Impact of Exports on Factory Jobs

creation during the December 1986-88 per-
iod. Chemicals posted the fourth highest ex-
port share, as well as the fourth best
employment gain. Primary metals achieved
the seventh highest ratio but, more important-
ly, a substantial year-to-year change in the
ratio itself. From 1987 to 1988, the industry’s
exports-to-shipments ratio rose three percent-
age points, from 5 to 8 percent. The primary
metals industry had the fifth largest employ-
ment gain.

Considered together, these four export-re-
lated industries proved responsible for almost
half of manufacturing’s 2-year employment
increase. In contrast, the industries had ac-
counted for less than a quarter of manufac-
turing employment in December 1986. (See
chart 3.) The exports of the four industries
together rose $34.1 billion, representing 44
percent of all manufacturing export growth.
Machinery, instruments, and chemicals all
depended on exports for an increasingly large

1986 and 1988

Chart 2. Direct exports as a share of shipments, selected industries,

Percent
15 20 25

Textiles

‘Stone, clay, and gla
Food
Fabricated metals
Rubber and plastics
Paper
Primary metals
ALL MANUFACTURING

Tobacco

‘Transportation
equipment

Chemicals

Electrical and electronic
equipment

Instruments:

Machinery except electrical

SOURCE: Bureau of the Census, U.S. Department of Commerce.

# 1988 ratio
@ 1986 ratio

46 Monthly Labor Review May 1990



[Numbers in million doliars}

Table 2. Growth in manufacturing exports and exports-to-shipments shares, 1986-88, not seasonally adjusted

Direct exports Directexports-o-shipments ratio | ndvect
Industry
1988 Change ,1986-88 1988 Percent |
level level «| ~CCevel
‘Absolute Percent 1986-88 |
Manufacturing $251,377 $78,076 45.41 96 247 6.0
Durable goods . 177,407 55,707 45.6 128 267 73
Lumber and wood products 5,340 2,322 76.9 - - 42
Fumiture and fixtures... 728 262 56.2 - - 13
Stone, clay and glass products 2,519 781 44.9 39 29.6 46
Primary metal industries. 11,322 6,453 132.5 8.0 728 | 201
Fabricated metal products. 7,298 1,756 317 51 275} 92
Machinery, except electrical 51,654 15,296 42.1 20.9 19.9 72
Electrical and electronic equipment . 31,862 11.487 | 56.1 14.0 34.8 12.4
‘Transportation equipment . . | 50,759 12,782 33.7 14.4 190 | 24
Instruments and related Products | 12/263 3206 | 328 16.9 13.4 27
Miscellaneous manufacturing .. . . | 3,662 1,582 76.1 - - 22
Nondurable goods 73,973 22,371 43.4 60 24.2 45
Food and kindred products 15,854 4,604 40.9 44 21.9 14
‘Tobacco manufactures . 2,901 1,379 90.6 13.0 63.5 15
Textile mill products . 2,339 686 a5 39 31.0 50
Apparel and other textile products 1,992 779 64.2 - 1.2
Paper and allied products . . 7,051 2,572 57.4 57 238 79
Printing and publishing . 1,882 584 45.0 - - 33
Chemicals and allied products 31,867 9,303 41.2 13.3 15.7 68
Petroleum and coal products... 4,325 164 3.9 35 45 66
Rubber and miscellaneous plastics products. 4,870 1,929 65.6 53 33.4 9.0
Leather and leather products ...... 892 371 2 = - 1.6
Nore: A dash indicates data are not available.
‘Source: U.S. Department of Commerce, Bureau of the Census.
come manufacturing’s leading exporter in tailed additional employment. Capacity

nominal terms, accounting for one-fifth of the
value of manufactured exports. Similarly,
electrical equipment faced healthy foreign
demand, achieving export growth of $11.4
billion. Chemicals ranked fourth in terms of
dollar gains, with a 2-year increase of $9.3
billion. This technology-intensive industry is
one of the few that consistently maintains a
trade surplus; in 1988, exports exceeded im-
ports by $13.3 billion. Another noteworthy
exporting industry was primary metals ($6.5
billion). Gains by the remaining manufac-
turing industries ranged from $0.2 billion to
$4.6 billion.

