The American Workplace and the Shift to a Service Economy: Manufacturing Employs 9.1% of the U.S. Workforce While the Service Industry Employs 83.4%

At the conclusion of World War II, manufacturing accounted for 38% of nonfarm employment compared to the service industries, which accounted for 10%. In 1955, the proportion of manufacturing jobs was 30.6% of all nonfarm jobs; however, since the 1970s the American economy has moved away from producing goods to providing services. Although the number of workers in manufacturing remained roughly the same from 1970 through 2000, since then the sector has experienced a steady decline. As of 2005, the proportion of manufacturing jobs had fallen to 10.7% of all nonfarm jobs. In contrast, the service-providing industries accounted for 83.4% of nonfarm employment in 2005 (federal, state, and local government jobs accounted for 19.5% of the total service-providing jobs in 2005, but this doesn't account for the government's hidden workforce, which would bring it closer to 25% or more).

At the conclusion of World War II, manufacturing accounted for 38% of nonfarm employment compared to the service industries, which accounted for 10%. In 1955, the proportion of manufacturing jobs was 30.6% of all nonfarm jobs; however, since the 1970s the American economy has moved away from producing goods to providing services. Although the number of workers in manufacturing remained roughly the same from 1970 through 2000, since then the sector has experienced a steady decline. As of 2005, the proportion of manufacturing jobs had fallen to 10.7% of all nonfarm jobs. In contrast, the service-providing industries accounted for 83.4% of nonfarm employment in 2005 (federal, state, and local government jobs accounted for 19.5% of the total service-providing jobs in 2005, but this doesn't account for the government's hidden workforce, which would bring it closer to 25% or more). - The American Workplace - The Shift to a Service Economy, StateUniversity.com

Manufacturing employment as a share of total employment in the United States has been declining over the past 60 years. In 1950, nearly 31% of nonfarm workers were employed in manufacturing. Since then, the share has been dropping three or four percentage points per decade, falling to 28.4% in 1960, 25.1% in 1970, 20.7% in 1980, 16.2% in 1990, 13.1% in 2000, and 9.1% in 2009. Even with this downward trend in manufacturing’s share of jobs, employment in manufacturing has on average been fairly stable over the past 60 years, averaging a decline of –0.1% per year. In contrast, the growth of nonfarm employment averaged 1.9% per year, and this led to the reduction in manufacturing’s share of jobs. - William Strauss, Is U.S. Manufacturing Disappearing?, Federal Reserve Bank of Chicago, August 19, 2010 

The American Workplace - The Shift to a Service Economy

Published in 2009 by StateUniversity.com

According to researcher Joseph R. Meisenheimer II ("The Services Industry in the 'Good' Versus 'Bad' Jobs Debate," Monthly Labor Review, February 1998), the American economy has undergone a fundamental shift since the conclusion of World War II, at which time service industries accounted for 10% of nonfarm employment, compared with 38% for manufacturing.

Since the 1970s the American economy has moved away from producing goods to providing services, and the service-producing sector has accounted for an increasing proportion of workers. In 1970, for example, there were 48.8 million service-providing workers, and 22.2 million people in the goods-producing sector, representing a service-to-goods ratio of 2.2 to one. (See Table 2.2.)

By 2000, the number of workers in the service-providing sector was 107.1 million, compared with 24.6 million in the goods-producing sector, representing a service-to-goods ratio of 4.4 to one. In 2005, according to preliminary statistics compiled by the Bureau of Labor Statistics and published in Establishment Data Historical Employment (2005), workers who provided services (111.5 million) outnumbered workers who produced goods (22.1 million) by a ratio of five to one.

