Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of San Francisco
Working Paper Series
Accounting for the secular “decline” of U.S. manufacturing
Milton H. Marquis
Bharat Trehan
Abstract

The share of employment in manufacturing as well as the relative price of manufactures has declined sharply over the postwar period, while the share of manufacturing output relative to GDP has remained roughly constant. Household preferences turn out to play a key role in reconciling this behavior with a closed-economy, two-sector model with differential rates of productivity growth. We show that the data imply that households are not willing to substitute between the two goods at all and also that this inference is independent of whatever the income elasticity of demand for services might be. Because we are unable to account for the entire decline in employment over this period, we expand the model to allow for manufactured exports. While this does not change our estimate of the elasticity of substitution, it does improve the model’s ability to explain the decline in relative employment in the 1990s. However, larger errors in the 1970s remain unexplained.


Download Full text
Cite this item
Milton H. Marquis & Bharat Trehan, Accounting for the secular “decline” of U.S. manufacturing, Federal Reserve Bank of San Francisco, Working Paper Series 2005-18, 2005.
More from this series
JEL Classification:
Subject headings:
Keywords: Manufactures ; Employment ; Productivity ; Economic conditions - United States
For corrections, contact Noah Pollaczek ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal