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 ;)