Drugs Manufacturing: A Prescription for Jobs

By Heffler, Stephen | Monthly Labor Review, March 1995 | Go to article overview

Drugs Manufacturing: A Prescription for Jobs


Heffler, Stephen, Monthly Labor Review


The job market has shrunk in many manufacturing industries over the past 50 years, but the drugs-manufacturing industry has shown healthy employment gains year after year. Not only are jobs being created in this relatively small industry, but many are high paying, high skilled, and research oriented. The industry surged through the past four recessions with remarkable profit margins and substantial job growth. It also added jobs during the structural change in the economy that has occurred over the past few decades.

The market pressures facing the drugs-manufacturing industry are different from those facing most manufacturing industries. The supply of drug products is not necessarily based on the concept of normal market competition, under which demand is sensitive to changes in price. Instead, consumer demand depends mostly on relief from ill health, which shows little response to price changes. Despite the differences in market pressures, the industry faces new challenges in the 1990's from increased competition and proposed health-care reform. As a result, there is a serious question whether the industry can continue its robust employment growth of the past four decades or whether it will react to the challenges by slowing employment growth or decreasing payrolls.

This article presents a brief history of the drugs-manufacturing industry from 1964, when its rapid growth began, to 1994, and offers details behind the industry's growth since 1980. It surveys the changing conditions within the industry and explores possible future impacts on employment.

Industry composition

The drugs-manufacturing industry (SIC 283) is a component of the chemicals and allied products industry (SIC 28), accounting for nearly 25 percent of employment in the latter in 1993.(1) The drugs-manufacturing industry is divided into three parts with total 1993 employment of 264,800, or 1.5 percent of manufacturing employment.(2) (See table 1.) The largest part is pharmaceutical preparations (SIC 2834), which accounted for 81 percent of total drugs-manufacturing employment in 1993. Pharmaceutical preparations are manufactured drug products purchased either over the counter or by prescription and used in human or veterinary health care. Most of these products are in a form intended for final consumption and are marketed to both professionals and consumers.

[TABULAR DATA OMITTED]

The pharmaceutical preparations segment is the driving force behind the employment trends, the profit and sales movements, and the product costs of the drugs-manufacturing industry. Because of this substantial influence, the characteristics of the segment are used throughout this article as a basis for analyzing the drugs-manufacturing industry.

Diagnostic and other biological products (SIC's 2835, 2836), the second part of the drugs-manufacturing industry, employed 28,500 workers in 1993, or 11 percent of total employment in the industry. Establishments in the diagnostic and other biological products segment manufacture products used in diagnosing or monitoring human or veterinary health. Most of the products produced by this segment are used for testing rather than for therapy.

The last part of the drugs-manufacturing industry is medicinal chemicals and botanical products (SIC 2833), which accounted for just 7 percent of drugs-manufacturing employment (19,700 employees) in 1993. The focus of companies within this segment is the manufacturing and processing of organic and inorganic chemicals and botanical drugs used in the composition of pharmaceutical and diagnostic products. These products are usually not intended for professionals or consumers, but rather, are used most often in the makeup of other manufactured drug products.

Employment

Historical trends.

The mid-1960's marked a significant turning point for the drugs-manufacturing industry during its upward growth trend. (See chart 1.) While growth averaged just 2,000 jobs per year in the decade before 1964, the industry added more than 4,000 per year, on average, from 1964 through 1986. …

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