Tuesday, April 10, 2012 8 comments ++[ CLICK TO COMMENT ]++

The Changing Employment Landscape in America - Is This for the Better?

Extracted from an infographic produced by US Census Bureau is the following graphic depicting employment by industry (Canada should be somewhat similar, especially for Ontario and Quebec):

The graphic illustrates how the employment landscape has changed over 60 years. Do keep in mind that the graphic illustrates employment rather than GDP (or economic output). Manufacturing contributes more to output (and wealth) than, say, agriculture or primary resources (like mining). Taxes paid by manufacturing businesses and manufacturing workers was likely far higher than agricultural workers/industry. So, manufacturing was actually way more dominant in 1940 than the chart illustrates.

Nevertheless, if we ignore wealth contribution, employment is very important and a key facet of society. A society with high unemployment is a dysfunctional society in my opinion. So, the chart above is quite important.

Back in 1940, manufacturing and agriculture used to employ a bit under half the workers (42%). It's surprising to me that agriculture made up almost 20% of the workforce, which was higher than retail. Agriculture used to employ most of the workers back in 1900 and had been on a continuous decline since then. I'm amazed that it still held the #2 spot in 1940.

By 2010, the industry landscape had altered significantly. The story of the last few decades is the decline in manufacturing—this is also the biggest challenge that will be faced by generations X, Y, and possibly Millenials—and you can see that clearly above. By 2010, only 10.4% of the workers were employed in manufacturing, and several service industry categories had overtaken it. In fact, there are more workers employed in the retail industry than in manufacturing.

Manufacturing output (i.e. GDP contribution or wealth or taxes paid or whatever metric you want to use) is higher now than it was in 1940, yet it employs half the workers—and likely pays them less (in real terms) too! (Contrary to some, I am in the camp that believes manufacturing is dead and won't "come back" because productivity growth outstrips sales growth and this automatically leads to job losses. Anyone interested in this view should check out the explanation by Bruce Greenwald that was covered in this post a while ago.)

The US economy has become more service-oriented, with around 45% of the workers employed in healthcare, education, social services, retail, professional, scientific, and related industries. Is this for the better?

I thought I would highlight this piece because it shows how most of the workers now are involved in maintaining current society, rather than building something that will yield results in the future. In other words, as is obvious to many, most of the workers are engaged in healthcare and educational services and retail and administrative, rather than in manufacturing or agriculture (as was the case in 1940).

In other words, a lot of human capital (and probably financial capital too) is expended on consumption rather than production. Is this for the better?

Why is it this way?

Well, this a complex issue. As I was alluding to above, the death of manufacturing was inevitable because productivity growth outstrips sales growth. So the decline of manufacturing makes "sense."

The change in the structure of the economy has also influenced things. For instance, the government plays a bigger role in the economy now. Government spends billions building and maintaining inter-state highways (this wasn't as big in 1940.)

The education system, run by government, is also much, much, much larger now. Not many went to universities, or indeed, graduated from High School back in 1940. Society spends a lot of resources on education now. This is a good thing in my opinion.

But the biggest question mark, at least in my eyes, is the spending on healthcare. A large numbers of workers are in the healthcare industry and it's not clear to me it is generating as much wealth as it should.

The entrance of government into a large segment of the economy likely has shifted the economy away from production and towards consumption. I have no proof of this and haven't really looked into supporting data but I say this because government is not profit-oriented. For instance, government may "over-spend" on education and healthcare whereas if it was run by the private sector, it may not (it'll be unsustainable). I'm not arguing for privatization of these industries but just pointing out that the economy is probably less profit-oriented than in 1940.

My personal opinion is that if the service industries, particularly education and healthcare, don't produce wealth on par with the number of workers they employ, those industries could implode on themselves. It remains to be seen what happens.

So how will things look 40 years from now? How will things look in 2050? Anyone have any thoughts? Something to think about — if you are bored, lonely, and have nothing better to do ;)


8 Response to The Changing Employment Landscape in America - Is This for the Better?

April 10, 2012 at 9:20 PM

Great commentary... nothing to add but the obvious.... that we are over committed to the seniors at the expense of kids of today. We (aka your goverment) will spend $200,000 in a heartbeat (no pun intended) to extend an 80 year old's life 4 months. The kid in college..... make him take out $50,000 in loans AND pick up the tab for the deficits we are running.

I get tired of hearing about kids being lazy.... if I was getting screwed over the way they are.... I'd find a way to opt out too.

April 11, 2012 at 3:55 AM

Hi There. Love your posts. Keep it up!

"But the biggest question mark, at least in my eyes, is the spending on healthcare. A large numbers of workers are in the healthcare industry and it's not clear to me it is generating as much wealth as it should.

The entrance of government into a large segment of the economy likely has shifted the economy away from production and towards consumption."

