Monday, June 1, 2009

Service vs. Manufacturing

In last week's post Can We Inflate Our Way out of the Mess?, I asserted that employees currently have no bargaining power, thus wages are unlikely to increase. In response, reader kerrjac commented:

It's hard to discuss absolute job gains & losses without looking at which sectors are driving the numbers. The overall trend is that manufacturing jobs are decreasing while service/technology jobs are increasing. This trend has been observed for well over a decade, so it's no surprise that an economic meltdown would help catalyze this shift.
The rest of kerrjac's post was related to the benefits that may occur when the U.S. becomes more service based. What I feel kerrjac doesn't understand (and is likely common amongst many a reader) is that this shift began a LOT longer than a decade ago. In fact, the U.S. economy began to shift away from goods producing industries more than 70 years ago. The U.S. economy is now made up of roughly 6x more service providing than goods producing workers. Thus, there is no shift to come... we are already a service based economy.

This shift has helped the U.S. economy become much more stable as service providing jobs are inherently much more stable than goods producing jobs (whether a company producers 10 or 1000 items, as long as it remains in business most of these service jobs are required).

Yes, jobs that are goods producing have been impacted more negatively during the recent downturn, but many service based jobs are highly dependent on the survival of these manufacturing industries / companies. The broader concern I have already detailed in my post The End of the Private Sector Boom is that service based or not, our economy may have hit the proverbial wall. Over the past ten years, the number of service related jobs have increased less than 1% per year, the lowest such level going all the way back to WWII (the furthest I was able to get data) and is poised to only get worse from here (and this doesn't take into account the fact that the U.S. population is getting older and is growing at ~1% per year).

Source: BLS