1. New Perspectives on the Decline of U. S
New Perspectives on the Decline of U.S. Manufacturing Employment June Justin R. Pierce, Board of Governors of the Federal Reserve System Teresa C. Fort, Tuck School at Dartmouth & NBER Peter K. Schott, Yale School of Management & NBER

2. Disclaimer
Any opinions and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the U.S. Census Bureau, the Board of Governors or its research staff. All results have been reviewed to ensure that no confidential information has been disclosed.

3. US Manufacturing Employment is Declining
-12%
-17%
-18%

4. Manufacturing Employment vs Real Value Added

5. Explanations? Import competition, especially from China in 2000s
Bernard, Jensen and Schott (2006), Autor, Dorn and Hanson (2013), Acemoglu et al. (2016), Pierce and Schott (2016), Autor et al. (2016), Caliendo et al. (2017)
Foreign sourcing and offshoring
Harrison and McMillan (2011), Antras, Fort and Tintelot (2017), Boehme, Flaaen and Pandalai-Nayer (2017), Kovak, Oldenski and Sly (2018)
Technology adoption and automation
Autor, Levy and Murname (2003), Autor and Dorn (2013), Acemoglu and Restrepo (2017), Graetz and Michaels (2017)

6. Can We Distinguish Trade vs Technology?
Some papers attempt to disentangle these two forces
Goos, Manning, Solomans (2014): technology g polarization
ADH (2015): trade matters most for employment loss after 2000
But technology facilitates trade and product fragmentation
Bloom et al (2016), Fort (2017), Autor et al. (2017), Steinwender (2018), Juhasz and Steinwender (2018)
And, trade can induce or reduce technology and R&D investment
Bernard et al. (2006), Khandelwal (2013), Boler et al. (2015), Bloom et al. (2016), Bernard et al. (2018), Autor et al. (2017)

7. Disentangling Trade/Technology is Very Difficult Wall Street Journal 2017.3.16
“When Drew Greenblatt bought … a small Baltimore maker of wire baskets for bagel shops, he knew nothing about robotics. That was 1998, and workers made products manually using 1950s equipment….

8. Disentangling Trade/Technology is Very Difficult Wall Street Journal 2017.3.16
“When Drew Greenblatt bought … a small Baltimore maker of wire baskets for bagel shops, he knew nothing about robotics. That was 1998, and workers made products manually using 1950s equipment…. Pushed near insolvency by Chinese competition in 2001, he started investing in automation. Since then, Marlin has spent $5.5 million on modern equipment. Its revenue, staff and wages have surged and it now exports to China and Mexico.”
Were the changes at Marlin driven by trade or technology?
What about changes at Marlin’s US competitors?
Did Marlin import its robots?

9. Industry Import Penetration
Import penetration starts rising in the 1980s
Chinese import penetration accelerates after 2000
Import penetration from China
Industry import penetration

10. Firm-Level Importing Import penetration starts rising in the 1980s
Chinese import penetration accelerates after 2000
Firms that import
Firms importing China

11. Firm-Level Technology
Large increase in share of plants using computers in the early 2000s
Use of electronic networks to control and coordinate shipments also rising during that period
Purchasing computers
Using electronic networks

12. Trade and Technology Move Together!
Over our sample period, firms’ use of trade and technology both rise!
Hard to disentangle
Goal in this paper is to highlight new dimensions of employment loss to gain deeper insights

13. We Examine Three Margins of Adjustment
Industry-level
Few clear examples of “sunrise” and “sunset” industries
Trade shocks affect outputs AND inputs
Firm-level
75% of decline occurs in continuing firms!
NM growth offsets M declines before 2000!
Region-level
Pre-2000, manufacturing employment moves west and south
After 2000, it falls everywhere

14. Outline Industry margins of adjustment Firm margins of adjustment
Regional margins of adjustment
Conclusion

15. Industry Margins of Adjustment

16. Sunset, Sunrise Industries Exist, But are Scarce

17. Sunset, Sunrise Industries Exist, But are Scarce
Leather, Apparel: employment and output both fall
In most sectors, output rises as employment falls

18. Computers Dominate Real Value Added (RVA) Growth

19. Computers Dominate Real Value Added (RVA) Growth
After 2000, more sectors with employment decline and fewer with with output growth; computers remains outlier

20. Import Penetration is Everywhere (Not Just Apparel!)
Computers/Electronics has highest growth in import penetration
Suggests differential impact of import penetration on Outputs vs Inputs?