TABLE 2.1
Employment status of the civilian noninstitutional population, 1940–2005 [CONTINUED]
[Numbers in thousands]
Year	Civilian noninstitutional population	Civilian labor force								Not in labor force
		Total	Percent of population	Employed				Unemployed
				Total	Percent of population	Agriculture	Nonagricultural industries	Number	Percent of labor force
*Not strictly comparable with data for prior years.
SOURCE: "Table 1. Employment Status of the Civilian Noninstitutional Population, 1940 to Date," in Current Population Survey, U.S. Department of Labor, Bureau of Labor Statistics, January 2006, http://www.bls.gov/cps/cpsaat1.pdf (accessed March 21, 2006)
1990*	189,164	125,840	66.5	118,793	62.8	3,223	115,570	7,047	5.6	63,324
1991	190,925	126,346	66.2	117,718	61.7	3,269	114,449	8,628	6.8	64,578
1992	192,805	128,105	66.4	118,492	61.5	3,247	115,245	9,613	7.5	64,700
1993	194,838	129,200	66.3	120,259	61.7	3,115	117,144	8,940	6.9	65,638
1994*	196,814	131,056	66.6	123,060	62.5	3,409	119,651	7,996	6.1	65,758
1995	198,584	132,304	66.6	124,900	62.9	3,440	121,460	7,404	5.6	66,280
1996	200,591	133,943	66.8	126,708	63.2	3,443	123,264	7,236	5.4	66,647
1997*	203,133	136,297	67.1	129,558	63.8	3,399	126,159	6,739	4.9	66,836
1998*	205,220	137,673	67.1	131,463	64.1	3,378	128,085	6,210	4.5	67,547
1999*	207,753	139,368	67.1	133,488	64.3	3,281	130,207	5,880	4.2	68,385
2000*	212,577	142,583	67.1	136,891	64.4	2,464	134,427	5,692	4.0	69,994
2001	215,092	143,734	66.8	136,933	63.7	2,299	134,635	6,801	4.7	71,359
2002	217,570	144,863	66.6	136,485	62.7	2,311	134,174	8,378	5.8	72,707
2003*	221,168	146,510	66.2	137,736	62.3	2,275	135,461	8,774	6.0	74,658
2004*	223,357	147,401	66.0	139,252	62.3	2,232	137,020	8,149	5.5	75,956
2005*	226,082	149,320	66.0	141,730	62.7	2,197	139,532	7,591	5.1	76,762

From 1992 to 2005, construction was the only industry in the goods-producing area that consistently employed more workers each year (4.6 million in 1992, 7.2 million in 2005). The number of employees working in natural resources and mining has fallen significantly in the past two decades. From a fifty-year industry high of 1.2 million workers in 1981, the natural resources and mining sector decreased to 629,000 people in 2005.

The number of workers in manufacturing remained roughly the same from 1970 (17.8 million workers) through 2000 (17.3 million workers). Since then, however, this sector has experienced a steady decline. In 2005, according to Establishment Data Historical Employment, 14.3 million people worked in manufacturing. The proportion of manufacturing jobs has fallen from 30.6% of all nonfarm jobs in 1955 to 10.7% in 2005. In contrast, the service-providing industries accounted for 83.4% of nonfarm employment in 2005. (See Table 2.2.)

Service-producing industries include jobs in transportation, wholesale and retail trade, services, finance, public service (government), and more. Within the service-producing industry, service industry jobs are found in legal services, hotels, health services, educational services, and social services, among others. However, all jobs within the service industry are not necessarily service occupations. For example, while hotels are part of the services industry within the service-producing sector, they not only employ workers who are in service occupations, but also secretaries, managers, and accountants whose occupations are not considered service occupations.

The largest category of service-providing jobs is found in the group of trade, transportation, and utilities occupations (23.1% in 2005). Federal, state, and local government jobs (21.8 million) accounted for 19.5% of the total service-providing jobs in 2005. (See Table 2.2.)

Because average wages are higher in manufacturing than in services, some observers view the shift in employment from goods-producing to service-providing as a change from "good" to "bad" jobs. Meisenheimer, however, found that many service industries equal or exceed manufacturing and other industries on measures of job quality, while some service industries could be viewed as less desirable by these measures.

