms typically operate on a

low profit margin, and the cost of new, technologically ad-
vanced equipment would be prohibitive to many of them. But
labor productivity continued to rise in the 1980’s as produc-
tion of apparel products grew by 7 percent while employ-
ment fell. Labor productivity grew at an annual average rate
of 2.4 percent between 1979 and 1991.'5 Yet it is impossible
to know if employment would have declined less without the
productivity gains, because the higher labor costs would have
made the industry even less competitive with imports.

In 1990, 30 percent more labor was required for every
dollar of output in the apparel industry than in the textiles
industry.'® The textiles industry continued to invest far more
in capital in the 1980’s than the apparel industry, spending
$23 billion, or 4 percent of the industry’s value of shipments,
while the apparel industry spent only $8 billion, or 1.5 per-
cent of that industry’s value of shipments. In addition, the
apparel industry directed only half of those expenditures to
new equipment, while the textiles industry spent three-
fourths of its outlays on new equipment.

Imports and exports. Imports in the apparel industry in-
creased from 5 percent of total consumption in 1970 to 26
Percent in 1988, or from $1.3 billion to $22 billion annually.
This contrasts with the textiles industry, which lost less mar-

Monthly Labor Review August 1995 65.



Textile, Apparel Employment

itself to achieving greater economies of
scale, and gave the newly formed com-

EXEIEN Employment and production in textiles, 1950-94

panies a larger capital base with which ‘poyment iano ‘
to invest in emerging technologies. Capi- | 449 180
tal investments rebounded to an average
of $2.4 billion between 1987 and 1990."

Between December 1978 and the | 16 | | 160
April 1991 employment trough, employ-
ment declined 26 percent, or 230,000 | 149 | Employment 140
jobs. Labor productivity gains averaged
2.7 percent a year between 1979 and
1991, more in line with total manufac- 120 +) 120
turing productivity growth of 2.6 percent.
Production grew even as employment | 100 | + 100
losses persisted, and reached a new all-
time high in April 1989, before the most 60 Production | 80
recent recession began and demand
weakened. Following the 1990-91 reces-
sion, the textile industry enjoyed 2 years 60 + 60
of employment growth before it again
began trimming payrolls in June 1993. at 4
However, production continued to in-
crease: December 994tevelswereSper- | Lay
cent above the April 1989 peak level. 20 960 1968 1960 1965 1970 1978 1960 1968 1900 1904

Imports and exports. A second reason
for the decline in textile employment was

SOURCES: Employment data from the Bureau of Labor Statistics; production data
from the Federal Reserve Board

increased imports, The textile industry
fared far better than the apparel industry against rising im-
ports in the 1970's. The textile industry not only kept its
share of the domestic market throughout the decade, but it
also maintained a trade surplus for the latter half of the de-
cade and into the early 1980's. The ability of the industry to
maintain its market share was, very likely, due to the tech-
nological advances that reduced needed labor and acceler-
ated the production process. Capital expenditures required
to obtain this type of technology were prohibitive to many
developing countries, particularly those with a large number
of small, fragmented producers. Low wages in developing
countries may also have limited pressures on those textile
manufacturers to introduce new labor-saving technologies."
Thus, U.S. manufacturers were more competitive with the
low-wage countries.

The U.S. textiles industry also performed much better than
its European counterparts. The United States was the only
major industrialized country to maintain its domestic mar-
ket share in the 1970's; imports comprised only 4.5 percent
of domestic market share in 1970 and 1980. Germany’s and
the United Kingdom’s textile import penetration increased
substantially. Import penetration by Japan, the largest post-
World War II exporter, and Italy, while still posting a trade
surplus in the textiles industry, also increased.’”

64 Monthly Labor Review August 1995.

From 1980 to 1988, the import share of total U.S, textile
consumption increased by less than 3 percentage points, ris-
ing to 7 percent of domestic consumption. In contrast, the
apparel industry’s import penetration had reached 26 per-
cent by 1988, an increase of 13 percentage points from 1980.
In 1992, imports still accounted for a relatively small 11 per-
cent of all domestic textile consumption.

Exports offset some of the increase in textile imports dur-
ing the late 1980's. Although exports fell during the first half
of the decade because of an overvalued dollar, they began to
rebound in 1986, providing some stimulus for the industry.
In 1989, exports comprised 4 percent of industry shipments.
The impact of exports on employment is even greater when
indirect exports, such as the use of fabric in clothing that is
exported, is considered; nea: ly 10 percent of textile employ-
ment was related to direct and indirect exports in 1989."

As was indicated above, the U.S. textiles industry does
not appear to have greatly suffered from direct imports. How-
ever, the industry was significantly affected by the surge of
apparc: imports. The U.S. textile industry supplies most of
the textile products required by domestic apparel producers.
As apparel imports rose and continued to gain domestic
market share, U.S. apparel producers required less domestic
textile products.