The government's involvement is both inevitable and necessary.

Manufacturing output increased drastically over the years while employment decreased. This is due to increased efficiency -- a process that will continue and will do likewise to other industries (such as healthcare).

What this means, is that if previously the households received their income and such from companies, they now have to receive it from somewhere else. That is, using an extreme example, you have these huge automated warehouses, very profitable companies (legal entities) yet almost no employees. The government gets a portion of these companies' revenue in the form of taxes. If it doesn't turn it around to return to the households how would they be able to consume or sustain themselves?

A second point, is regarding what I quoted, is it in fact the government that shifted the economy away from production and followed as I wrote above, or was it the reduction in production *employment* (it's not production, because production increased) which was the catalyst for the development.

Completely agree with you about the inefficiencies and excessive cost of the health care system in the USA especially compared to some other countries.

IMHO it is due to the fact that unfortunately, in the USA having available and good healthcare TO ALL is not considered as one of the main purposes for the existence of the country itself.

Once it is decided that this is possibly the most important reason for a country to exist a solution might be found. Until than it will continue to be a mess.

Thanks for the thought provoking post!

April 11, 2012 at 8:27 PM

Anonymous 1: "We (aka your goverment) will spend $200,000 in a heartbeat (no pun intended) to extend an 80 year old's life 4 months. The kid in college..... make him take out $50,000 in loans AND pick up the tab for the deficits we are running. "

Yep. In fact, it's so bad that I saw an article suggesting that student loans have overtaken credit card loans for the first time in many decades (and possibly ever?).

Anonymous 1: "I get tired of hearing about kids being lazy.... "

I have this theory that the younger generations may end up being the greatest generation since the WWII generation. The economy is tough, government spending is out of control (meaning you don't benefit much), Internet and technology is destroying existing industries, etc. Whoever that adjusts and remakes society may end up producing a spectacular society.

The current younger generations are probably the first one to be handed nothing for free since the WWII generation.

April 11, 2012 at 8:34 PM

Hello Anonymous 2, I am going to address your comments in a separate stand-alone post. I hope you don't mind me doing that. I'm also going to address the notion of government employing people (this isn't the core point you were making but I thought I would present my opinion on it.)

April 11, 2012 at 11:45 PM


Sure glad I posted anonymously :)

BTW, regarding the health care system. In the USA one of the main reasons for the high costs is the HUGE wastage thanks to the massive amount of insurers and clinics which all work separately. One might mention the free market and competition as a reason, in practice though it's almost impossible for "clints" to choose and compare the quality of the services which they receive. There are now new start-ups which hopefully will assist resolving this issue (hence the increase in efficiency and possibly reduction in excessive clinics, insurers etc.)

Another major result of this current system is that the incentive of the private health system is to CURE and not to PREVENT.

If we look at economic benefit, than for sure this is incorrect. The economy will benefit much more from healthy productive people than from sick people who spend a large portion of their money on a messed up system.

The health system has to be tightly regulated and observed by the one entity that can do it.

April 16, 2012 at 9:21 PM

Hi Anon,

I may not get around to a detailed post on some of the issues you raised (for now).

As far as the healthcare system is concerned, it is definitely not working in USA. But the again, I'm in Canada and costs are spiralling almost out-of-control here too (although our system is more efficient and provides universal care to all).

I think it would be better if the system provided some minimal healthcare but I haven't really thought about how the system may be fixed. I think you are absolutely correct in saying that focusing on prevention is one "simple" solution that will yield huge benefits. But I'm not sure how it can be implemented.

As a free-market proponent, the thing that puzzles me about the US healthcare system is why the employers (who generally pay for health care insurance in USA) don't pressure the HMOs and insurers to manage their costs. You would think that all these powerful corporations would be pressuring the health providers to keep costs down. After all, think about how much pressure businesses apply to suppliers to cut their prices. So why isn't it working with healthcare?

I haven't read it yet if you may be interested in this 2004 Malcolm Gladwell article on the dysfunctional healthcare system in USA. I am a big Gladwell fan and if I don't agree with him, I find his thoughts quite insightful.

April 18, 2012 at 6:18 AM

Thank You

The given information is very effective
i will keep updated with the same

industrial automation

April 11, 2013 at 5:56 PM

We have a economy today that is now based on financial services. Growing a economy is all about increasing its productive capacity we are now consuming far more than we are producing. Jobs such as customer service reps CPA's loan officers at banks insurance salesmen salemen in general marketing consultants and so forth are all jobs that do not create products or services. A retail store for example can make more money on their credit cards loaning money out at 20% interest than they can make selling products. Financial srevices companies do little more than move money around these companies do not create any wealth. Its the absence of high wages jobs thats the problem with this economy. Those working part time at low wages cannot buy a meaningful amount of products and services with their wages the race to the bottom is well under way.

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