This article was originally published by the Federal Reserve Bank of Richmond.
A manufacturing job became the pathway to a middle-class lifestyle for many American families in the decades immediately following World War II. Although the industry has suffered large employment losses since the 1970s, it remains a critical source of employment in rural America.
This article explores historical trends in manufacturing employment in the United States and the Fifth District. Since the 1990s, despite a sharper decline in manufacturing employment in the district than in the United States, manufacturing in rural North Carolina, rural South Carolina, and rural Virginia composes a larger share of employment than in the nation. Additionally, since manufacturing jobs pay above the average wage in rural areas, employment growth in the sector benefits rural economies.
Urban and Rural Manufacturing in the United States
At its peak in 1979, one in five American workers was employed in manufacturing. As of 2021, manufacturing employment had fallen by more than one-third from that peak largely due to increasing productivity from investments in capital equipment and import competition from China since the early 2000s. In addition, the geography of manufacturing simultaneously underwent substantial shifts, with many manufacturing plants migrating from the North to the South and manufacturing employment moving its concentration from urban to rural areas.
Although aggregate manufacturing employment in the nation declined slowly in the 1980s and 1990s, those losses were concentrated in urban areas. (See chart above.) Rural areas became more attractive locations for plants, mostly due to the relatively lower costs of land and labor. As manufacturing became more capital-intensive, plants required more space for equipment and fewer workers. Furthermore, the construction of the interstate highway system created a decentralized road network to transport manufactured goods, delivered previously via urban ports and railway stops.
What About Manufacturing in the Fifth District?
Total manufacturing employment in the Fifth District has fallen in the past four decades in line with the decline in the United States, but unlike in the nation, it has fallen faster in rural than urban areas. While the rest of the nation’s rural areas saw steady manufacturing levels in the late 1990s, the Fifth District started shedding jobs around 1995. However, like the nation, most of the district’s manufacturing losses occurred in the first decade of the 21st century when China’s entrance to the World Trade Organization (WTO) had a sizable negative impact on employment in the U.S. manufacturing sector.
In addition to China joining the WTO, the 1994 signing of the North American Free Trade Agreement (NAFTA) had an outsized impact on the rural textile and apparel industries of Virginia and the Carolinas, which shifted production toward Mexico. Moreover, declining demand contributed to losses in tobacco manufacturing jobs that were concentrated in rural North Carolina and Virginia. Excluding the textile, apparel, leather, and tobacco subsectors, manufacturing employment grew in the Fifth District during the 1990s. (See chart below.)
Despite historical losses in employment, the current share of rural employment devoted to manufacturing is higher than the share of urban employment in every Fifth District state except West Virginia. In 2019, the share of rural employment devoted to manufacturing in the United States was 13% — lower than North Carolina (18%), South Carolina (18%), and Virginia (16%).
The Manufacturing Wage Premium is Higher in Rural Areas
Recent research has pointed to a downward trend in the manufacturing wage premium — the higher pay that those workers earn relative to comparable private sector nonmanufacturing wages — since the 1990s. However, as of the 2010s, the U.S. manufacturing sector still offered a 13% wage premium for workers without college degrees. When comparing the average weekly wage for all industries (excluding manufacturing) against the average weekly manufacturing wage in 2019 (see chart below), it is clear that the manufacturing wage premium is considerably higher in rural areas. In the Fifth District, there was a 32% wage premium (the percentage difference between manufacturing wages and all other wages) in rural areas versus seven percent in urban areas. In the United States, the wage premium for manufacturing was 30% in rural areas versus 12% in urban areas.
Manufacturers as Rural Anchor Employers in the Fifth District
The manufacturing sector employs far fewer U.S. workers than it did before the turn of the millennium, including in the Fifth District. However, many of the Fifth District’s rural counties depend on manufacturing firms to employ between a quarter and half of their workforce. (See county map below.) Additionally, the manufacturing wage premium is considerably higher in the Fifth District rural areas, suggesting that it is still very much a pathway to the middle class for rural residents.
Opportunities for collaboration in workforce development offerings may better equip rural residents for manufacturing opportunities in the Fifth District, perhaps through partnerships between local manufacturing firms and community colleges. Supporting the workforce needs of existing institutions while enhancing their reach to local residents may help move the needle toward sustained prosperity of rural communities.