The chart reflects the growth of government but the other factor is labor saving productivity gains are much easier in manufacturing than the service type jobs that dominate the gov’t work force. It takes a lot less labor to produce a ton of steel than say in 1960. Also, given technology and trade patterns US manufacturing has shifted away from labor intensive industries, for example, textiles to more capital/technology intensive industries, say CPU chip manufacturing.
I believe this is just manufacturing jobs so service jobs are not factored in.