Manufacturing vs Services

Michael Spence and Belinda Azenui note that labor productivity between the tradable and non-tradable sectors started to diverge in 1998, and by 2021 per-employee value-added in tradable sectors was nearly double the non-tradable sectors.

“…Value-added per employee is a measure of labor productivity. In America’s tradable sector, it has risen steadily over the last two decades in both manufacturing and services, reaching roughly $185,000 (in chained 2012 dollars) in 2021. Over the same period, productivity growth in this sector averaged nearly 3%. The non-tradable economy is just 0.57% per annum over the last 20 years. This reflects below-average productivity levels and, in most cases, low-to-moderate productivity growth in the large-employment sectors. There was not always a large gap between the tradable and non-tradable sectors. On the contrary, as the chart shows, labor productivity was about $100,000 across the economy in 1998. But by 2021, after more than two decades of steady divergence, per-employee value-added in the tradable sector was nearly double the level in the non-tradable sector….”

Michael Spence and Belinda Azenui, "American's Widening Productivity Gap,"Project Syndicate, February 6, 2023, https://www.project-syndicate.org/commentary/us-productivity-growth-non-tradable-sectors-labor-shortages-by-michael-spence-and-belinda-azenui-2023-02

America’s Widening Productivity Gap

MILAN/GRANVILLE, OHIO - The United States has a productivity problem, though one would never know it from looking only at the industries producing goods and services that are traded internationally. Because these goods and services account for only one-third of GDP and slightly over 20% of employment, as is typical for a developed economy, it is important also to consider the non-tradable sector that comprises the remaining two thirds of the economy.

The economy’s tradable sector comprises agriculture, forestry, fishing, and manufacturing - the production of goods, as either final or intermediate products - which in 2021 accounted for one-third of tradable value-added. The tradable sector also includes services such as research and development, consulting, information, and much of finance. Taken together, services account for about two-thirds of tradable value-added - a share that has increased over the last two decades.

Value-added for a firm or industry is calculated by subtracting purchased inputs like energy and intermediate products - excluding labor and capital - from total sales in dollars. It can be understood as the value created by the combination of labor and capital. That value is then captured as income for the labor (forming the upper limit on the average compensation of employees in the sector) and returns for the owners of the capital.

Value-added per employee is thus a measure of labor productivity. And, in America’s tradable sector, it has risen steadily over the last two decades in both manufacturing and services, reaching roughly $185,000 (in chained 2012 dollars) in 2021. Over the same period, productivity growth in this sector averaged nearly 3%. If this had been true of the non-tradable part of the economy - including large-employment sectors such as government, health care, traditional retail, accommodation and food service, education, and construction - nobody would have to be worried about productivity.

There is no good way to measure government productivity, because markets do not price the value created by services that are generally not sold. For accounting purposes, value-added for the government is measured by the costs of labor and capital, the assumption being that democratic collective-choice mechanisms will eliminate services whose costs exceed the perceived benefits. But that approach does not provide much insight into productivity: the fact that value-added per government employee has grown very slowly - by 0.25%, on average, over two decades - just means that, on average, labor and capital costs grew at roughly the same pace as employment.

For the rest of the non-tradable economy, however, we can measure productivity growth, and the results - based on industry-specific data from the Bureau of Economic Analysis for employment and real value-added (in billions of chained 2012 dollars) - are very different than the tradable picture and far from rosy: just 0.57% per annum over the last 20 years. This reflects below-average productivity levels and, in most cases, low-to-moderate productivity growth in the large-employment sectors.

For example, in 2021, hospitality employs 12 million people, has value-added per employee of $41,355 - less than one-third of the $130,000 national average - and productivity growth of 0.26%. The health-care and social-assistance sector employs 20 million people, with value-added per employee of $73,624 and productivity growth of 0.71%. For construction, the figures are 7.6 million, $87,425, and -1.21%, respectively.

There was not always a large gap between the tradable and non-tradable sectors. On the contrary, as the chart shows, labor productivity was about $100,000 across the economy in 1998. But by 2021, after more than two decades of steady divergence, per-employee value-added in the tradable sector was nearly double the level in the non-tradable sector.

