Sharing The Pain of Unemployment

Last Updated May 9, 2010 2:39 PM EDT

UPDATE: Please see Sharing the Pain of Unemployment, Part 2, on jobs in the building trades
If you read much about the U.S. economy, surely you already know that since WWII the services sector has grown, and the manufacturing base has contracted. But the effects of recessions on the work force have not followed these proportions. In fact, it's backwards: in recent recessions, even though the goods-producing portion of the economy is smaller and smaller, it's those workers that bear most of the unemployment.

The graph below illustrates the composition of the U.S. labor force since 1950. The blue line is the services sector, the red is goods, and the green is government.

Click on the graph to see a larger version
To me, the path of the goods line is striking: there has been no growth in manufacturing employment since 1950. And that's not the share of the workforce; it's the number of workers, hovering around 20 million for 60 years, while the total labor force has grown from 50 million to 150 million.

The nature of the change is logical, when you consider that manufacturing has become highly automated, and that its importance to the U.S. economy has dwindled. In the late 1940s, goods businesses made up about 50 percent of GDP, while services contributed about 40 percent. (The remainder is a category called "structures," which has made up a persistent eight to 12 percent of output since the 40s.)

In the mid 1950s, goods and services were about equal, at 45 percent each, but by 1960 the mix had turned in favor of services. By 1970 the allocation was 51 percent to 38 percent, and it has moved slowly but persistently since, to 66 percent to 26 percent in third quarter 2009. (Two-thirds also happens to be the proportion of the economy made up by consumer spending, but that a view from a different perspective, and that the proportions are the same is coincidental. I think.)

But consider this -- over all this time that the services sector has grown, its employment has been very stable. Look at the blue line in the graph, and how during recessions it hasn't dropped much (with the exception of the current downturn). Most of the unemployment has fallen to the goods producing sector:

In the 2003 recession, followed by a so-called "jobless recovery," service sector employment rose by about a million.

Today the goods-producing sectors have about 18 million workers, equal to the level of 1951, down from 22 million in late 2007. Services employment has fallen more in this recession than ever before, from about 116 million in early 2008 to 113 million in December.

The bottom line: manufacturing has been in a jobless recovery for at least 30 years, while services employment has been more resilient. Where will the new jobs be coming from in this recovery?