Manufacturers contribute more to growth and transformation than thought – study

Manufacturing is viewed by some as a fading sector, inevitably being replaced by new, knowledge and service based industries in developed countries such as the US, UK and Australia.

But a study of the behaviour of manufacturing companies over time by researchers at Princeton University has demonstrated that as manufacturing itself changes, it changes the entire economy, ‘growing and pivoting to new industries’, and itself creating non-manufacturing jobs.

The paper from Princeton’s Stephen Redding, Xiang Ding, Teresa C. Fort, and Peter K. Schott shows that manufacturing firms have played a much larger role in the transition of the US economy toward service and knowledge-related industries than previously understood.

The manufacturing companies tracked from 1977 to 2019 developed new, in-house tools and technologies to produce their final products, making significant structural changes to their businesses and pivoting to new industries, thereby transforming the entire sector.

The authors tracked business activity at the establishment-level – meaning the researchers are able to track business activity at every location of a US manufacturing firm, including auxiliary establishments such as warehouses or R&D labs.

Though past research has documented a severe and steady decline in the share of US jobs held by the manufacturing sector over the last several decades, the researchers say those statistics obscure the fact that manufacturing companies are creating non-manufacturing jobs.

Over the last 40 years, US manufacturing firms accounted for a substantial and disproportionate share of aggregate non-manufacturing employment and payroll growth.

From 1977-2019, manufacturing firms accounted for 16-32 percent of the rise in aggregate non-manufacturing employment.

And manufacturing firms accounted for 25-40 percent of non-manufacturing payroll growth from 1977-2019, with non-manufacturing firms accounting for the remainder.

The researchers found:

• Over the last 40 years, the growth in non-manufacturing activity of manufacturing firms was overwhelmingly driven by “continuing” firms–or firms that were established by 1977 and still existed in 2019. Less than one percent of all firms in their data are continuing manufacturing firms, but they account for 15-26 percent of non-manufacturing employment growth
• Growth was largest in three types of business services that serve as production inputs rather than final goods: computer systems design, R&D, and architectural and engineering services
• And input services accounted for 44 percent of non-manufacturing employment growth and 54 percent of payroll growth.

Download the paper here.

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