TABLE 2.2
Employees on nonfarm payrolls by major industry sector, 1955–2005
[In thousands]
Year and month	Total	Total private	Goods-producing
			Total goods producing	Natural resources and mining	Construction	Manufacturing
Annual averages
1955	50,744	43,722	19,234	828	2,881	15,524
1956	52,473	45,087	19,799	859	3,082	15,858
1957	52,959	45,235	19,669	864	3,007	15,798
1958	51,426	43,480	18,319	801	2,862	14,656
1959a	53,374	45,182	19,163	789	3,050	15,325
1960	54,296	45,832	19,182	771	2,973	15,438
1961	54,105	45,399	18,647	728	2,908	15,011
1962	55,659	46,655	19,203	709	2,997	15,498
1963	56,764	47,423	19,385	694	3,060	15,631
1964	58,391	48,680	19,733	697	3,148	15,888
1965	60,874	50,683	20,595	694	3,284	16,617
1966	64,020	53,110	21,740	690	3,371	17,680
1967	65,931	54,406	21,882	679	3,305	17,897
1968	68,023	56,050	22,292	671	3,410	18,211
1969	70,512	58,181	22,893	683	3,637	18,573
1970	71,006	58,318	22,179	677	3,654	17,848
1971	71,335	58,323	21,602	658	3,770	17,174
1972	73,798	60,333	22,299	672	3,957	17,669
1973	76,912	63,050	23,450	693	4,167	18,589
1974	78,389	64,086	23,364	755	4,095	18,514
1975	77,069	62,250	21,318	802	3,608	16,909
1976	79,502	64,501	22,025	832	3,662	17,531
1977	82,593	67,334	22,972	865	3,940	18,167
1978	86,826	71,014	24,156	902	4,322	18,932
1979	89,932	73,864	24,997	1,008	4,562	19,426
1980	90,528	74,154	24,263	1,077	4,454	18,733
1981	91,289	75,109	24,118	1,180	4,304	18,634
1982	89,677	73,695	22,550	1,163	4,024	17,363
1983	90,280	74,269	22,110	997	4,065	17,048
1984	94,530	78,371	23,435	1,014	4,501	17,920
1985	97,511	80,978	23,585	974	4,793	17,819
1986	99,474	82,636	23,318	829	4,937	17,552
1987	102,088	84,932	23,470	771	5,090	17,609
1988	105,345	87,806	23,909	770	5,233	17,906
1989	108,014	90,087	24,045	750	5,309	17,985
1990	109,487	91,072	23,723	765	5,263	17,695
1991	108,374	89,829	22,588	739	4,780	17,068
1992	108,726	89,940	22,095	689	4,608	16,799
1993	110,844	91,855	22,219	666	4,779	16,774
1994	114,291	95,016	22,774	659	5,095	17,021
1995	117,298	97,866	23,156	641	5,274	17,241
1996	119,708	100,169	23,410	637	5,536	17,237
1997	122,776	103,113	23,886	654	5,813	17,419
1998	125,930	106,021	24,354	645	6,149	17,560
1999	128,993	108,686	24,465	598	6,545	17,322
2000	131,785	110,996	24,649	599	6,787	17,263
2001	131,826	110,707	23,873	606	6,826	16,441
2002	130,341	108,828	22,557	583	6,716	15,259
2003	129,999	108,416	21,816	572	6,735	14,510
2004	131,480	109,862	21,884	591	6,964	14,329
2005b	133,631	111,836	22,141	629	7,233	14,279

Meisenheimer stressed the importance of examining more than just average pay when assessing the quality of jobs in each industry. Within each industry, there are jobs at a variety of different quality levels. The quality of service-industry jobs is especially diverse, encompassing many of the "best" jobs in the economy along with a substantial share of the "worst." Thus, employment shifts away from manufacturing and toward services that can, but do not necessarily, signal deterioration in overall domestic job quality.

Wisconsin Has Nation’s Highest Ratio of Manufacturing Jobs to Government Jobs

December 2010

Wisconsin Budget Project - Some people believe that the ratio of manufacturing jobs to government jobs in a state is a good measure of a state’s economic health. For people who use that yardstick, it should be welcome news that Wisconsin has the highest ratio of manufacturing jobs to government jobs in the nation, tied with Indiana.

