Are U.S. Manufacturing Jobs Still Important to the Economy?

The Costco Connection, June 2013

by Enrico Moretti

Many pundits are predicting that the perceived renaissance of America’s manufacturing sector will restore blue-collar America to its past glories. The reality is that while manufacturing employment increased modestly over the last two years, it was only after 30 years of steep and consistent declines. American factories have lost an average of 370,000 blue-collar positions per year since 1980. This decline is likely to continue in the foreseeable future.

The future of American jobs is not in manufacturing, it is in innovation. Look where job creation is concentrated today. The economic map of America shows three different countries. At one extreme are the country’s brain hubs–cities such as Seattle; Raleigh-Durham, North Carolina; Austin, Texas; and Boston–with a strong innovation- driven economy and a labor force among the most creative and best paid on the planet.

At the other extreme are cities once dominated by manufacturing–Detroit; Flint, Michigan; and Cleveland–with shrinking labor forces and salaries. In the middle is the rest of America, apparently undecided on which direction to take.

The difference between the three Americas was small in the 1980s but has been growing dramatically since then. In 1980, the average salary in Austin was lower than in Flint. Today it is 70 percent higher in Austin, and the gap keeps expanding with every passing year.

The winners and losers in this process are not always who you expect. The dynamism of America’s innovation sector matters not just to scientists and software engineers. It matters to all of us. In my research, I find that for each new innovation job in a city, five additional service jobs are created, in both professional occupations (lawyers, teachers, doctors) and nonprofessional occupations (waiters, hairdressers, carpenters). For each new software designer hired at Twitter in San Francisco, for example, there are five new job openings for baristas, personal trainers, therapists, nurses and taxi drivers in the community.

Remarkably, the most important effect of high-tech companies on the local economy is outside high tech.

Manufacturing also has a multiplier effect, but it is much smaller. This means that the best way for a city or state to generate jobs for lessskilled workers is to attract innovative companies that hire highly skilled ones.

The average American worker will never be employed by Apple or Google. But their jobs increasingly depend on innovation.

 

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