Lynn, Mass., once home to about 150 footwear factories, was considered the capital of the American shoe industry until the early 1970s.

Today, the city north of Boston claims one shoe company and a shoe museum -- lonely signs of an industry contracting in the face of overseas competition.

Layoffs, plant closings and declining profits reflect the woes of a labor-intensive industry that simply is unable to make shoes as cheaply as its competitors in Taiwan, South Korea, Brazil, Italy and other countries.

The Footwear Industries of America, a trade group representing manufacturers, argued that limiting imports through quotas would give U.S. companies the chance to modernize their factories and become more competitive.

Some opponents of the quotas said the industry is profitable and in a healthy period of consolidation, watching a painful, but necessary, shake-out of small firms that are no longer economical.

The stakes are big: The total value of the U.S. shoe industry, including producers' shipments, imports and exports, was valued at $8.6 billion in 1984, according to the International Trade Commission.

The domestic industry's statistics are grim, however:

*About 1,000 U.S. shoe factories were turning out more than 450 million pairs of shoes in 1949. Last year, about 275 manufacturers produced 298.5 million pairs, according to FIA.

*Domestic production has declined 54 percent since 1968, while the number of imported pairs has increased 314 percent -- capturing 71.5 percent of the U.S. shoe market last year.

About 402 shoe factories were shut down from 1968 to 1983, with 105 more facilities closed in 1984.

*Employment in the industry declined 48 percent since 1968, to about 120,700 workers in 1984. About 14,200 jobs were lost from June 1984 to last June. Unemployment in the industry reached 16.7 percent in December 1984, more than double the national average.

American shoe manufacturers are still concentrated in New England, where sewing machines first transformed the cobbler's trade into a mass-production industry. The region produces 23 percent of all American shoes.

Maine is the largest footwear-producing state in the country, accounting for 12.1 percent of domestic production in 1983. Massachusetts now ranks fourth, after more than 100 years in first place. Missouri, Pennsylvania and Tennessee round out the the top five footwear-producing states, partly because of a few major shoe companies headquartered in those states.

The industry consists mostly of privately held firms, with about two-thirds of all producers making less than 1 million pairs a year, accounting for less than 14 percent of total domestic production.

Larger companies, such as Brown Shoe Co., Stride Rite Corp., Genesco Inc., U.S. Shoe Corp. and Interco Inc., have come to dominate the industry. Some 23 producers account for about half the country's shoe production, the ITC said.

"The industry is in a period of consolidation," said Susan W. Liebeler, vice chairman of the ITC, who cast the lone dissenting vote against the commission's recommendation of quotas. "The optimal scale for firms in this industry appears to be over 1 million pairs per year. Since a large number of firms in the industry operate below this level of production, consolidation of firms will, and should, continue."

To most analysts, the biggest problem is not production scale, but rather production costs -- particularly labor costs. The average non-rubber-footwear worker earns $6.32 an hour, one of the lowest manufacturing wages in the country. With labor accounting for 40 percent of production costs, it is hard for an American firm to compete with Korean workers earning 86 cents an hour, Brazilians earning an estimated $1.07 an hour or Taiwanese workers earning $1.39.

President Reagan estimated the cost of import quotas to U.S. consumers at $26,300 per job saved. Some other estimates put the cost considerably higher. The industry's average wage is about $14,000 a year.

The average wholesale cost of an American-made pair of shoes is $14, compared with about $6.25 for a foreign-made pair. That translates into an average retail price of about $30 per pair of domestic shoes, compared with less than $15 per pair of imported shoes, according to the Footwear Retailers of America, which opposes import quotas.

About 58.2 percent of shoes made in this country cost more than $10 wholesale, the ITC's report to the president said.

"This industry is clearly becoming less able to meet the increasing intensity of global competition," said ITC Chairwoman Paula Stern, explaining why the commission had reversed its opposition to quotas.

"Domestic shoes are higher-priced shoes," said Peter Mangione, president of the Footwear Retailers of America, which represents chain shoe stores such as Fayva, Kinney, Sears and Thom McAn. The group claims to represent about 20,000 shoe outlets, selling about half the shoes in the country -- at an average price of $15 or less per pair.

The footwear retailers, which include some manufacturers, oppose shoe import quotas, arguing that they would hurt low-income consumers while boosting profits for U.S. shoe manufacturers. The domestic industry "can make shoes, but my customers can't buy them," Mangione said.

U.S. shoe manufacturers have become major importers themselves, accounting for 30 percent of total imports in 1984, the ITC said.

Genesco Inc., one of the nation's largest shoe manufacturers, said it was neutral on the quota issue because it is such a big importer. Genesco's strategy is to import low-priced shoes and produce only higher-priced shoes, a spokesman said. So the firm makes Johnston & Murphy men's shoes ranging from $135 to $185 a pair, women's shoes at $100 to $150 a pair, and "moderate-priced" boots at $100 to $150 a pair.