~ ai


The apparel industry’s all-time peak employment level of
1.4 million occusred in April 1973. (See chart 2.) The level
of apparel employment appears to have been greatly influ-
enced by the amount of apparel imports entering the United
States. Beginning in the 1960's, imports of apparel products
increased rapidly and gained a larger share of the domestic
market, contributing to the subsequent employment declines
in the industry. In the early 1960's, imports comprised about
2 percent of domestic consumption; by 1980 the proportion
had risen to nearly 15 percent,‘ and in 1988 it was 26 per-
cent. (See chart 3.)

Since its peak in 1973, the long-term employment trend
of the apparel industry has closely followed that of the tex-
tiles industry. Through successive business cycles, apparel
manufacturers failed to fully recover jobs lost during down-
turns. Moreover, underscoring the industry's long-term, non-
cyclical decline, periods of employment growth have been
shorter, while the periods of job loss have become more per-
sistent. The most recent employment contraction lasted 7
years and followed a growth cycle of only 16 months. The
industry lost 220,000 jobs between its April 1984 peak and
April 1991 recession trough, while productivity increased
by 13 percent and imports continued to expand.

The textiles industry

Increased spending by textile manufacturers in the 1970’s
set the stage for productivity advances that occurred in the
1980's. The increased spending boosted productivity levels
substantially, which helped manufacturers compete with ris-
ing imports. Several recessions, combined with continued
technological advances and rising imports, produced a pe-
tiod of rapid employment losses.

Productivity and structural changes. Sn the late 1960's and
early 1970's, textiles manufacturers made major strides in
automation, Although the industry has historically spent con-
siderable amounts of money on capital investments, spend-
ing in the 1970’s was significant because most of it was in-
vested in radical new technologies. Before 1968, the primary
source of productivity gains was decreased manual handling
of materials.’ For more than 100 years the industry had up-
dated and modified existing machinery. But in the 1970’s,
completely new technology, such as open-end spinning and
shuttleless looms, became available. These technologies dras-
tically reduced the time and number of workers needed to
produce fabrics. For example, a water- or air-driven shuttle-
less loom not only produced fabric three times faster than its
wooden fly shuttle predecessor, but it also could produce
seven or eight times more fabric because it was able to weave
wider widths. Open-end spinning boosted the rate of pro-
duction of yarn four times over the older ring-spinning tech-

oben in apparel and textiles, selected
years, 1939-94
Textiles Apparel

Yeor [Employment] percent | Employment] pyr ory
thounsonds | °P"9* | thousands | change

4,193.0 () 924.0 “)

1,187.0 0.5 1,173.0 26.9

945.7 ~20.3 1,225.9 45

1,002.5 6.0 1,409.1 14.9

885.1 “117 1,304.3 “74

719.8 18.7 1,075.7 175

691.4 -39 1,036.2 -37

670.0 34 7,006.0 29

674.4 68 4,007.2 a

674.8 4 984.6 22

6720 -4 954.3 “34

* Data are not available.

nique and reduced the number of steps involved in manu-
facturing some kinds of yarn from 15 to 3.6

While the technology available was revolutionary, it also
was expensive. U.S textile manufacturers spent an average
of $3.1 billion (in constant 1987 doflars) annually between
1969 and 1974 on capital purchases, 90 percent of which
was for new equipment purchases. During the first half of
the decade, manufacturers spent between 6 percent and 7
percent of their value of shipments on capital investment, In
the latter half of the decade the spending dropped to about 5
percent of the value of shipments, or $2.4 billion annually.
During much of the 1970's, capital expenditures for the in-
dustry were greater than profits.”

As a result of the automation during the 1970's, labor
productivity, expressed in terms of output per employee hour,
increased 56 percent between 1969 and 1979. Constant dol-
lar shipments® rose by $11.5 billion annually during the de-
cade, while employment declined by more than 125,000 jobs.
In the early and mid-1980's, profits in the textile industry
began to decline dramatically due to the rising value of the
dollar, a substantial drop in exports of textile products, and
two recessions in the early 1980’s. Capital spending declined
to an average of $2.2 billion, and in 1986, fell to $1.8 bil-
lion, its lowest level since 1963. In the mid-1980’s, textile
manufacturers took part in several mergers and acquisitions.
This restructuring led to the establishment of several domi-
nant firms in the industry.’

Many textiles companies were the targets of leveraged
buyouts. Because the industry had a history of erratic earn-
ings, many manufacturers’ stock was traded below book
value. Its low was attractive to buyers who were able to raise
capital by using the company’s assets as collateral. This was
the case for at least four major manufacturers: Cannon Mills,
Cone Mills, Dan River Inc., and Burlington, which were
purchased during the 1980's. The size of the new firms lent

Monthly Labor Review August 1995 63