Wisconsin’s high ranking is due to having a higher percentage of our workforce in manufacturing than other states, as well as having a relatively lean public sector.

Employment in the manufacturing industry in Wisconsin has waned in recent years as part of a national decline in manufacturing. Wisconsin’s ratio of manufacturing jobs to government jobs has been falling more slowly in Wisconsin than in the nation as a whole.

About the Data

Industry employment figures in this analysis come from the Bureau of Labor Statistics, are seasonally adjusted, and include the months January through October 2010. Numbers from recent months are preliminary and may change slightly.

Figures regarding the number of state and local government employees in 2009 are taken from U.S. Census Bureau data. Population numbers represent U.S. Census Bureau estimates for the number of people living in the state in July of that year.

A Leader in Manufacturing Jobs

Wisconsin has the highest percentage of its workforce in manufacturing among all states, tied with Indiana. Moreover, our state has the highest ratio of manufacturing to public sector jobs in the nation, again tied with Indiana.

Both Wisconsin and Indiana had a 1.0 ratio, as shown in Chart 1, and the other 48 states all had at least 20 percent fewer manufacturing jobs than government jobs. In other words, Wisconsin has about as many people working in locations like foundries and assembly lines as in locations like classrooms and police stations.

Wisconsin’s ratio was almost twice the national average of just 0.52 jobs in manufacturing for each government job.


Change Over Time

We examined the job sector trends in Wisconsin and nationally for each year from 1990. Not surprisingly, we found that there has been a significant drop in manufacturing jobs in Wisconsin and in the U.S. as a whole. However, at no time in the last 20 years has the national ratio of manufacturing to employment jobs been higher than it currently is in Wisconsin. Table 1 illustrates that the ratio dropped 46% nationally since 1990, compared to 34% in Wisconsin.

	1990	2010	Change
United States	0.96	0.52	-46%
Wisconsin	1.53	1.00	-34%

Public Sector Employment

Someone might infer from the nature of the debate that the drop in the ratio of manufacturing to government jobs in Wisconsin — to a point where it dipped below 1.0 for seven of the last twelve months — reflects a large and growing number of public sector jobs in Wisconsin. That is not the case. We analyzed the most recent U.S. Census Bureau data on government employment, which is from 2009. As Chart 2 illustrates, Wisconsin actually has a relatively lean public sector. The chart shows that government employment across the U.S. has grown slightly since 2000 (as measured in FTEs per thousand residents), but has declined in Wisconsin.

In 2009, Wisconsin was 4.4 percent below the national average in the number of state and local employees for every 1,000 state residents. Only twelve other states had fewer public employees, measured relative to the state’s population.

Corporate taxes

The WMC report suggests that Wisconsin taxes create a negative business climate for manufacturers in the state. We’ll take a closer look at the tax issue at a future date, but for now will simply reference a March 2010 study by Ernst & Young in conjunction with the Council on State Taxes, a trade association made up of major corporations. Their study found the following:

• Total business taxes of all sorts comprised 4.6% of gross state product in Wisconsin, compared to a national average of 4.7 percent.


• Wisconsin ranked 30th among the states in terms of state and local taxes paid by businesses, measured as a percentage of gross state product.

Conclusion

Manufacturing has long been a very important part of the Wisconsin economy, and none of us wants to see it decline. However, if having more manufacturing jobs than public sector jobs is an important objective, then it appears the focus should be on U.S. economic and trade policy, since the ratio of manufacturing to government jobs has been much lower and falling faster at the national level compared to Wisconsin.

An objective analysis of the job sector data reveals the following:

• Wisconsin and Indiana have a larger percentage of their total jobs in manufacturing than any other states.


• The size of Wisconsin’s public sector workforce is 4.4 percent below average, relative to the state population.


• In 2009 Wisconsin was one of only two states with as many manufacturing jobs as government jobs; all other states had fewer.