Today, however, many non-tradable parts of the economy - including all the large-employment ones - are experiencing labor shortages. This is partly because factors like stress, safety issues, low compensation, and lack of flexibility are driving workers away from these jobs. But skills gaps are also playing a role. Given this, removing barriers to the acquisition of higher-level skills and incomes is a critical component of any structural-transition agenda.

Demand for health care, hospitality, and construction services is not going to drop. So, labor-supply constraints may lead to higher wages and higher prices, raising incomes and measured labor productivity to some extent. But more must be done to boost productivity growth in low-productivity sectors, thereby mitigating supply constraints, which population aging is set to exacerbate.

Digital technologies have been an important driver of productivity growth in rapidly expanding industries. Given recent breakthroughs in robotics and artificial intelligence, there is every reason to believe this will continue. But progress in high-end services and manufacturing alone is not enough. These powerful technologies must also be applied in low-value-added, low-wage, and low-productivity-growth parts of the economy.

Given labor-supply constraints and economic shocks - linked, for example, to climate change and geopolitics - the case for productivity-boosting interventions is clear. Unless policymakers use a combination of investment and incentives to reverse negative productivity trends, the US will achieve modest growth, at best. Worse, the growth that it does attain will be highly uneven, excluding many from its benefits.

Michael Spence and Belinda Azenui note that labor productivity between the tradable and non-tradable sectors started to diverge in 1998, and by 2021 per-employee value-added in tradable sectors was nearly double the non-tradable sectors.

Description automatically generated “…Value-added per employee is a measure of labor productivity. In America’s tradable sector, it has risen steadily over the last two decades in both manufacturing and services, reaching roughly $185,000 (in chained 2012 dollars) in 2021. Over the same period, productivity growth in this sector averaged nearly 3%. The non-tradable economy [net government] is just 0.57% per annum over the last 20 years. This reflects below-average productivity levels and, in most cases, low-to-moderate productivity growth in the large-employment sectors. There was not always a large gap between the tradable and non-tradable sectors. On the contrary, as the chart shows, labor productivity was about $100,000 across the economy in 1998. But by 2021, after more than two decades of steady divergence, per-employee value-added in the tradable sector was nearly double the level in the non-tradable sector….”

Michael Spence and Belinda Azenui, “American’s Widening Productivity Gap,” Project Syndicate, February 6, 2023, https://www.project-syndicate.org/commentary/us-productivity-growth-non-tradable-sectors-labor-shortages-by-michael-spence-and-belinda-azenui-2023-02?barrier=accesspaylog

America’s Widening Productivity Gap

MILAN/GRANVILLE, OHIO – The United States has a productivity problem, though one would never know it from looking only at the industries producing goods and services that are traded internationally. Because these goods and services account for only one-third of GDP and slightly over 20% of employment, as is typical for a developed economy, it is important also to consider the non-tradable sector that comprises the remaining two thirds of the economy.

The economy’s tradable sector comprises agriculture, forestry, fishing, and manufacturing – the production of goods, as either final or intermediate products – which in 2021 accounted for one-third of tradable value-added. The tradable sector also includes services such as research and development, consulting, information, and much of finance. Taken together, services account for about two-thirds of tradable value-added – a share that has increased over the last two decades.

Value-added for a firm or industry is calculated by subtracting purchased inputs like energy and intermediate products – excluding labor and capital – from total sales in dollars. It can be understood as the value created by the combination of labor and capital. That value is then captured as income for the labor (forming the upper limit on the average compensation of employees in the sector) and returns for the owners of the capital.

Value-added per employee is thus a measure of labor productivity. And, in America’s tradable sector, it has risen steadily over the last two decades in both manufacturing and services, reaching roughly $185,000 (in chained 2012 dollars) in 2021. Over the same period, productivity growth in this sector averaged nearly 3%. If this had been true of the non-tradable part of the economy – including large-employment sectors such as government, health care, traditional retail, accommodation and food service, education, and construction – nobody would have to be worried about productivity.