21. Substantial Import Penetration Within Computers
Semiconductors accounts for 71% percent of real value added in manufacturing over this period
Computers accounts for 11% percent
Both industries make use of offshoring and factory-less goods production

22. Firm Margins of Adjustment

23. Data Longitudinal Business Database,1977-2012
All private, employer, non-farm establishments
Consistent Firm & establishment identifiers
Consistent NAICS codes from Fort and Klimek (2016)
Census of Manufactures, 1977(5)2012
All manufacturing establishments
Observe trade/technology adoption measures displayed earlier
Longitudinal Foreign Trade Transaction Database,
Transaction-level trade data at firm level

24. Definitions Employment Classified according to establishments
All workers in a manufacturing establishment are in manufacturing
We define manufacturing firm as a firm that ever has a manufacturing plant between
Broad definition
Big firms often have both M and NM establishments
Firm birth/death
Follow Haltiwanger et al. (2013)
Firm is a “birth” if all establishments are new
Firms is a “death” if all establishments exit (forever)

25. Decompositions of Employment Across Firm Margins
We decompose the overall change in US manufacturing employment along firm net margins of adjustment
Net margins are relative to 1977
Net firm birth since 1977
Continuing firms’ estabs’ birth/death since 1977
Continuing firms’ continuing estabs net growth since 1977
DEt = (EtFirm Birth - EtFirm Death)
+ (EtContinuing Firm Estab Birth - EtContinuing Firm Estab Death)
+ (EtContinuing Firm Estab Growth - EtContinuing Firm Estab Shrink)

26. Decompositions of Employment Across Firm Margins
We decompose the overall change in US manufacturing employment along firm net margins of adjustment
Net margins are relative to 1977
Net firm birth since 1977
Continuing firms’ estabs’ birth/death since 1977
Continuing firms’ continuing estabs net growth since 1977
DEt = (EtFirm Birth - EtFirm Death)
+ (EtContinuing Firm Estab Birth- EtContinuing Firm Estab Death)
+ (EtContinuing Firm Estab Growth - EtContinuing Firm Estab Shrink)

27. Decompositions of Employment Across Firm Margins
We decompose the overall change in US manufacturing employment along firm net margins of adjustment
Net margins are relative to 1977
Net firm birth since 1977
Continuing firms’ estabs’ birth/death since 1977
Continuing firms’ continuing estabs net growth since 1977
DEt = (EtFirm Birth - EtFirm Death)
+ (EtContinuing Firm Estab Birth - EtContinuing Firm Estab Death)
+ (EtContinuing Firm Estab Growth - EtContinuing Firm Estab Shrink)

28. Decline is Not Even Across Margins
The aggregate decline is 6.7 million between
We can decompose this aggregate decline into three net margins

29. Decline is Not Even Across Margins
Continuing firm-plants account for 12% of the aggregate decline

30. Decline is Not Even Across Margins
Continuing firm-plants account for 12% of the aggregate decline
Net firm birth accounts for another 25%

31. Decline is Not Even Across Margins
Continuing firm-plants account for 12% of the aggregate decline
Net firm birth accounts for another 25%
Net plant birth within continuing firms accounts for the remaining 63%!

32. Decline is Not Even Across Margins
After 2000, net firm birth/death relatively more important
Consistent with change in US trade policy towards China (Pierce and Schott 2016; Autor et al. 2013)

33. Decline is Not Even Across Margins
Overall, 75% of the decline takes place within firms!
Raises several questions
Why not more reallocation due tio firm death?
What is it about these legacy firms that allows them to survive?

34. Is Adoption of Trade, Technology Easier for Incumbents?
Estimate size and productivity advantages by year
ln(Attributeft) = a + btActivityft + hjt + eft
Attributes
Employment, productivity
Activities
Importing, purchasing computers, importing robots, usingelectronic networks
Estimate separately by year

35. Technology and Trading Premia
Firms using computers are much larger than firms that don’t before 1997
After that, computers are become ubiquitous
Log size differential of computer purchaser in 1977

36. Technology and Trading Premia
Firms that import directly are also larger than firms that don’t
In contrast to computer use, their premia are relatively flat over time
Log size differential of firm importing directly in 1997