• At no time in the last 20 years has the national ratio of manufacturing to government jobs exceeded the current ratio in Wisconsin.


• That ratio is almost twice as high in Wisconsin in 2010 as it is nationally.

Whether the ratio of manufacturing to government jobs is a good measure of a state’s economic health and competitiveness is beyond the scope of this short paper. But if it is a useful gauge of a state’s economic vitality, then we should all celebrate the fact that Wisconsin is #1 and is far above most other states.

Service Industry Vs. Manufacturing Industry

By Jason Reeher, eHow

The manufacturing and service industries continue to evolve. An examination of manufacturing and service jobs reveals distinct differences in the two sectors: employment patterns emerge to uncover details about the U.S. economy. While public policy can somewhat influence the balance of manufacturing and service industry jobs, global socioeconomic forces have caused a major shift in the number of jobs in both sectors. Knowing the differences between manufacturing and service jobs will help you better understand how the U.S. economy is changing.

History

The manufacturing industry came to prominence in the United States during the 19th century. Spurred by technological advances that were occurring in Britain in Western Europe, manufacturing industries arose in conjunction with the advent of the steam engine, the extensive mining and use of coal and the building of railroads. Before the Industrial Revolution, America had been an agricultural society; as technology promoted travel and created new, easier ways to make things, manufacturing industries attracted capital (investment) and labor, especially in America's bigger Northern cities. Manufacturing was the dominant industry sector for much of the 20th century.

Although service industry jobs have existed for centuries, the prominence of the service industry sector is more recent. Beginning in the mid-1980s, service jobs such as medical, educational, food services and hospitality, pulled even with manufacturing in the total number of jobs by category in the United States. By 1999, however, the service industry employed about twice as many workers as the manufacturing industry.

Function

Manufacturing jobs, as the name suggests, involve making things. Manufacturing jobs include machinist and craftsman work, laboratory production in chemicals and pharmaceuticals, food processing and electronics and engineering jobs, to name a few. Manufacturing may occur in factories; mass production, one of the drivers of the boom in industrial manufacturing, often incorporates assembly lines with specialized tasks to produce items at the highest possible rate of speed.

Service industry jobs, by contrast, have a much broader function. The service industry is defined by the U.S. Department of Labor as including workers as varied as health care employees, educators, restaurant employees, hairstylists and even performers like musicians and actors. Basically, service industry jobs can involve working with things (like fixing appliances, for example) or working with people.

Features

Historically, the manufacturing sector has contained a much higher rate of unionization than the service industry. While during the 1970s more than 29 percent of the U.S. labor force belonged to a union, in the early 2000s that figure had dropped to 13 percent. As the U.S. economy has become more service oriented, less unionization has occurred.

Another contrasting feature is the service sector's relative resistance to economic downturns. While the manufacturing industry contracts during a recession, the U.S. Bureau of Labor Statistics has found that some service industries, such as health care and education, are "countercyclical," or may actually increase in number of jobs during a recession, due to increased demand for these services.

Trends

Other trends help further separate the manufacturing and service sectors. Globalization, or the increase of trade between nations, has weakened the U.S. manufacturing sector in terms of percentage of jobs. Emerging economies, like China and Brazil, that are rapidly becoming more open to trade and investment, have seen increases in their manufacturing sectors as production moves overseas from the United States.

Although U.S. service industries are not immune to the same kind of job losses, a more pressing trend concerns wages. Public policy makers fret that the movement away from highly paid, mostly unionized manufacturing jobs will correspond with an increase in low-wage service jobs, especially in food service, personal services and hospitality businesses.

Speculation

As globalization continues, manufacturing jobs will continue to relocate from the United States to other nations. To avoid becoming a country of low-paid workers, America will need to develop more service jobs that are higher paid and higher skilled, such as in health care, where demand from the aging baby boomer generation will naturally increase the need for services. In addition, jobs programs, whether from the government or via private-public partnerships, will continue to aid displaced manufacturing sector workers transitioning to service industry jobs.