Defense Reductions and U.S. Manufacturing
Meckstroth, Daniel J., Business Economics
The manufacturing sector should
experience a 125,000 increase in nondefense
employment between 1990 and 1994. However,
these gains should be more than offset by a
decline of 405,000 defense-related
manufacturing jobs. All the growth in U.S.
employment over the next four years is
expected to occur outside the manufacturing
sector. When compared to prior
demobilizations, the magnitude of today's defense-related
reductions will be modest. Normal
labor market adjustments, aided by existing
federal job assistance and training
programs, should facilitate the transition.
HOW MUCH military spending is enough? This question is one the United States has been wrestling with since the end of World War II. With limited resources available, the government must decide how much of the federal budget should be allocated to defense spending in order to ensure the security of the American people, protect our allies, influence world events, and at the same time encourage the social and economic development of this country. In a sense defense spending is much like an insurance policy; the amount of coverage or protection is dictated by how prosperous the economy is at the moment and the perceived risk of a military conflict in the future.
This report examines the proposed defense cuts and puts them in perspective. The Bush Administration's defense budget is analyzed with particular attention given to the Department of Defense (DOD) procurement plans and personnel cuts. Furthermore, estimates are made for the reduction in output and jobs lost in the private sector and selected manufacturing industries because of the defense cuts.
DEFENSE BUDGET REDUCTIONS FOR FY 1992-96
The defense budget for fiscal years (FYs) 1992-96 calls for military planning that takes into consideration the new realities of a reduced threat to the nation's national security and the necessity for cutting the huge federal budget deficit. Over the next five years, inflation-adjusted defense outlays are budgeted to decline 19 percent. Figure 1 shows inflation-adjusted national defense outlays since FY 1962 and the Bush Administration's budget projections through FY 1996.
When the total defense budget is slashed by nearly one-fifth, the cuts affect virtually every budget item, thousands of programs and weapons systems. To simplify the analysis, the defense budget is divided into six major categories: construction and housing, research, operations and maintenance, procurement, personnel, and an "all other" category. Figure 2 shows the dollar amount of each major defense category and its share of total defense outlays for FY 1991. The projected average annual growth rate for major defense categories through FY 1996 are illustrated in Figure 3. These two charts show:
1. The cost of operating and maintaining the facilities
and equipment of the armed services will comprise
29 percent of the defense budget this fiscal year
and is projected to decline 4.5 percent
annually -- after allowing for inflation -- over the next five
years. What has grabbed the headlines, though, is
DOD's announcement recommending the closing
of thirty-one major U.S. military bases, twelve
small facilities, and reducing operations at twenty-eight
2. Personnel outlays make up 26 percent of the FY
1991 defense budget. The demobilization plan calls
for reducing active duty personnel by 321,000 and
reserves by about 270,000 from FY 1991 through
FY 1995. As a result of these cuts, personnel
spending is projected to decline 3.8 percent annually.
3. Procurement spending also takes 26 percent of the
defense budget. …