There is no good way to measure government productivity, because markets do not price the value created by services that are generally not sold. For accounting purposes, value-added for the government is measured by the costs of labor and capital, the assumption being that democratic collective-choice mechanisms will eliminate services whose costs exceed the perceived benefits. But that approach does not provide much insight into productivity: the fact that value-added per government employee has grown very slowly – by 0.25%, on average, over two decades – just means that, on average, labor and capital costs grew at roughly the same pace as employment.

For the rest of the non-tradable economy, however, we can measure productivity growth, and the results – based on industry-specific data from the Bureau of Economic Analysis for employment and real value-added (in billions of chained 2012 dollars) – are very different than the tradable picture and far from rosy: just 0.57% per annum over the last 20 years. This reflects below-average productivity levels and, in most cases, low-to-moderate productivity growth in the large-employment sectors.

For example, in 2021, hospitality employs 12 million people, has value-added per employee of $41,355 – less than one-third of the $130,000 national average – and productivity growth of 0.26%. The health-care and social-assistance sector employs 20 million people, with value-added per employee of $73,624 and productivity growth of 0.71%. For construction, the figures are 7.6 million, $87,425, and -1.21%, respectively.

There was not always a large gap between the tradable and non-tradable sectors. On the contrary, as the chart shows, labor productivity was about $100,000 across the economy in 1998. But by 2021, after more than two decades of steady divergence, per-employee value-added in the tradable sector was nearly double the level in the non-tradable sector. Chart, line chart

Description automatically generated By definition, there is no external supply or demand in non-tradable sectors, and thus no external competition or specialization. These sectors must therefore be supplied by domestic and even local entities. Put simply, the supply and demand side must match.

Today, however, many non-tradable parts of the economy – including all the large-employment ones – are experiencing labor shortages. This is partly because factors like stress, safety issues, low compensation, and lack of flexibility are driving workers away from these jobs. But skills gaps are also playing a role. Given this, removing barriers to the acquisition of higher-level skills and incomes is a critical component of any structural-transition agenda.

Demand for health care, hospitality, and construction services is not going to drop. So, labor-supply constraints may lead to higher wages and higher prices, raising incomes and measured labor productivity to some extent. But more must be done to boost productivity growth in low-productivity sectors, thereby mitigating supply constraints, which population aging is set to exacerbate.

Digital technologies have been an important driver of productivity growth in rapidly expanding industries. Given recent breakthroughs in robotics and artificial intelligence, there is every reason to believe this will continue. But progress in high-end services and manufacturing alone is not enough. These powerful technologies must also be applied in low-value-added, low-wage, and low-productivity-growth parts of the economy.

Given labor-supply constraints and economic shocks – linked, for example, to climate change and geopolitics – the case for productivity-boosting interventions is clear. Unless policymakers use a combination of investment and incentives to reverse negative productivity trends, the US will achieve modest growth, at best. Worse, the growth that it does attain will be highly uneven, excluding many from its benefits.

“…As companies across the U.S. fight to find workers, Amazon is emerging as a de facto wage-and-benefit setter for a large pool of low-skilled workers. Business experts have long researched what is known as the Amazon effect in disrupting traditional retailers. Now Amazon’s every move is causing ripple effects well beyond the retail space in local markets throughout America, including on inflation, regional job markets and labor standards, according to an examination of federal labor data and interviews with economists, researchers, local employment officials and current and former Amazon employees….“If they are not leading, they are reinforcing it,” said Lynn Reaser, a professor at Point Loma Nazarene University and longtime economist at financial institutions that include Bank of America Corp. “Everyone is comparing job offers, and they always have Amazon as a benchmark.” Even Amazon’s own internal employee challenges ripple through the market. The company’s turnover rate has exceeded more than 100% across many of its facilities, according to an analysis by The Wall Street Journal….A 10% increase in Amazon’s advertised hourly wages in 2018 led to an average increase of about 2.6% among other employers in labor markets where Amazon is located, according to a paper this year by researchers from the University of California, Berkeley and Brandeis University. Amazon’s influence on wage increases had a big effect because a large fraction of similar jobs then were below $15 an hour, researchers concluded. In comparison, when Walmart and Target Corp. announced $9 starting pay in 2015, the effect was smaller because there was a larger fraction of employers that were already at or above that pay level. Walmart in September raised its minimum wage to $12 an hour. At the same time, the researchers found Amazon’s increase in pay failed to raise overall employment levels and actually led to a small decline. While some employers that raised wages hired additional workers, others cut back on employment or hours. In Amazon’s case, the company’s increase to $15 an hour led to an average decrease in “probability of employment” by 0.8 percentage point, the paper says. Other research showed similar results….”

