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Economists may have declared the 2007-2009 recession over, yet the pain lingers. Unemployment has hit younger and older workers, males, and African Americans especially hard.

But one group has paid the biggest price: Blue-collar US manufacturing workers have suffered disproportionate job losses, and their plight has big implications for all of us.

In October, the overall US unemployment rate was 9.6%, while total unemployment and “underemployment” (including people who would prefer to work full time but currently aren’t) hovered around 17%. But the disparity between white-collar and blue-collar unemployment is stunning: 4.5% among college graduates, vs. 10.8% for those with a high-school diploma—and 14.3% for those without one.

The likely reason: a precipitate decline in US-based manufacturing employment. The US has been losing those jobs for years, but the pace of the decline picked up shockingly in the past decade and during the recession. Although some big, US-based multinationals recently have announced plans to add production facilities here, this hemorrhage of manufacturing jobs puts us in danger of losing our competitive edge and missing out on the jobs of the future.

This table tells the story:

chart

From its peak of 19.5 million in 1979, manufacturing employment declined, on average, by about 1.5 million jobs a decade until 2001. Then it fell off a cliff: America lost 2.5 million manufacturing jobs from 2001 to 2007 and almost that much again during the latest recession.

So, nearly five million American manufacturing jobs have disappeared since 2001, an astonishing 29% plunge in less than ten years. The US has lost more than 42,000 factories during that time. Clearly, it was a “lost decade” for far more people than investors in US stocks.

The number of US workers employed in manufacturing is at its lowest level since 1941—when our factories became the “arsenal of democracy” that helped win World War II.

Where have you gone, Rosie the Riveter?

The hollowing out of US manufacturing would make it hard for us to do that now. Whole industries have nearly picked up and left the US—textiles, furniture, and many electronic components. Natural, free-market forces have driven most of it. The technological revolution has helped companies boost productivity sharply, so they need fewer people to produce the same amount of goods.

“During the late 1990s, productivity growth in… manufacturing accelerated,… averaging 4.1% annually over the 1995–2007 period,” the Congressional Budget Office reported. “As a result, productivity in manufacturing has risen by about one-third since 2000.”

And, of course, globalization has triggered explosive growth in lower-cost emerging markets, especially in Asia, and they have become formidable competitors in an amazingly short time.

Margaret McMillan, an associate professor at Tufts University, has studied the impact of foreign competition on US manufacturing. She says the declining price of computers, greater penetration of imports in the US, and shifting production to lower-wage countries have caused the big decline in US manufacturing employment.

“We find that offshoring…is responsible for a downsizing of the American workforce,” she says, adding that big companies that shift jobs overseas need advanced technology to manage vastly expanded global supply chains efficiently. Of course, China joined the World Trade Organization in 2001, opening the floodgates on both offshore production and competitive imports, although it only accelerated trends that had been in place for years.

The decline of American manufacturing may be part of a natural evolution to a world in which developing countries produce more goods and developed countries focus on high-end design and engineering. But it threatens not only our technological edge, but also the basic premises of the American dream.

Because of the cost differential, the US is getting very few manufacturing jobs out of the most promising, fastest growing technologies, like smart phones or alternative energies like photo voltaics.

True, much of the design and engineering for Apple’s (Nasdaq: AAPL) iPhone 4 is being done in the US, but virtually none of the components or hardware is manufactured here, says Tina Teng, senior analyst with iSuppli of El Segundo, Calif. “Manufacturing is all about labor costs,” she says. “US labor costs are much higher than [in] southeast Asia.”

“We can’t compete with China on labor costs. There’s just no way,” says McMillan.

And the US has all but stopped making printed circuit boards, while in 2007, only 8% of new semiconductor manufacturing plants were located here.

Increasingly, vital technologies and critical sources of production are based in potentially hostile countries like China and vulnerable ones like Taiwan.

The weaker dollar and concerns about intellectual property have prompted a counter-trend as companies like General Electric (NYSE: GE) and Intel (Nasdaq: INTC) have announced major expansions of their US-based production facilities.

GE will invest $432 million to upgrade four refrigerator-manufacturing facilities, adding about 500 jobs. Chief executive officer Jeff Immelt has become increasingly skeptical of doing business in China.

Intel, which sells 75% of its chips overseas but makes 75% of them here, will invest some $6 billion to $8 billion upgrading and expanding its operations in Oregon and Arizona. (It also just opened a $2.5-billion wafer fab in Dalian, China.)

The next-generation facilities will create up to 8,000 construction jobs to build the fabs and as many as 1,000 new permanent jobs. “The new jobs will be a mixture of technicians who need at least a two-year college degree or military experience in the electronics field and engineers who need a BA or masters level in a variety of engineering disciplines,” Intel spokesperson Christine Dotts said in an e-mailed reply to my questions.

I commend GE and Intel for their decisions, which are no doubt based on solid bottom-line calculations. Big targeted tax breaks by local governments were also critical to both companies’ moves.

But these and similar actions will create maybe thousands of jobs here—a tiny fraction of the millions lost in the past decade.

Former Intel CEO Andy Grove, who gambled big—and won—on billion-dollar US manufacturing facilities a generation ago, worries about “a general undervaluing of manufacturing—the idea that as long as ‘knowledge work’ stays in the US, it doesn't matter what happens to factory jobs,” he wrote in Bloomberg BusinessWeek.

“But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed?,” he asked.

The American dream is based on the idea that if you work hard, you and your children can do better. For decades, US blue-collar workers could save money, buy homes, put their kids through college, and have decent retirements.

Now, manufacturing is under siege, security is non-existent, and many blue-collar jobs are dead ends rather than stepping stones.

Creative destruction is the engine of capitalism, and it has benefited us probably more than any other nation. But who could have imagined the shoe would now be on the other foot?

Source: White-Collar Recession, Blue-Collar Depression