A Quick Look at the Reduction in Manufacturing Employment in the U.S.

There seems to be some anxiety in the U.S. regarding the reduction in manufacturing employment. People tend to see only one reason for this; Americans have a huge demand for cheap goods, which leads to the exploitation of cheap labor overseas. It is slightly more complex than that. There are four main reasons the U.S. labor market no longer demands manufacturing and unskilled labor like it once did.
First, contrary to popular belief, demand for manufactured goods has fallen in the last sixty years. In 1950, 67% of consumer spending was on manufactured goods. By 2006 that number had fallen to 43%. This is likely due to the rise in real wages coupled with the increase in work force participation of married women. Families need to employ services like childcare, cleaning, and food services that were once done by married women.
Second, U.S. manufacturing companies have moved from labor intensive to capital intensive ways of creating products. So what once took twenty men to make, can now be done by a machine and one human operator (for an arbitrary example).
A third and very important reason stems from the idea of comparative advantage. When a country has a comparative advantage in the production of a particular type of good or goods, then they should pursue that production rather than attempting to create goods that other countries can make more efficiently. Otherwise that country will not be able to effectively compete in the global market. The U.S. has exploited their comparative advantage of capital-intensive goods and skilled labor, while other countries have invested in their comparative advantage of unskilled labor-intensive goods production.
The fourth and final reason covered here is interesting because it points out that the decline is perhaps not as severe as the numbers show. Many manufacturing companies use temporary help agencies to cover short-term changes in demand. That means that the workers employed by the agency ('temps') do not get counted as manufacturing workers, they get counted as service workers. So even though there are many thousands of 'temps' working manufacturing jobs in the U.S., they get counted toward service industry employment.
It is difficult to say what the proper amount of domestic manufacturing is for the United States, but a nation of educated and skilled workers seems more appealing to me than a nation of unskilled manufacturers working at polluting factories. The persistence of global trade where both nations can benefit from their transactions is important.

Reference: Campbell R. McConnell, Stanley L. Bruce, and David A. Macpherson. Contemporary Labor Economics eighth edition, 2009

(This was posted by Trevor-Murphy-Mannix)