Manufacturing Jobs and Inequality: Why is the U.S. Experience Different?

IMF Working Papers, September 13, 2019

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Declining manufacturing employment contributed only a small amount to rising inequality in advanced economies in general, but the contribution was notably larger in the United States.
Two potential explanations explored:
- The high initial manufacturing wage premium.
- The high level of income inequality.
The manufacturing wage premium declined between the 1980s and the 2000s in the United States, but this decline does not explain the contemporaneous rise in inequality.
High income inequality played a large role in amplifying the inequality impact of manufacturing job losses.
Mechanism identified:
- Manufacturing job loss typically implies a move to the service sector.
- Workers moving to the service sector are not skilled at first and accept a low-skill wage.
- On average, the associated wage cut increases with the overall level of income inequality in the country, conditional on moving down in the wage distribution.

Based on a stylized scenario:
- The movement of workers to low-skill service sector jobs can account for about a quarter of the increase in inequality between the 1980s and the 2000s in the United States.
- Had the U.S. income distribution been more equal, only about one tenth of the actual increase in inequality could have been attributed to the loss of manufacturing jobs, according to the simulations.

Subject: Economic sectors, Income inequality, Labor, Manufacturing, National accounts, Personal income, Services sector, Wages
Keywords: employment, employment decline, Global, Income inequality, Manufacturing, Personal income, premium, premium in the U.S., Services sector, wage, wage dispersion, wage distribution, wage premia, wage premium, Wages, WP