The effect on employment

This surge in overseas demand provided a
substantial impetus for employment gains
throughout the Nation’s factories. Indeed,
manufacturing’s recovery from its 1985-86
decline was largely a function of new orders
from abroad, rather than heightened demand
from domestic markets. Improved exchange
rate conditions coupled with growth by other
industrial economies stimulated foreign sales
of American products. Accelerating exports
led to increased production, which in turn en-

utilization increased 4 percentage points be-
tween December 1986 and December 1988,
from 80 percent to 84 percent.’ Business’ in-
vestment in plant and equipment subsequently
rose as well, further augmenting the demand
for labor.

The share of factory shipments destined
for direct export represents a major deter-
minant of the effects of rising exports on
employment. This exports-to-shipments ratio
for all of manufacturing increased from 7.7
percent in 1986 to 8.1 percent in 1987 and
9.6 percent in 1988. The 2-year increase in
the ratio of 25 percent indicates the impor-
tance of exports to manufacturing’s products
and thus employment.

An examination of specific manufacturing
industries demonstrates that the employment
gains were concentrated in the export sector.
Machinery, the leading industry in terms of
job creation, also benefited from the largest
nominal increase in exports. At 20.9 percent
in 1988, this industry’s exports-to-shipments
ratio exceeded that of all others and grew
from 17.4 percent in 1986. (See chart 2.) In-
struments ranked second with its exports-to-
shipments ratio in 1988 and third in job

Monthly Labor Review May 1990 45

rn |


86-88

Percent
25

Chart 3. Employment growth In four export-related Industries,

Machinery instruments
except and related
electrical Products

@ Share of manufacturing growth (Dec 1986-88)
@ Share of manufacturing (Dec 1986)

Chemicals Primary metals

portion of their sales. Primary metals was
characterized by a relatively lower exports-to-
shipments ratio but one that rose significantly
in 1987 and 1988.

The analysis thus far has been limited to
the impact of direct exports on employment.
The importance of foreign trade is magnified
when indirect exports—that is, manufactured
goods that are incorporated into products that
are themselves for export—are considered as
well. The Bureau of the Census’ Analytical
Report Series provides estimates of both
direct and indirect exports for manufacturing
industries.” This export series is not strictly
comparable to that used above, because it
values products at their point of manufacture
rather than their actual point of export.
Nevertheless, the series is pertinent because it
indicates the relative magnitude of indirect
exports.

In 1986, the most recent year for which
data are available, there were 85 cents of in-
direct exports for every dollar of direct ex-
Ports. Together, the sales accounted for 13
percent of all manufacturing shipments that
year. Primary metals, machinery, and chemi-
cals benefited from three of the four highest

levels of indirect exports. The case of pri-
mary metals is particularly noteworthy: its in-
direct exports were 6 times greater than were
its direct exports. With the inclusion of in-
direct exports, this industry’s exports-to-ship-
ments ratio actually exceeded those of all
other manufacturing industries. Machinery,
chemicals, and instruments achieved three of
the next four highest export shares. And these
figures preceded the surge in exports in 1987
and 1988. Data on indirect exports thus un-
derscore the evidence provided by the direct,
namely, that employment growth was dis-
proportionately concentrated among export-re-
lated industries.

Exports during 1989

The net strengthening of the dollar’s foreign
exchange value after 1987 caused U.S. exports
to become relatively more expensive. In addi-
tion, many industrial economies experienced
slower expansion in 1989. Consequently, ex-
port growth decelerated last year. In the ab-
sence of continued vigorous growth in
foreign demand, combined with sluggish
domestic demand, manufacturing began losing
jobs in the second quarter of 1989.

Monthly Labor Review May 1990 47

a |



Christopher J.
Singleton

Christopher J. Singleton is
an economist in the
Division of Monthly
Industry Employment
Statistics, Bureau of Labor
Statistics.

The 1987-88 surge in exports
and the rise in factory jobs

Export-related industries accounted

for almost half of the rebound
in manufacturing employment
after the decline of 1984-86

world became increasingly interdepen-

dent with the expansion of internation-
al trade. Exports contributed to respective
nations’ economic growth by raising output
and augmenting employment levels. The
United States, while not as reliant on the ex-
port stimulus as some developing countries,
nevertheless depends on foreign sales to spur
job growth in numerous industries. Factory
jobs became tied to exports even more in the
late 1980's.

