Changes in U.S. Manufacturing: Productivity, Employment, and Wages

This slowdown is not solely due to reduced input growth; it also indicates a decline in efficiency, measured by total factor productivity (TFP), which assesses how effectively labor and capital are converted into output. For nearly twenty years, manufacturing's TFP growth kept pace with or surpassed that of the broader private nonfarm economy. However, beginning in the mid-2000s, manufacturing productivity began to diverge, showing contractions while the overall private economy continued to grow.

Employment trends provide further insight into the evolution of the manufacturing sector. Manufacturing has been the only major sector to experience a continuous decline in its share of total employment, decreasing from about 25 percent in 1976 to around 10 percent as of June 2025.

In addition to this sustained decline, manufacturers face substantial workforce challenges. According to the 2025:Q3 Quarterly Survey of Plant Capacity Utilization from the U.S. Census Bureau, over 20 percent of manufacturers reported being unable to operate at full production capacity due to insufficient labor supply. Furthermore, a survey by the National Association of Manufacturers in 2025:Q4 indicated that more than half of manufacturers consider attracting and retaining qualified employees a significant challenge.

While patterns of worker movement into and out of manufacturing are similar to those in other sectors, the key issue for the manufacturing workforce has been a decrease in the inflow of younger workers. Between 1960 and 2009, there has been a consistent decline in the rate at which new cohorts of workers enter manufacturing, leading to a change in the workforce's composition.

Currently, manufacturing workers are more likely to have some college education. In 1976, nearly 80 percent of the manufacturing workforce lacked a college degree. By June 2025, this percentage had decreased to 39.4 percent, with individuals holding at least some college education comprising 60.6 percent of the workforce. In 1976, those without a college degree significantly outnumbered college graduates by over 60 percentage points, but by June 2025, the gap had narrowed to just 4 percentage points.

The attractiveness of manufacturing employment, as measured by wage premiums relative to other sectors, has also shifted. In the 1980s, manufacturing workers received a positive wage premium, earning more than comparable workers in other industries. However, this premium turned negative in the early 1990s, meaning manufacturing workers now earn less than their peers in the broader economy. Notably, workers with a high school diploma or less have faced negative wage premiums since the late 1980s, while college-educated manufacturing workers have continued to receive positive premiums, excluding the pandemic period.

Automation has played a significant role in transforming the manufacturing sector, particularly through the increased use of robots. The International Federation of Robotics reports that robot installations per thousand workers surged from fewer than 0.5 in the 1990s to nearly 30 by 2023. Research indicates that this rise in automation correlates with higher productivity and output value, but it has also contributed to reduced labor demand in areas heavily exposed to robots. Studies suggest that each additional robot per thousand workers is linked to a decrease in the employment-to-population ratio by 0.45 percentage points in affected regions, with manufacturing accounting for a portion of this decline.

Evidence from other advanced economies, such as Germany, shows similar trends, where job losses in manufacturing due to robotics are partially offset by job gains in other sectors. Overall, the impact of automation on labor markets has been most pronounced in manufacturing.

Looking ahead, the U.S. manufacturing sector, while substantial in size, has undergone a significant transformation over recent decades. Although it still contributes meaningfully to the economy, its shares of GDP and employment have diminished with a continued shift toward services. The main driver of the employment decline has been a reduction in the influx of younger workers rather than older workers leaving the industry. Although the workforce has become more educated, wage premiums for less-educated workers in manufacturing have diminished, while those with higher education have maintained their premiums. These trends highlight a structural change in U.S. manufacturing across several decades.