Sebastian Herrera, "Amazon Emerges as the Wage-and-Benefits Setter for Low-Skilled Workers Across Industries,"Wall Street Journal, December 7, 2021, https://www.wsj.com/articles/amazon-emerges-as-the-wage-and-benefits-setter-for-low-skilled-workers-across-industries-11638910694

Amazon Emerges as the Wage-and-Benefits Setter for Low-Skilled Workers Across Industries

Max Ramirez knew he had a problem when he found out about the truck.

About two years ago, Amazon.com Inc. employees rigged a vehicle to carry a makeshift billboard advertising starting pay of roughly $16 an hour. They drove the truck all over the small Texas city where Mr. Ramirez helps run a rival warehouse operation.

Within a few months, a handful of the employees at his company, mattress manufacturer Serta Inc., had decamped to Amazon. “We had no choice but to compete,” he said. The company raised its starting pay by roughly $2 to about $15 an hour and has since raised it about another dollar, he said.

As companies across the U.S. fight to find workers, Amazon is emerging as a de facto wage-and-benefit setter for a large pool of low-skilled workers. Business experts have long researched what is known as the Amazon effect in disrupting traditional retailers. Now Amazon’s every move is causing ripple effects well beyond the retail space in local markets throughout America, including on inflation, regional job markets and labor standards, according to an examination of federal labor data and interviews with economists, researchers, local employment officials and current and former Amazon employees.

The nation’s second-largest private employer is planning mock fulfillment centers in high schools to plant the seeds of future careers, sending recruiters to local fairgrounds and bombarding job boards with promises of large sign-on bonuses and pay—in some cases nearly triple the federal minimum wage.

The effect is magnified because Amazon churns through hundreds of thousands of employees each year, creating an even more voracious appetite for labor that often compels the company to push up compensation or improve recruitment in other ways—especially during peak times such as the holiday shopping period now under way.

“Amazon has the economies of scale,” said Jesse McCree, a workforce development official in Harrisburg, Pa., an area of the country where Amazon is competing heavily with other large logistics and warehouse companies. “They are influencing the market because of scale and name recognition and can afford to pay more than the smaller guys. As they go, even the big companies are going to pay attention.”

Similar effects are evident in areas near Austin, Los Angeles, Cincinnati and Louisville, Ky., according to a Journal review of local data and interviews with employers and workforce officials.

At produce distributor Castellini near Cincinnati, Chief Executive Brian Kocher can’t get away from Amazon. The company has wrapped job advertisements around cars, buses and billboards. And recently, when Mr. Kocher went to play his favorite Solitaire game on his iPhone, Amazon ads popped up there, too.

Castellini in the past year has raised wages three times, with its pay now starting around $16 an hour. Since many of its employees in the area are Spanish speakers, Castellini has recently focused on hiring and promoting managers who speak the language to better connect with workers. The company also implemented $750 bonuses for any employee who refers family and friends to work there.

Amazon has had a significant impact on the area since 2017, when the company struck a deal with the Cincinnati/Northern Kentucky International Airport to open a $1.5 billion air hub. Paul Verst, chief executive of Verst Logistics, which provides warehousing, transportation and packaging services for clients such as manufacturers and consumer-goods companies, said construction costs have risen by at least $30 a square foot to a range of about $90 to $100 due to increased demand for building space.

Mr. Verst recently gave employees a $3-an-hour raise to compete with Amazon. Starting pay now ranges from $16 to $19 an hour. He said his family-owned company aims to retain employees by connecting with them personally. He signs a birthday card for each worker. Tenures for many workers have averaged 10 to 15 years, he said. Still, the company has lost a handful of employees to Amazon, which has advertised pay of $20 or more an hour and $1,000 sign-on bonuses in the area.

