Hollowing Out

Key takeaways
* Hollowing out describes the loss of middle‑class manufacturing jobs and spending power, leading to a larger share of lower‑income households and greater wealth concentration at the top.
* Primary drivers include outsourcing, labor‑saving technologies, and rising costs for education, healthcare, and housing.
* Data from several sources show a long‑term decline in manufacturing employment and a shrinking middle class in many advanced economies.

What hollowing out means

Hollowing out refers to the erosion of middle‑income jobs, especially in manufacturing, and the resulting shift in the income distribution. As middle‑class employment and wages decline, more households fall into lower‑income brackets while a growing share of income accumulates among the highest earners.

Historical trends and data

• Manufacturing employment has declined sharply in many advanced economies. In the U.S., manufacturing jobs peaked at over 19 million in 1979 and fell to under 12 million by 2020 (Federal Reserve data). Japan saw its share of employment in manufacturing drop from nearly 28% in the 1970s to about 16.6% by 2012.
• Income‑share shifts show the changing distribution of economic gains. In the U.S., the share of aggregate income received by middle‑class households fell from about 62% (1970) to 43% (2018), while the upper‑income share rose from roughly 29% to 48% (Pew Research Center). The share of American adults in middle‑income households declined from 61% in 1971 to 51% in 2019.
• International analyses reach similar conclusions: the OECD found that, from the mid‑1980s to the mid‑2010s, middle incomes in many member countries barely grew and rose roughly one‑third less than incomes at the top, and the proportion of people in middle‑income households fell modestly over that period.

Main causes

Hollowing out reflects multiple, interacting forces:
* Outsourcing and globalization: Production relocated to lower‑cost regions reduced domestic middle‑skill manufacturing jobs.
* Automation and labor‑saving technologies: Machines and software displace routine tasks once performed by middle‑skill workers.
* Rising costs of essential services: Increasing expenses for higher education, healthcare, and housing squeeze disposable income and social mobility.
* Demographic and structural changes: Shifts in demand, industry composition, and regional economic dependencies have uneven local effects.

Technology and Moravec’s paradox

Advances in robotics and artificial intelligence tend to replace well‑paid, routine tasks, accelerating the loss of middle‑class roles. Moravec’s paradox—observed in AI research—notes that computers can outperform humans on abstract, high‑level tasks (e.g., chess) while struggling with simple perception and mobility tasks humans perform easily. This pattern means some jobs vanish while others that require fine motor skills or complex perception remain harder to automate, but overall technology often reinforces hollowing out by automating many middle‑skill functions.

Economic effects

A shrinking middle class can harm economic dynamism:
* Reduced aggregate demand: Middle‑income households historically account for a large share of consumption; their decline can weaken demand for goods and services.
* Greater inequality: Concentrated income at the top can reduce social mobility and increase political and economic tensions.
* Regional impacts: Communities dependent on manufacturing plants suffer more acute employment and fiscal stress.

Complexity and caveats

The trend is not uniform. Some workers and families move up into higher‑income brackets while others fall into lower income. Economists disagree on the net social impact of globalization and automation: some view them as opportunities for economies to shift toward higher‑skill, higher‑wage activities and to deliver cheaper goods to consumers, while others emphasize the distributional harms and the need for policy responses.

Conclusion

Hollowing out captures a structural shift in many advanced economies: the loss of middle‑class manufacturing jobs and the corresponding concentration of income at the top. Its drivers are multifaceted—globalization, automation, and rising living costs—and its consequences extend beyond employment to consumption, regional stability, and inequality. Addressing hollowing out typically requires policies that support worker retraining, access to higher education, and measures to strengthen middle‑income opportunities.