In today’s inbox:
Rethinking Deindustrialization
by Andrew B. Bernard, Valerie Smeets, Frederic Warzynski – NBER Working Paper #22114
Manufacturing in high-income countries is on the decline and Denmark is no exception. Manufacturing employment and the number of firms
have been shrinking as a share of the total and in absolute levels. This paper uses a rich linked employer-employee dataset to examine
this decline from 1994 to 2007. We propose a different approach to analyze deindustrialization and generate a series of novel stylized
facts about the evolution. While most of the decline can be attributed to firm exit and reduced employment at surviving
manufacturers, we document that a non-negligible portion is due to firms switching industries, from manufacturing to services. We focus
on this last group of firms before, during, and after their sector switch. Overall this is a group of small, highly productive, import
intensive firms that grow rapidly in terms of value-added and sales after they switch. By 2007, employment at these former manufacturers
equals 8.7 percent of manufacturing employment, accounting for half the decline in manufacturing employment. We focus on the composition
of the workforce as firms make their transition. In addition, we identify two types of switchers: one group resembles traditional
wholesalers and another group that retains and expands their R&D and technical capabilities. Our findings emphasize that the focus on
employment at manufacturing firms overstates the loss in manufacturing-related capabilities that are actually retained in many
firms that switch industries.
Outsourcing (not offshoring) some functions can cause reported manufacturing employment to decline even when employment in production jobs remains the same.
As I understand it, all of a firm’s employees at a single location are counted as manufacturing employees if the primary function of that location is manufacturing. That would include security guards, nurses, computer programmers, industrial painters, or any other employees. If any of those functions are outsourced, the replacement outsourced employees are likely to be counted in the service sector.
Over the past few decades, many manufacturing plants have outsourced service functions and thus reduced manufacturing employment.
Of course, the primary driver in the reduction of U.S. manufacturing employment is still automation.