I'm not sure this phenomenon is specifically linked to industrial manufacturing. It is linked to commodity production in a general sense. Historically, agricultural labor went through a very similar trend. I don't have the big brain economic theory and reams of data to bring to the table, but in general the introduction of automation and scientifically optimized (to which ends though?) production practices makes it so fewer and fewer labor resources are required to meet the same production targets. This graph is essentially the inverse of those productivity graphs we commonly see posted in contrast to the stagnantion of wages.

Industrial labor has shrunk in relative terms compared to the rest of the economy because the wage labor relation remains the cornerstone of capitalist society despite these gains in productivity. In absolute terms, and especially if you look at capitalism as a world system, and not through the vignette of imperial core national statistics, the sector has continued to grow.