“It was for economic reasons that they left,” he said.

There have been about two job openings for every unemployed person in Cumberland County, the Harrisburg-area county where several Amazon facilities are located. Warehouse competitors include pet food retailer Chewy Inc., United Parcel Service Inc. and food and agriculture giant Cargill Inc.

Wage wars in the area have been fierce ever since Amazon raised its starting pay nationally by several dollars to $15 an hour in 2018, local officials said. Much of the battle for hourly employees has played out near a stretch of the area’s Interstate 81 highway, where companies have erected billboard after billboard advertising sign-on bonuses and “immediate openings.”

On occasion, Chewy workers have left the company to work at Amazon almost immediately after receiving new training, according to a former area manager. During the Covid-19 pandemic, a period when Amazon hired workers as aggressively as any company in modern history, Cargill was at times so short of employees that it flew workers in from other locations, according to the company. Both Chewy and Cargill now advertise pay near $20 an hour in the area.

Employee turnover in Cumberland County rose after Amazon’s arrival spurred competition among local firms for workers. Three years ago, around the time when Amazon bumped its starting pay to $15 an hour, wages for warehouse employees in Cumberland averaged from $10.50 an hour to $12.50 an hour. Now, they range between $15 to $21 an hour, according to the Cumberland Area Economic Development Corporation.

“Amazon is the standard-bearer,” said Zach Pasquariello, a former Chewy area manager in the region. “Chewy was always following in Amazon’s footsteps and trying to do what Amazon does, but we were always a little bit behind.” Chewy declined to comment.

Job openings across the U.S. outnumber the people who are unemployed, Labor Department figures have shown, demonstrating an unusual tightness in the labor market that has seen a sharp rise in wages. How much of this is due to Amazon’s influence is difficult to pinpoint, due to limited data and the unique influence of the pandemic.

But as Amazon’s footprint has grown rapidly across the country, the potential for the company to influence wages or other market dynamics has increased, economists say. Amazon, which had around 1.4 million total employees at the end of September, hires hundreds of thousands of people every year, putting it on pace to surpass Walmart Inc. as the nation’s largest employer in a matter of years.

“If they are not leading, they are reinforcing it,” said Lynn Reaser, a professor at Point Loma Nazarene University and longtime economist at financial institutions that include Bank of America Corp. “Everyone is comparing job offers, and they always have Amazon as a benchmark.”

Even Amazon’s own internal employee challenges ripple through the market. The company’s turnover rate has exceeded more than 100% across many of its facilities, according to an analysis by The Wall Street Journal.

Amazon has recorded higher injury rates than the national average, and its speedy delivery requirements can quickly burn workers out. The company has faced lawsuits, union challenges and government intervention related to the treatment of its workforce, which has pushed it to introduce new safety measures such as body mechanics training for employees and vows from its top leaders to better listen to workers.

Amazon has said it is working to better understand the needs of its employees and has opposed unions because it prefers to negotiate with workers directly. The company also has said that many of the people it adds are re-hires, demonstrating that many workers return to the company after having earlier left.

Amazon’s wage increases pass through to workers outside the company, researchers have found, as many employers raise their own pay to combat churn. In September, Amazon announced that its starting wage now averages $18.32 an hour, an amount that’s nearly triple the federal minimum wage of $7.25 an hour.

To fight off Amazon, competitors have tried to offer lighter workloads, more flexible schedules, bonus pay and other perks. But Amazon is rolling out new plans to compete in those areas as well.

Amazon wants to use its size and scale to make its jobs as flexible as possible, J. Ofori Agboka, an Amazon senior human-resources executive, said in an interview. Having hundreds of thousands of employees makes it easier to offer workers different work hours, a perk many have requested, he said. Amazon recently broadened a program that allows some employees to switch schedules and pick their own work hours, or cancel a shift at the last minute. The company also offers a child-care network to employees and flexible hours for a few weeks for employees transitioning back to work.

“What does flexibility mean for each employee, and how can we meet that?” Mr. Agboka said.