37. Technology and Trading Premia
Firms that import industrial robots directly have the highest premia
Robots
Electronic Network

38. Plant Closure and Trade versus Technology Adoption
Estimate probability that plant i in firm f and industry j exits over next 5 years
Pr(Deathijft:t+5=1|Xijft) = a + bActivityijft + gln(Eijft) + hf + dt +eijft:t+5
Activities
Purchasing computers, using electronic networks, concurrent changes in industry import penetration
Estimate separately for pre and post 2000
Control for plant size

39. Extensive Margins Relate to Trade and Technology

40. Extensive Margins Relate to Trade and Technology

41. Extensive Margins Relate to Trade and Technology

42. Extensive Margins Relate to Trade and Technology

43. Eight Gross Margins of Adjustment
Decompose each margin in previous figure into
Gross job creation (e.g., expanding continuing firm-plant)
Gross job destruction (e.g., shrinking continuing firm-plant)
Add additional margin
Establishments that switch into or out of manufacturing
(By definition this has to be along the intensive margin)
Here, reset the margins each decade
I.e., 1977, 1990, 2000

44. Decline is Not Even Across Margins
Small contribution of intensive margin masks considerable gross churn along that margin
Source: LBD.

45. Job creation and destruction within continuing firm-plants dominates the other margins

46. Job creation and destruction within continuing firm-plants dominates the other margins
Over time, gross job creation margins contribute less

47. Job creation and destruction within continuing firm-plants dominates the other margins
Over time, gross job creation margins contribute less
Especially after 2000
Within firms, establishments are shutting down, shrinking

48. Manufacturing Plants and Employment/Plant
Can also see this trend in data showing overall number of US manufacturing establishments, and their average size, over time

49. Geographic Margins of Adjustment

50. We Examine Census Regions

51. Manufacturing Firm Employment Across US Regions
NE and MA decline throughout the sample period
Some regions grow in the 1990s
Domestic “offshoring” from north and east to south and west?
All regions decline in the 2000s

52. Manufacturing Employment Margins Vary Across Regions
In Northeast and Mid-Atlantic, the majority of employment loss is from death
Mountain and Pacific have net employment gains from firm births

53. Manufacturing Firms’ Non-Manufacturing Employment

54. Manufacturing Firms’ Have Non-Manufacturing Employment
Manufacturing firms manufacturing employment falls from 17.8 to 11.1 million

55. Manufacturing Firms’ Non-Manufacturing Employment
Manufacturing firms non-manufacturing employment rises from 13.0 to 23.6 million
Manufacturing firms manufacturing employment falls from 17.8 to 11.1 million

56. Manufacturing Firms’ Non-Manufacturing Employment
Manufacturing firms total employment rises from 30.7 to 34.7 million
Total
Manufacturing firms non-manufacturing employment rises from 13.0 to 23.6 million
Non-manufacturing
Manufacturing
Manufacturing firms manufacturing employment falls from 17.8 to 11.1 million

57. NM Employment at M vs NM Firms
Manufacturing Firms create NM employment via new ESTABLISHMENTS
Non-Manufacturing Firms create NM employment via new FIRMS
At M firms, 80% of NM growth is within firm, via net establishment birth
At NM firms, NM growth is driven by new firms

58. What Kind of NM Workers are M Firms Adding?
Retail NAICS
44-45
Professional NAICS
51: IT
52-3: finance, insurance
54: engineering, technical
55: headquarters services
56: admin support, waste
Other Services NAICS
11: agriculture
21: mining
22: utilities
23: construction
42: wholesale
48-9: transportation
61: educationer
62: healthcare
71: arts, entertainment
72: accommodation, food
81,92: other, public admin
Other
Professional
Retail
In contrast to manufacturing firms’ M employment, their NM employment recovers after 2000

59. Where are M Firms’ Adding NM Employment?
Growth across almost all regions in the 1980s and 1990s
More variation after 2000

60. Conclusion

61. Conclusions/Lingering Questions
Manufacturing employment is declining; real output is not
Most of decline is within firms
But these firms are adding non-manufacturing activities
Trade and technology are inter-related, hard to separate
Adopters are bigger and more productive
Adoption premia seem to decline over time, especially for tech
Tech and trade relate to establishment survival
Need further exploration of heterogeneity in response to trade and technology shocks
Which firms take advantage, which are only hurt?

62. Thanks!