17.4 Structural changes in the U.S. economy

The U.S. economy underwent major structural changes in the late 20th century. Manufacturing declined while services boomed, reshaping industries, jobs, and regional economies. This shift was driven by global competition, technology, and changing consumer preferences.

These changes had far-reaching impacts on workers and communities. Income inequality grew, job security decreased, and some regions struggled. Policymakers responded with trade assistance, education initiatives, and social programs to help manage the transition.

Structural Changes in the U.S. Economy

Deindustrialization and the Rise of the Service Sector

Structural changes in U.S. economy

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• Manufacturing decline reduced GDP share led to job losses in traditional industries (steel, automotive) shifted towards outsourcing and offshoring
• Service sector rise increased GDP share spurred growth in finance, healthcare, and technology industries expanded retail and hospitality sectors (Walmart, Starbucks)
• Energy sector transformed by oil price shocks increased focus on energy efficiency and alternative sources (solar, wind)
• Technological advancements drove automation in manufacturing sparked emergence of computer technology (IBM, Apple)
• Globalization intensified international trade fostered growth of multinational corporations (Coca-Cola, General Electric)

Factors of deindustrialization

• Global competition intensified due to lower labor costs in developing countries (China, Vietnam) newly industrialized economies emerged (South Korea, Singapore) trade liberalization reduced tariffs
• Technological advancements introduced automation and robotics in manufacturing improved logistics and supply chain management increased productivity requiring fewer workers
• Consumer preferences shifted towards services over goods increased spending on experiences and intangibles (tourism, entertainment)
• Regulatory environment tightened environmental regulations influenced labor laws and union power
• Economic policies shaped by monetary policy and interest rates fiscal policy and tax structures impacted industrial competitiveness

Economic Consequences and Policy Responses

Impact of economic restructuring

• Labor market transformed by skill-biased technological change job polarization increased (high-skill and low-skill jobs grew, middle-skill jobs declined) part-time and contract work expanded
• Income inequality widened due to wage stagnation for low-skilled workers increased returns to education and specialized skills growth of high-income service sector jobs (finance, tech)
• Regional economic disparities deepened as industrial cities and regions declined (Detroit, Rust Belt) urban centers with service-based economies grew (San Francisco, New York) rural-urban economic divide widened
• Labor union influence waned with declining membership reduced bargaining power for workers
• Job security and benefits shifted away from long-term employment defined contribution retirement plans replaced defined benefit plans

Policies for economic transition

• Trade policies implemented trade adjustment assistance programs initiated retraining programs for displaced workers
• Education and workforce development increased investment in STEM education expanded vocational training and apprenticeship programs
• Regional development initiatives established enterprise zones and opportunity zones boosted infrastructure investment in affected areas
• Industrial policy provided targeted support for strategic industries (aerospace, semiconductors) offered research and development incentives
• Social safety net programs reformed unemployment insurance expanded Earned Income Tax Credit
• Monetary and fiscal policies adjusted interest rates to stimulate growth implemented fiscal stimulus during economic downturns
• Regulatory reforms streamlined business regulations adjusted environmental policies to balance economic and ecological concerns