Deindustrialization

Deindustrialization is a term that describes the decline in manufacturing (or goods producing) employment occurring in the United States and other industrialized countries since the 1970s. Indeed, between the late 1970s and 2000s, the share of workers employed in goods-producing industries declined from approximately one third to one fifth of the workforce. Some scholars also define deindustrialization in terms of increased trade deficits, associated with increased foreign investment and production. Deindustrialization—closely associated with globalization and postindustrialization—has generated increases in earnings inequality, higher unemployment, and higher poverty rates in the United States. Furthermore, deindustrialization has undermined the strength of unions and has financially devastated some local cities and communities.

Whereas some economists argue that deindustrialization is a normal component of economic development, many scholars attribute deindustrialization to globalization. These scholars argue that economies are deindustrializing because firms face increasing competition in the world market. In the late 20th century, U.S. firms lost their competitive advantage in the global economy, and they responded by reducing costs. Innovations in information technology, production, and transportation permitted firms to move capital and jobs overseas where they could hire cheap labor and enjoy tax breaks, as well as relaxed labor and environmental laws.

The second associated process, postindustrialization, is the shift toward service employment. The deindustrialized, postindustrial economy is unique with its polarization of the new service industries into high-wage, knowledge-intensive service industries—such as finance, insurance, and real estate—and low-wage service industries, including personal services. During the latter part of the 20th century, the share of employment in service-producing industries increased dramatically. The largest share of these service jobs is characterized by lower pay than manufacturing jobs, and they are more likely to be part-time with few benefits.

As a result of deindustrialization and the simultaneous shift toward a postindustrial economy, wage and income inequality increased. The manufacturing sector had offered a more egalitarian wage structure than the service sectors. To illustrate, in 2005, the average hourly compensation for goods-producing employment was $29, ranging from $27 per hour in nondurable manufacturing (which includes textiles and food production) to $31 in durable manufacturing (which includes machinery, computer, and furniture production) and $37 in mining. Average wages in service industries were $24 per hour, ranging from $15 in retail to $33 in the finance, insurance, and real estate industries, to $36 in information industries (which includes publishing, printing, and motion picture production).

According to numerous scholars, deindustrialization has disproportionately harmed lower-skilled workers in inner cities. The substantial job loss in inner cities, particularly in blue-collar occupations found primarily in manufacturing industries, has not been offset by the growth in jobs in service industries, because many of these jobs require extensive education. Thus they do not provide sufficient opportunities for displaced workers. This, along with the suburbanization of manufacturing jobs and residential segregation, has led to an education mismatch between the supply of labor and the available jobs, particularly among young, inner-city youth.

The vast majority of jobs that moved overseas required little education and offered low wages. The loss of these jobs has reduced the demand for low-income and less-educated workers in the United States. This has resulted in stagnating wages for these workers. Indeed, among men who completed only high school, the entry-level wage declined between 1973 and 2005, dropping from $13 per hour in 1973 to $11 per hour in 2005. In contrast, the average entry wage for male college graduates rose between 1973 and 2005, increasing from $18 per hour in 1973 to $20 [Page 214]per hour in 2005. These patterns are similar for women. In addition to stagnating wages, deindustrial-ization has increased long-term unemployment among low-income workers. As a result, long-term dependence on governmental assistance has increased. However, the government attempted to reduce this dependence through the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which created the Temporary Assistance for Needy Families program.

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