Prior to the weakness of 1989, manufac-
turing employment had risen vigorously in
1987 ard 1988.! This growth stemmed dis-
proportionately from four industries that are
particularly oriented towards exports. These
industries benefited from sharply increasing
exports which, given the industries’ relatively
heavy dependence on foreign sales, spurred
demand for labor. The remaining manufac-
turing industries, although less export-inten-
sive, also generally enjoyed accelerating
foreign shipments. Demand from abroad more
than offset sluggish domestic demand and al-
lowed U.S. manufacturers to recover from
their downturn of the mid-1980’s.

This article describes the spurt in factory
job growth that occurred 5 years into the
longest peacetime expansion in U.S. economic
history. It details the rapid growth of exports
and concentrates on their contribution to the

Di the preceding two decades, the

42 Monthly Labor Review May 1990

improved manufacturing employment picture.
Manufacturing’s recent sluggishness is ad-
dressed in the last section.

Recession takes toll

Because of its cyclical nature, manufacturing
suffered disproportionately from the recession
of 1981-82.? Unlike the total of nonagricul-
tural jobs, which exceeded its prerecession
peak a year into the recovery, manufacturing
was unable to return to its June 1979
employment peak of 21.2 million. While the
former rose essentially on a linear basis,
manufacturing employment reached its post-
recession high in August 1984 and then lost
650,000 jobs in the next 2.5 years. From its
low point of January 1987 through the end
of 1988, however, manufacturing rebounded,
adding 715,000 jobs. (See chart 1.)

Virtually all of manufacturing’s 1987
employment growth occurred in the third and
fourth quarters. Indeed, 295,000 jobs, or 84
percent of all new factory jobs that year,
were added after June. The 155,000 jobs
created between July and September marked
the strongest quarterly performance since the
second quarter of 1984. The rate of growth
slowed during the first and third quarters of
1988 but displayed strength in the other two.
The December 1988 employment level—19.6
million—was last exceeded in December



Impact of Exports on Factory Jobs

Total manufacturing exports for the first
two quarters of 1989 exceeded those of the
corresponding 1988 period by only 15 per-
cent. This is in contrast to an annual growth
rate of 29 percent during 1988. Manufacturing
employment, meanwhile, peaked in March
1989, with first-quarter growth of 90,000.
Factory employment fell by 30,000 during
the second quarter, 90,000 in the third, and
70,000 in the fourth.

Primary metals experienced a sharp drop
in exports during the first half of 1989. Slug-
gish employment growth of 3,000 in the first
quarter was followed by losses totaling
17,000 in the last three quarters. (See table
1.) Machinery continued to expand its over-
seas sales but at less than half its 1988 rate.
Employment growth slowed as well, and the
industry began losing jobs in the third
quarter. Instruments’ export growth mod-

Footnotes

erated slightly through the second quarter,
while employment continued to increase but
at a much slower rate; however, in the fourth
quarter, job losses ensued. Chemicals main-
tained a respectable export pace and added
17,000 jobs during the first two quarters of
1989, but job gains slowed during the last
half of the year. As illustrated by the 1987-
88 period, employment in these four in-
dustries in 1989 was closely linked to trends
in exports.

Thus, although exports increased during
the first half of 1989, the slowing pace was
not sufficient to offset declines in domestic
demand, particularly those in the automobile-
and defense-related industries. This is in con-
trast to 1987, when rapid export growth com-
bined with domestic demand to help reverse
2 years of declines in manufacturing employ-
ment.

" Employment data are from the Current Employment
Statistics survey and appear in the Supplement to Employment
and Earnings, Bulletin 1312-12 (Bureau of Labor Statistics,
August 1989).

? The recession is so designated by the National Bureau
of Economic Research, Inc., Cambridge, MA.

> The term “industry” denotes the two-digit level in the
Standard Industrial Classification system.

* Unpublished Bureau of Labor Statistics data on foreign
currency price indexes of U.S. commodities offer evidence
of this improved competitiveness. See also Charles P.
Thomas, “U.S. International Transactions in 1986," Federal
Reserve Bulletin, May 1987, p. 321.

