The U.S. economy has been in a productivity depression for more than a decade, suffering from a historically unprecedented slowdown in labor productivity growth. The issue is finally getting attention, at least among some scholars and think tanks. One widely offered explanation for the slowdown is the shift to services, which has historically seen slower productivity growth than manufacturing. The OECD writes, “the shift to services entails a moderate but persistent drag on productivity growth.” This and other similar claims build off of William Baumol’s work that asserted that as productivity grows in manufacturing, jobs and activity will shift to less productive services, slowing overall productivity growth.
As Rob Atkinson writes in Industry Week, U.S. manufacturing productivity is also in crisis. According to the Bureau of Labor Statistics (BLS), from 2010 to 2019, labor productivity growth in U.S. manufacturing fell. It was the first time since the BLS started measuring this in 1988 and likely the first time in American history. Not only did manufacturing productivity not grow over 10 years, but it actually declined. This means that more workers were needed to produce the same amount of output. The result is higher prices, lower wage growth, and less U.S. global manufacturing competitiveness.
The federal government should massively increase funding for manufacturing programs. Some of our competitors invest up to 40 times more on a per-GDP basis in programs like manufacturing extension services and industry-university research cooperative programs. The recently passed Senate U.S. Innovation and Competition Act tries to rectify at least some of this shortfall. As this bill goes to conference with the House, it is critical to keep these manufacturing provisions, including creating a national Manufacturing Council, in any final legislation going to President Biden’s desk.
