Jobs in a Changing American Economy: There Have Been Dramatic Shifts in the Share of Manufacturing and Service Industry Jobs since the End of World War II. Understanding Past Patterns of Employment Growth Can Help Us Understand Employment Patterns Going Forward

Article excerpt

ECONOMIES TRANSFORM OVER TIME. Our economy certainly has, and continues to do so. One recent transformation in the United States was the emergence of the so-called new economy during the late 1990s, when productivity accelerated. We hear about the new economy much less these days than before the high-tech bust and the recession. But is this because our economy has reverted back to its old form or because the new economy never happened? * One cannot help but be a skeptic about the new economy hypothesis. Productivity growth rates have hit impressive levels since November 2001, the official end of the last recession, yet job cuts continued through 2003 and, in some manufacturing industries, even through early 2004. * When employment finally increased in September 2003 for nonfarm businesses as a whole, it did so at a snail's pace. A much-anticipated resurgence in jobs finally showed up in the March payroll survey. Employment grew in March by 337,000 and then in April by 288,000--levels that are characteristic of a typical (and sustainable) recovery. We expect an increase of 200,000 to 300,000 jobs a month over the next several months as the economy firms up. * The monthly change in total employment, a widely used economic indicator, hides the dynamic nature of U.S. labor markets. The figure--net gain or loss in jobs--is a summary measure of hires, resignations and layoffs; of closings and starts; restructuring of operations; and in general, an adjustment or reallocation of labor resources within a firm, within an industry, across sectors and across geographical areas (i.e., local communities, states and international borders). All of these developments occur both in a given month and over time in ways that alter the structure of the economy. * Over time, the U.S. employment base has shifted from manufacturing to services. This transformation has provoked a slew of studies and debates tackling interrelated issues. They include the decline in manufacturing jobs, the rise of the service sector, the slowdown in productivity growth (in the 1970s, before talk of the new economy), the role of technology and the more muted business cycle.

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We explore some of these issues in this article--the second of a three-part series on jobs. In particular, we discuss the underlying dynamics in the economy's structural transformation and the implications for American jobs and the economy as a whole.

The mortgage sector is an active player in this debate, as its members do things like adopting offshore outsourcing as a business strategy. The issues we present here serve as an introduction to the third article in this series, which will focus on changes in the financial services industry in general and mortgage lending industry in particular, and analyze employment from a microeconomic perspective.

A service economy

Currently, the vast majority of U.S. workers--more than 82 percent of the working population--is employed in the service sector. In contrast, more than 16 percent are employed in the industrial sector, and less than 2 percent in agriculture.

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This was not always the case. One hundred years ago, in the early part of the 20th century, the structure of employment dramatically shifted from agriculture to industry. In the decades following World War II, the U.S. economy transformed again, this time from industry to services.

Since 1945, the total number of employees in the service sector has increased from 25 million to 109.3 million, according to the Bureau of Labor Statistics' (BLS') Current Establishment Survey (CES)--more commonly referred to as the payroll survey. Correspondingly, as a share of total nonfarm employment, the service sector has increased from 60 percent in 1945 to the current 83 percent.

Manufacturing, which is the largest component of the industrial or goods sector, employed 13. …