* See Kathleen Deveny and others, “Going for the Lion’s
Share: The Time is Right for U.S. Companies to Reclaim

48 Monthly Labor Review May 1990

—

Lost Markets,” Business Week, July 18, 1988, pp. 70-72; and
Myron Magnet, “The Resurrection of the Rust Belt,”
Fortune, Aug. 15, 1988, pp. 40-46.

© U.S. Department of Commerce, Bureau of Economic
Analysis. Constant-dollar export data are not available by
industry.

” Export data are collected by the Bureau of the Census
and were obtained from various issues of Trade and Employ-
ment (Bureau of the Census). Data cited are not seasonally
adjusted.

* Federal Reserve Bulletin, various issues. Data cited are
seasonally adjusted.

° Exports from Manufacturing Establishments, 1985 and
1986, AR86-1 (Bureau of the Census), January 1989, p. 24.



Chart 1. Manufacturing employment, seasonally adjusted monthly data, 1980-89
Thousands
21,000 : 21,000
20,500 + 20,500
cee
20,000 4 20,000
19,500 E a 19,500
:
a
19,000 4 19,000
18,500 + 18,500
18,000 + 18,000
17,600 1 1 1 i 4 17,600
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
NOTE: Shaded areas denote recessionary periods as designated by the National Bureau of Economic Research.

1981 and was 93 percent of manufacturing’s
all-time peak.

The durable goods industries added
450,000 jobs in 1987 and 1988 to the manu-
facturing total. Because they are typically
more sensitive to the business cycle, these in-
dustries suffered more acutely from manu-
facturing’s post-1984 deceleration than the
nondurable goods group. The durables jobs
created in 1987 and 1988 followed losses of
490,000 during the 1984-86 period. Non-
durable goods industries, meanwhile, ex-
panded employment by 265,000 after losing
75,000 jobs between 1985 and 1986. If print-
ing and publishing is excluded, the disparity
is much less because this industry has en-
joyed sustained growth since 1982, unlike
most of the others. The remaining nine non-
durable goods industries added 155,000 jobs
in 1987 and 1988, after losing 145,000 in
1985 and 1986.

The 715,000 manufacturing jobs created
during the 1987-88 period amounted to a 2-
year gain of 3.8 percent. (See table 1.) While
this is substantially less than the 7.1-percent
increase achieved by nonmanufacturing in-
dustries, it represented an important turn-
around for manufacturing. Only 4 of the 20

manufacturing industries experienced net
employment losses during this time.? Three
of the four are nondurable goods industries—
apparel and other textile products, petroleum
and coal products, and leather products—that
have been largely noncyclical in nature, char-
acterized by long-term structural decline. The
fourth industry, electrical and electronic
equipment, reduced payrolls severely during
the first half of 1987, although employment
did rise slightly in the second half.

A majority of the 10 industries surpassing
the 2-year all-manufacturing job growth rate
of 3.8 percent belong to the durable goods
category. Instruments and related products led
all manufacturing industries with an increase
of 10.3 percent. Primary metals rose by 8.1
percent, while lumber, printing and publish-
ing, and miscellaneous manufacturing were
within the 7-8 percent range.

In absolute terms, machinery except elec-
trical achieved the most impressive recovery.
Over the 2-year period, this industry created
130,000 jobs, or 18.4 percent of manufac-
turing’s total employment gain. The increase
was particularly strong in 1988 as the in-
dustry added 90,000 jobs; 1 in 4 manufac-
turing jobs created that year was directly

Monthly Labor Review May 1990 43 |


Impact of Exports on Factory Jobs

attributable to machinery. In contrast, the
industry’s December 1986 employment level
had accounted for about 10 percent of the
manufacturing total.

Other industries rebounding 5 years into
the economic expansion included printing and
publishing (110,000) and instruments and re-
lated products (70,000). Thirteen industries
added a minimum of 25,000 jobs during the
1987-88 period; seven had gains in excess of
50,000. Six manufacturing industries had a 2-
year increase of 5 percent, adding 50,000 jobs
or more. These six—machinery, printing and
publishing, instruments, chemicals, primary
metals, and lumber —accounted for nearly 70
percent of manufacturing’s employment
recovery between December 1986 and
December 1988, while representing only 35
percent of the overall employment level.

