Deindustrialisation in Rich Countries

Why manufacturing's share of jobs has fallen in rich countries for decades, the roles of productivity, trade and consumer demand, and the political debate.

In most rich countries, manufacturing’s share of employment has fallen for decades. In the United States, manufacturing employed around a quarter of workers in the mid-twentieth century, but only around 8 percent by the 2020s. Similar trends occurred in the United Kingdom, France and even Germany and Japan, though to different degrees. This is deindustrialisation.

Why it happened

Productivity growth: factories became much more productive through automation and better methods. They can produce more with fewer workers. U.S. manufacturing output continued to grow for decades even as employment fell.
Shifting demand: as people grow richer, they spend a larger share of income on services like health care, education, travel and entertainment, rather than goods.
Trade: imports from lower-cost countries, especially after China’s entry into the WTO in 2001, reduced manufacturing jobs in some industries.
Outsourcing: some tasks once done inside manufacturing firms, like cleaning or accounting, are now counted as services.

Economists generally find that productivity growth and shifting demand explain much of the long-run decline, with trade playing a significant role in particular periods and places.

Consequences

Regional decline in former industrial areas.
Loss of middle-income jobs for workers without university degrees.
Political backlash, including support for protectionism and industrial policy.

Is it a problem?

Some economists argue deindustrialisation is a natural result of rising productivity and prosperity, like the earlier decline in farm employment. Others argue manufacturing has special value for innovation, national security and good jobs, justifying policies to support it.

More output, fewer workers

A steel mill in 1980 employed thousands of workers. Today, a modern mill produces as much steel with a fraction of the workforce, using automated processes. Output may even be higher, but jobs are fewer. This productivity-driven change is a major reason manufacturing employment has fallen.

Thinking deindustrialisation means rich countries stopped making things

Rich countries still produce large amounts of manufactured goods. The share of workers in manufacturing fell mainly because each worker produces much more, and demand shifted toward services.

Key takeaways

Manufacturing's share of jobs has fallen for decades in rich countries, to around 8 percent in the U.S.
Productivity growth and shifting demand toward services explain much of the decline.
Trade, especially with China after 2001, played a role in some periods and places.
Deindustrialisation caused regional decline and political backlash, and its costs are debated.