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 more developed nations are being hollowed out, posing a threat to full employment.

Recently, there has also been talk of a "disappearing middle class" in modern society, as income inequality has tended to "hollow out the middle" and largely benefit the top (e.g. the top 1%). At the same time, the term has shifted to include upper-middle and lower-middle classes to account for the increased stratification of late.

Key Takeaways

  • Hollowing out refers to the weakening of a nation's or region's middle class, along with its middle-class manufacturing jobs, as socioeconomic stratification intensifies.
  • The result of hollowing out is an increase in working- and lower-class households along with a growing concentration of wealth among the very wealthy.
  • Economists have blamed this phenomenon on several concurrent factors, including outsourcing jobs, labor-saving technologies, and demographic changes.

Understanding 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., sending those jobs to regions with lower labor costs such as China or Bangladesh. After peaking in 1979 at more than 19 million, the number of U.S. manufacturing jobs shrank to fewer than 12 million by 2020. Other advanced economies have experienced a similar trend. In Japan, for example, the percent of employment in manufacturing was more than 27% in the 1970s and had dropped to 16% percent by 2012. That 16% in 2012 represented 10.3 million employees. In 2019 the number employed in manufacturing in Japan had risen slightly to 10.6 million. This has had a disproportionate impact on cities and rural communities that relied heavily on nearby plants for employment.

Not all economists argue that outsourcing of manufacturing and the subsequent hollowing out jobs hurts society on net, 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 argue that consumers often benefit from lowers prices when the products they buy are made overseas.

Robots and other labor-saving technologies are likely to cause a further hollowing out of middle-class jobs. This has been quantified into something known as Moravec’s paradox. This was a discovery made by AI experts in the 1980s, that robots find the difficult things easy and the easy things difficult. Hans Moravec, one of these AI 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 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 the 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.