Trends in exports

A major catalyst for manufacturing’s resur-
gence was the rapid expansion of U.S. ex-
ports. With the sharp depreciation of the
dollar after the first quarter of 1985, the
price competitiveness of American products
in overseas markets improved markedly.* Fur-
thermore, an increasing emphasis on product
quality and productivity growth also aided
many U.S. firms.5 In real terms (billions of
1982 dollars), merchandise exports rose 39
percent between the fourth quarters of 1986

Manufacturing exports increased a total of
45 percent during the years 1987 and 1988.
(See table 2.) In 1987, exports of manufac-
tured goods rose 12 percent; foreign demand
continued to accelerate in 1988, as exports
jumped 29 percent, reaching $251.4 billion.’
The durable and nondurable goods segments
increased at similar overall rates, with the
latter displaying more relative strength in
1987 and the former in 1988. More specifi-
cally, exports of durable goods industries rose
10 percent in 1987 and 32 percent in 1988.
Foreign sales of nondurable goods industries
increased by 16.5 percent in 1987 and by 23
percent in 1988.

Export gains were widespread. Indeed,
only one manufacturing industry—petroleum
and coal products— experienced a decline in
either year; all industries achieved net export
growth over the course of both years. More-
over, an overwhelming majority exported
their products at an accelerating rate during
the second year. The rate of increase for the
2-year period ranged from 4 percent by
petroleum and coal products to 132.5 percent
by primary metals. Nineteen of the 20 manu-
facturing industries expanded overseas sales
by more than 20 percent.

In dollar terms, machinery recorded the
strongest performance, increasing exports by
$15.3 billion during 1987 and 1988. In 1988,
this industry surpassed transportation equip-

and 1988.° ment (2-year increase of $12.8 billion) to be-
Table 1. Employees on manufacturing payrolls, December 1986, 1988, and 1989 levels, not seasonally adjusted
[Numbers in thousands]

Absolute | Percent Absolute | Percent

Industry 1986 1988 change, | change, 1989 change, | change,

1986-88 | 1986-88 1988-89 | 1988-89
Manufacturing ........... 19,625 716 38 19,532 ~93 -5
Durable goods 11,601 449 40 11,452 -149 A3
Lumber and wood products 769.7 54.2 76 757.0 ~127 “16
Fumiture and fixtures ... 837.3 31.4 64 528.5 88 “16
‘Stone, clay and glass products 600.6 25.4 44 594.3 63 -1.0
Primary metal industies . ... . 786.6 50.2 a1 773.0 ~13.6 AZ
Fabricated metal products 1,457.7 50.2 36 1,434.5 -23.2 “1.6
Machinery, except electrical a 2.1300 131.8 66 2151.4 214 1.0
Electrical and electronic equipment 2,079.0 -26.6 -13 2,004.4 746 -36
Transportation equipment 2,083.8 25.8 13 2,042.4 14 -20
instruments and related products 769.4 718 10.3 776.9 75 1.0
Miscellaneous manufacturing 387.3 26.1 72 389.5 22 6
Nondurable goods 8,024 267 34 8,080 56 7
Food and kindred products : | 1,635.7 26.1 16 1,666.3 30.6 19
‘Tobacco manufactures. 59.4 1.0 17 53.8 56 “9.4
Textile mill products . 725.3 13.8 1.9 720.1 52 -7
Apparel and other texte prodvets 1,090.4 +65 =6 1,080.1 10.3 -9
Paper and allied products . : 697.1 19.0 28 698.8 17 | 2
Printing and publishing . . 1,595.6 110.5 74 1,629.0 33.4 24
Chemicals and allied products. 1076.5 64.2 63 1,099.9 23.4 22
Petroleum and coal products . . 159.8 =1.0 6 161.2 14 9
Rubber and miscellaneous plastics products | 800.1 8417 416 52 834.1 ~76 -9
Leather and leather products |__ 1437 142.9 =8 =6 136.9 ~6.0 42

44° Monthly Labor Review May 1990