What is 'Hollowing Out'

Hollowing out is the deterioration of a country’s manufacturing sector when producers opt for low-cost facilities overseas. Some economists argue that the economies of Japan, the United States and other developed nations are being hollowed out, posing a threat to full employment.

BREAKING DOWN 'Hollowing Out'

Over the past few decades, the manufacturing sectors of some of the world’s leading economies have contracted significantly due to hollowing out. After peaking in 1979 at more than 19 million (L2, p. 2), the number of U.S. manufacturing jobs shrank to roughly 12 million in 2013 (L4, p. 28). Other advanced economies have experienced a similar trend. In Japan, for example, manufacturing has fallen from 35 percent of output in the 1970s to 18 percent in 2009. This has had a disproportionate impact on cities and rural communities that relied heavily on nearby plants for employment.

Not all economists argue that the outsourcing of manufacturing and subsequent hollowing out jobs hurts society, however. They suggest the domestic economy has an opportunity to pivot toward high-skill, high-wage jobs such as product design and marketing. They also say consumers often benefit from lowers prices when the products they buy are made overseas.

Robots are likely to cause a further hollowing out of middle-class jobs. This quantified as something known as Moravec’s paradox. This was a discovery by AI experts in the 1980s that robots find the difficult things easy and the easy things difficult. Hans Moravec, one of the researchers, said: “It is comparatively easy to make computers exhibit adult-level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility.” Put another way, if you wanted to beat Magnus Carlsen, the world chess champion, you would choose a computer. If you wanted to clean the chess pieces after the game, you would choose a human being.

Hollowing Out Data

As of May, 2016, the middle class contracted in nine out of 10 U.S. metropolitan areas since 2000, as income inequality widened after the recession, according to a new study from the Pew Research Center. The report expands the organization's research into the fortunes of the country's middle class, which Pew in December found had declined to less than 50 percent of households, a major change in the America's economic fabric.

While the middle class is indeed hollowing out, the dynamic is complex: Some families drop into the lower-income bracket, but many others climbed up from middle class and into the upper-income bracket. Overall, the share of adults living in middle-income households fell in 203 of the 229 U.S. metropolitan areas that Pew studied.

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