Stop wishing for the return of manufacturing jobs
Lawmakers need to embrace the service economy

Article Highlights

  • Reversing the decline in manufacturing jobs is not a good policy goal.

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  • Manufacturing jobs have declined not because of neglect, but because the US has become really good at manufacturing.

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  • Nearly all of the 30 fastest growing jobs over the next ten years are in services.

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  • No good policy can arise without recognition of what our economy has become: a service economy not a manufacturing one.

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In his State of the Union address, President Obama celebrated “a manufacturing sector that's adding jobs for the first time since the 1990s,” emphasizing the importance of “[beating] other countries in the race for the next wave of high-tech manufacturing jobs.” The president is certainly not along among politicians in emphasizing the importance of manufacturing. In a 2013 speech, House Speaker John Boehner asserted that “America’s greatness has always rested on our ability to build and produce things.”

The basic assumption underlying these sentiments is that reversing the decline in manufacturing jobs is a good policy goal. In other words, both Preseident Obama and Speaker Boehner think the US needs to make more “stuff.” 

But this policy goal reflects a fundamental misunderstanding of the nature of the U.S. economy. More than 70 percent of the wealth created in the U.S. today comes from providing services, a 33 percent increase since 1950. The shift from goods to services is likely to continue. In other words, our future prosperity is not going to come from buying more stuff, but from doing more for each other.
If we want to encourage Americans to make more stuff, then we have to figure out who’s going to buy it. Obviously we – and the rest of the world – need a certain amount of stuff, but our current manufacturing sector is perfectly adequate to the task. Manufacturing jobs have declined not because of neglect, but because the U.S. has become really good at manufacturing. America’s manufacturing output has increased steadily for the past half century; we just need fewer people to produce that output.
Americans already have plenty of stuff. Think for a second about what you spend your money on, and what you wish you had more of. Food? Televisions? Mobile phones? Cars? In a largely obese nation, we probably don’t need more food. We need higher quality food, better prepared food, tastier food, healthier food – but not more food. We have more televisions, mobile phones and cars in this country than we know how to use. We don’t need more devices. We need better content on those devices.
Recent research in psychology shows that for most Americans, spending money on experiences leads to greater happiness than spending money on material goods. As we get richer as a nation, therefore, growth in the economy will not be driven by more stuff, but by better health care, more education, more travel and better entertainment.
Some might argue that we could make stuff to sell to other countries. And it’s true that outside the U.S. material deprivation is still common. But the trend toward a service economy is universal, and as other countries grow in wealth, their demand for services will increase as well. The U.S. should play to our strengths, a concept economists call comparative advantage. Services like education and entertainment, where we have a significant advantage over the rest of the world, already account for one-third of our exports.
In the post-war years, manufacturing offered a reliable path to the middle class that didn’t require a college degree. But there is no reason why service jobs cannot offer the same in today’s economy. Not long ago, nearly everyone in the United States was employed in agriculture. Today, just 2 percent of U.S. workers produce enough food to feed the U.S. and much of the rest of the world. Manufacturing is going the same way. According to the Bureau of Labor Statistics, nearly all of the 30 fastest growing jobs over the next 10 years are in services. These include jobs that range from physical therapy assistant, to home health aide, to dental hygienist, to medical secretary, all of which offer a path to a meaningful middle-class career. Many of these jobs do require some training beyond high school. But policy makers would do well to try to improve access to education instead of focusing on preserving manufacturing jobs.
Many politicians are fond of claiming that America is losing its edge. But when they follow up these claims with proposals to promote manufacturing, they are taking a step backwards. Does this mean that services are definitely the future of the American economy? We don’t know. A good rule of thumb for economic policy making is that governments should not – and typically cannot – pick winners. However, no good policy can arise without recognition of what our economy has become: a service economy not a manufacturing one.
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About the Author


Sita Nataraj
  • Economist Sita Nataraj Slavov specializes in public finance issues dealing with retirement and the economics of aging. Her recent work has focused on whether retiree health insurance encourages early retirement, the impact of widowhood on out-of-pocket medical expenses among the elderly and the optimal time to claim Social Security. Before joining AEI, Slavov taught a variety of economic courses at Occidental College: game theory, public finance, behavioral economics and econometrics. She has also served as a senior economist specializing in public finance issues at the White House's Council of Economic Advisers. Her work at AEI will focus on Social Security and retirement issues.

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