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Manufacturing jobs on the rise in North Carolina

020517Hood

John Hood

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Monday, April 22, 2019

Did you know that manufacturing employment in North Carolina has gone up more than 10 percent since 2010? I didn’t either, until I took a recent dive into economic statistics.

In February 2010, there were about 431,000 jobs at manufacturing enterprises in North Carolina. By February 2019, that number had grown to about 476,000. What makes that notable is that during the preceding decade, from 2000 to 2010, manufacturing employment in the state had fallen by 44 percent.

North Carolina’s experience is hardly unique. Something like the same trend is evident for the nation as a whole: manufacturing employment fluctuates within an overall downward trend during the 1980s and 1990s, drops like a rock during the first decade of the 21st century, then recovers a bit since 2010.

Of course, manufacturers don’t exist to create jobs. They exist to make and sell products. It’s wonderful to see companies form or expand, hiring North Carolinians along the way. But the health of the sector is best measured by output, not employment.

By that measure, North Carolina manufacturers are doing well. Over the last 20 years of available data (through 2017), their output rose by about 28 percent in inflation-adjusted terms. That’s faster than for other goods-producing industries in our state but not nearly as fast as the now-dominant service sector.

These are two of the three basic divisions of the economy. The private goods-producing sector — think manufacturing plus food, fiber, mining, and construction — is about 23 percent of North Carolina’s gross domestic product. The private service sector is about 64 percent. The government sector (at all levels) accounts for the remaining 13 percent.

The distribution of jobs in North Carolina doesn’t precisely track economic output. That’s because the production of services, both private and public, tends to be more labor-intensive than the production of goods. While goods industries represent 23 percent of the state’s GDP, they account for 16 percent of total employment — which is the same as government’s share of total North Carolina jobs.

By the way, the government sector is about the same today, as a share of GDP and employment, as it was 20 years ago. The goods sector is smaller. The big story is the rise of services.

Keep in mind that the service sector encompasses a wide variety of enterprises and occupations, from finance, education, and health care to leisure, hospitality, and retail. There is nothing alarming or even surprising about a shift from goods to services. It’s quite literally the oldest story in our collective economic history. As we learn how to produce more food, clothing, shelter, and other goods at a lower cost, including labor costs, that allows us to improve our standard of living by producing and consuming services that make our lives longer, safer, more fulfilling, and more enjoyable.

At the same time North Carolina’s economic mix was changing, we welcomed millions of new residents to our state. Overall output grew in real terms. We didn’t experience a decline in the quality of jobs. The ratio of total compensation per job in North Carolina — that’s wages and salaries plus benefits — stayed in a narrow band of 89 percent to 90 percent of the national average. Some businesses contracted or disappeared, primarily because of changes in technology, trade patterns, and consumer preferences. But other businesses started up or expanded.

I don’t know if the current upswing in North Carolina’s manufacturing employment will continue. If it does, I hope it is accompanied by an even-faster rise in output so that the productivity of our manufacturing industries goes up, not down. In the long run, productivity gains makes us better off. The people who make things receive healthy increases in compensation. And the rest of us receive more and better goods at lower real prices.

Politicians couldn’t do much to arrest these economic trends even if they wanted to. Their focus should be on productivity, as well — getting more value for every dollar we spend on public services.

John Hood is chairman of the John Locke Foundation and appears on “NC Spin,” at 7:30 p.m. on Fridays and 12:30 p.m. Sundays on UNC-TV.

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