The recent U.S. recession, if judged by its effect on total employment, was the shortest and mildest of the post-World War II period. In the six months from the peak of July 1998 to the low of January 1999, employment declined by only 1.43 million workers, and, by May 2004, 7.5 million additional workers were employed.
For American manufacturing, however, the employment recession has been the longest and most severe since the Great Depression. From June 1998 to January 2004, 3.5 million workers lost their jobs—a decline of 19.7 percent. As of May 2004, only 187,000 were reemployed, just one out of every 19 laid-off employees.
Since the 1950’s, manufacturing’s share of the U.S. economy has been in a relentless decline, and its current share of GDP is less than half of what it was in the 50’s. Employment in manufacturing, as a share of total U.S. employment, has fallen proportionately. (See Exhibit I.)
The origin of this downward trend can be explained partly by manufacturing’s relatively greater productivity and partly by the rapid growth of government and the “service” economy. Since the 1970’s, however, this trend has been exacerbated by the growing competitive advantage enjoyed by foreign competitors. In a follow-up article in the December issue, I will show that this advantage is largely the result of a system of border-adjusted...