Manufacturing Jobs and Inequality: Why is the U.S. Experience Different?

September 13, 2019

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Natalija Novta, and Evgenia Pugacheva. Manufacturing Jobs and Inequality: Why is the U.S. Experience Different?, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We examine the extent to which declining manufacturing employment may have contributed to increasing inequality in advanced economies. This contribution is typically small, except in the United States. We explore two possible explanations: the high initial manufacturing wage premium and the high level of income inequality. The manufacturing wage premium declined between the 1980s and the 2000s in the United States, but it does not explain the contemporaneous rise in inequality. Instead, high income inequality played a large role. This is because manufacturing job loss typically implies a move to the service sector, for which the worker is not skilled at first and accepts a low-skill wage. On average, the associated wage cut increases with the overall level of income inequality in the country, conditional on moving down in the wage distribution. Based on a stylized scenario, we calculate that the movement of workers to low-skill service sector jobs can account for about a quarter of the increase in inequality between the 1980s and the 2000s in the United States. Had the U.S. income distribution been more equal, only about one tenth of the actual increase in inequality could have been attributed to the loss of manufacturing jobs, according to our simulations.

Subject: Economic sectors, Income inequality, Labor, Manufacturing, National accounts, Personal income, Services sector, Wages

Keywords: Employment, Employment decline, Global, Income inequality, Manufacturing, Personal income, Premium, Premium in the U.S., Services sector, Wage, Wage dispersion, Wage distribution, Wage premia, Wage premium, Wages, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/191
Stock No:

WPIEA2019191
ISBN:

9781498320450
ISSN:

1018-5941

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