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The U.S. economy started shedding manufacturing jobs and gained services sector jobs in the 1990s, a trend that has largely continued.  Why has this been so prevalent and how has it impacted wages and employment levels?  Finally, how do employment levels (unemployment rates) impact wage levels?

As the number of middle-class and upper-income families continues to grow, the need for service-based employees also expands. This growth is based on the final demand idea that as areas gain wealth, the people wish to purchase more services. The United States, as an example, shows that final demand is not the sole trend in the growth of service-based positions but a combination of less demand for material requirements from consumers. The change in demand raises health, education, and entertainment opportunities.

The past several years have witnessed a decrease in manufacturing firms’ demand for employees, and economic projections suggest that this lull will carry over through 2026 (Martocchio, 2020). The decrease in employment for manufacturing services peaked after the pandemic and has affected various industries in the United States even as the working population grows. This is pyridoxal to what is happening in Japan, where the loss of manufacturing jobs is aligned with a decreasing labor market (Rose, 2021, p. 24)

The term “service sector” refers to six major industry groups: government, wholesale commerce, retail trade, finance, insurance, real estate, transportation, communication, and public utilities. It is anticipated that a significant increase in employment in the construction sector and service industries, including professional and business services, health care, and social assistance, will more than offset a consistent decline in employment in manufacturing industries (Martocchio, 2020). By 2026, the economy is projected to add 10.5 million new jobs in the service sector. Moreover, contingent workers generally work in service industries, which require more labor than capital (Martocchio, 2020).

Even if some low-productivity firms eliminate jobs or cease to be in business, macroeconomic perspectives show that overall employment does not necessarily decrease. More people may work for other companies or earn more. Because business conditions improve, the unemployment rate and a laborer’s bargaining strength may be connected. In a workforce with a comprehensive salary distribution, labor market conditions impact both high- and low-income workers, making the rationale less evident. Neumark and Shirley (2022) did a study on what all the research suggests when it comes to how employment, or lack thereof, impacts wage levels. Biblically speaking, 1 Timothy 5:18 says, “You shall not muzzle an ox when it treads out the grain,” and, “The laborer deserves his wages” (King James Bible, 1769/2017). Modern businesses do not conform to the Godly way of thinking as the weight of the data and the findings strongly suggest that minimum wages harm the employment of lower-skilled individuals (Neumark & Shirley, 2022). Industry studies provide a significant portion of the evidence that is less consistent with effects on unemployment. However, this evidence may not be the most pertinent to whether some low-skilled people lose their jobs when the minimum wage rises. On the other hand, the data is considerably more convincing that employment among low-skilled workers decreases when the minimum wage rises, and the directly impacted workers’ experiences may be the most pertinent (Neumark & Shirley, 2022).

References

King James Bible. (2017). Cambridge University Press. (Original work published 1769) King James Bible. (2017).

Martocchio, J. J. (2020). Strategic compensation: A human resource management approach (10th ed.). Pearson.

Neumark, D., & Shirley, P. (2022). Myth or measurement: What does the new minimum wage Research say about minimum wages and job loss in the united states? Industrial Relations: A Journal of Economy and Society, 61(4), 384-417. https://10.1111/irel.12306

Rose, E. L. (2021). The decline of US manufacturing: Issues of measurement. Management and Organization Review, 17(1), 24-28. https://doi.org/10.1017/mor.2020.82Links to an external site.