Candidates are now essentially being hired on the spot, Mr. Agboka said, with many workers able to see their start date less than half an hour after beginning an application online. Amazon is also working to fix common retention issues, he said, such as employees who are dismissed after a minor incident like missing work due to an emergency.

It is too early to know how well some of Amazon’s new initiatives to increase flexibility will be felt in the labor force, but its pay increases are already having a widespread impact.

LaShay Moran, who lives near Louisville, joined Amazon during its current hiring spree. Ms. Moran, 42, left her job at auto parts distributor Premier Performance LLC in part because Amazon offered more money—$17.50 an hour versus $16 at Premier—and a $3,000 sign-on bonus.

“Everybody knows what it is,” she said of Amazon’s name recognition.

A 10% increase in Amazon’s advertised hourly wages in 2018 led to an average increase of about 2.6% among other employers in labor markets where Amazon is located, according to a paper this year by researchers from the University of California, Berkeley and Brandeis University.

Amazon’s influence on wage increases had a big effect because a large fraction of similar jobs then were below $15 an hour, researchers concluded. In comparison, when Walmart and Target Corp. announced $9 starting pay in 2015, the effect was smaller because there was a larger fraction of employers that were already at or above that pay level. Walmart in September raised its minimum wage to $12 an hour.

At the same time, the researchers found Amazon’s increase in pay failed to raise overall employment levels and actually led to a small decline. While some employers that raised wages hired additional workers, others cut back on employment or hours. In Amazon’s case, the company’s increase to $15 an hour led to an average decrease in “probability of employment” by 0.8 percentage point, the paper says. Other research showed similar results.

In response to its overall effect on employment, Amazon has previously pointed to the billions it has invested in infrastructure and the amount of jobs it creates.

In San Marcos, Texas, Amazon established its first fulfillment center in 2016 and soon approached the nearby Texas State University as the area’s largest employer.

Other warehouse operators in the area quickly felt the company’s presence. Amazon advertised on radio stations hundreds of miles away and attracted workers from competitors in short order.

Amazon staffs more than 4,500 workers in three facilities throughout the surrounding Hays County, and a fourth site recently opened that will employ at least hundreds more. The company has added more than 2,000 employees during the Covid-19 pandemic, according to local data.

Worker churn has been high at the facilities. Turnover in Hays County, which is located southwest of Austin, swelled to 101% in 2017, the first full year Amazon operated there. The rate plunged to 68% by 2019, according to a Journal analysis. That decrease happened after Amazon reduced the number of employees at the San Marcos warehouse, according to the Greater San Marcos Partnership, a local business group.

Since Amazon raised its starting pay in 2018, wages in the San Marcos area are also up substantially. Pay for employees in the warehouse and storage industry in Hays County grew by 12.7% in the two years after Amazon’s move to $15, compared with 4.3% in the two years preceding it, according to labor market research firm Emsi Burning Glass.

Walmart and others matched and sometimes exceeded Amazon’s pay at their facilities to stay competitive, said Jason Giulietti, president of the Greater San Marcos Partnership. A large sign recently hung from a Walmart distribution center south of Amazon’s San Marcos facility advertising pay of up to $20 an hour.

At lighting manufacturing giant Signify, which has a warehouse in Hays County, plant manager Haiver Montenegro said he competes with Amazon using flexible schedules, including usually not requiring employees to work on weekends.

“If we were just to compete with hourly rates with Amazon, we would never get there,” he said. “The biggest discussion around resources in this area has to be around what an employer has to offer as a whole package.”

Still, he is short about 15 production associates, with roughly 120 manufacturing employees at the warehouse, according to the company. Signify recently raised starting wages there to around $15 an hour in part because of Amazon’s wage hikes, and he is considering putting up job advertisements on billboards for the first time.

"...Does manufacturing still offer “good wages”? The short answer to this question is yes, but not as broadly as in the past. It depends on a worker’s occupation within the sector. Approximately three out of every five manufacturing workers are nonproduction workers, who typically earn an hourly wage that is 14 percent higher than they would receive if they worked in another sector. The wage premium for production workers, on the other hand, is smaller. While this premium was 10 percent or higher throughout the 1980s, it has been no more than 4 percent since 2003. The fact that the manufacturing wage premium is small for production workers, including those with no more than a high school diploma, undermines one of the reasons governments provide special assistance to manufacturers...A manufacturing wage premium is the average percentage difference between the wage a worker earns in manufacturing and the wage similar workers earn in industries other than manufacturing. Using standard wage regressions, we find that, between 1979 and 2018, the manufacturing wage premium declined much more for production workers (such as machine operators) than for nonproduction workers (such as managers or administrative assistants). As a result, the production-workers’ wage premium was 4 percent during 2015 to 2018, while the nonproduction-workers’ wage premium was 14 percent. The decline in the production-workers’ wage premium is broad based, both demographically and geographically. We argue that this decline was most likely caused by the loss of manufacturing production jobs, which put downward pressure on wages for this work. The decline in manufacturing wage premiums has important implications for the difficulties associated with recruiting manufacturing workers and for public investment in training for manufacturing jobs...."

Joel Elvery and Julianne Dunn, "Manufacturing Wage Premiums Have Diverged between Production and Nonproduction Workers," Federal Reserve Bank Of Cleveland, November 9, 2021, https://www.clevelandfed.org/newsroom-and-events/publications/regional-policy-reports/rpr-20211109-manufacturing-wage-premiums-have-diverged-between-production-and-nonproduction-workers.aspx

Adam Posen draws a parallel between Ohio and North Rhine-Westphalia a comparable region in Germany, "...manufacturing employment as a share of total employment has been steadily declining in all high-income economies, even those with strong export sectors and trade surpluses, like Germany. State-level data provide a more complete picture. Germany persistently recorded trade surpluses in goods between 1992 and 2020, but manufacturing employment as a share of total employment in its industrial heartland has fallen at a similar rate to that in the United States, which recorded a trade deficit in goods in that time frame. Manufacturing employment in North Rhine-Westphalia, an industrial hub in western Germany that has recently been reinventing itself as a high-tech and services center, fell as a share of total employment by 11.7 percentage points across the period, losing 658 thousand jobs. In Ohio, a Midwestern state in the United States with a similar manufacturing history, manufacturing employment as a share of total employment dropped by 8.1 percentage points, or 341 thousand jobs. Both states are heavily populated. Ohio's population is 11.7 million and North Rhine-Westphalia's is 17.9 million. The parallel trends observed in both regions suggest the decline is driven by forces other than trade balances or policy. Common factors, including increased use of labor-saving technologies and improvements in productivity, may be responsible as more efficient technologies reduce the need for manufacturing workers...."

Adam Posen, "Despite Germany's trade surplus, manufacturing employment share of total employment has fallen in its industrial hub at a similar rate as in Ohio," Peterson Institute For International Economics, October 6, 2021, https://www.piie.com/research/piie-charts/despite-germanys-trade-surplus-manufacturing-employment-share-total-employment

Despite Germany's trade surplus, manufacturing employment share of total employment has fallen in its industrial hub at a similar rate as in Ohio

State-level data provide a more complete picture. Germany persistently recorded trade surpluses in goods between 1992 and 2020, but manufacturing employment as a share of total employment in its industrial heartland has fallen at a similar rate to that in the United States, which recorded a trade deficit in goods in that time frame. Manufacturing employment in North Rhine-Westphalia, an industrial hub in western Germany that has recently been reinventing itself as a high-tech and services center, fell as a share of total employment by 11.7 percentage points across the period, losing 658 thousand jobs. In Ohio, a Midwestern state in the United States with a similar manufacturing history, manufacturing employment as a share of total employment dropped by 8.1 percentage points, or 341 thousand jobs. Both states are heavily populated. Ohio's population is 11.7 million and North Rhine-Westphalia's is 17.9 million.

The parallel trends observed in both regions suggest the decline is driven by forces other than trade balances or policy. Common factors, including increased use of labor-saving technologies and improvements in productivity, may be responsible as more efficient technologies reduce the need for manufacturing workers. The regional histories demonstrate the futility of fixating on trade balances to protect manufacturing jobs, a policy course that is doomed to fail while ignoring long-standing injustices.