AT A GLANCE

  • Recently manufacturing employment is starting to increase again, with foreign manufacturers establishing factories and establishements in some parts of the country
  • Approximately 19.6 million Americans have jobs in the manufacturing sector today.
  • There have been many strategies proposed to revitalize the manufacturing industry, including making exports more valuable, imposing a value-added tax, purging duplicate regulations, spending more on R&D, and crating career factories

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July 01, 2016

Industry Highlight: Manufacturing

Between 2000 and 2010, almost 6 million factory workers lost their jobs nationwide. Across the country, the manufacturing industry shed jobs due to outsourcing work due to lower wages found abroad and new machines that outpaced workers. In this time period, the country lost 5.7 million jobs, more than a third of the manufacturing workforce.

However, recently, manufacturing employment is starting to increase again, and in some parts of the country, foreign manufacturers are establishing factories and establishments. While it appears that traditional manual jobs are unlikely to return, there has been a shift of advanced manufacturing back to the U.S. amidst facts including a desire to enter the American market directly, the inconvenience of shipping across the world, and the rising wages in China. Throughout the south-east, local government and business groups are hoping that the presence of foreign manufacturers along with jobs “reshored” to the U.S. by American companies will help create stability in the industry. In particular, North Carolina and South Carolina are among the top three states for manufacturing jobs returning or created from overseas in 2015, according to the Reshoring Initiative.

Manufacturing Employment Index

Manufacturing Employment Index

Source: BLS

According to the latest jobs report by the Bureau of Labor Statistics (BLS), the manufacturing sector lost 10,000 jobs in May 2016. Today, approximately 19.6 million Americans have jobs in the manufacturing sector, significantly lower than in 2009, when manufacturing jobs were the biggest component of the private sector job market and 20 million Americans worked in jobs in the sector. Higher-paying manufacturing jobs are shrinking relative to the economy, while jobs in health care, retail trade, and hospitality are growing quickly.

In 2009, the top three sectors for jobs were manufacturing, healthcare, and business services. Today, it’s healthcare, business services, and manufacturing. However, average pay in the manufacturing sector is higher than the national average and much higher than the healthcare sector. The average weekly pay of a manufacturing worker is almost 30 percent higher than that of a worker in healthcare.

Manufacturing Wage Index

Manufacturing Wage Index

Source: BLS

Revitalizing Manufacturing

Researchers, politicians, and business leaders are recently coming forward with strategies to accelerate job gains and investment in the manufacturing industry. These ideas range from trimming regulations that raise the cost and effort of running a manufacturing operation to imposing a value-added tax on imports to ramping up training programs so companies are easier able to find skilled workers. The upcoming U.S. election has renewed focus on the number of American manufacturing jobs abroad. Hillary Clinton has proposed penalizing companies taking jobs overseas, while Donald Trump has mentioned strong-arming manufacturers into returning to the U.S.

While revitalizing the manufacturing sector is not an easy task, it is an important one. Manufacturing business has historically been one of the best generators of wealth for an economy, requiring processes, materials, and skills that create employment and profit at each step.

Here’s a look at some of the strategies proposed to revive the manufacturing sector:

  1. Make exports more valuable: A plan promoted by investor Warren Buffet states that companies that export goods from the U.S. would accumulate certificates equal to the value of their exports, while companies that import goods would have to purchase certificates from exporters. This certificate would create two desired reactions – a) U.S. exporters could offer U.S.-made goods to foreign customers at lower prices, making them more competitive and shrinking the trade deficit over time; b) foreign-made items imported into the U.S. would become more expensive, making American-made goods more cost competitive with cheap imports. The appeal of this approach is that it’s a decisive way to bring down the trade deficit, while the downside is that Americans would face higher prices for imported consumer items.
  2. Impose a value-added tax: Another proposed idea for lowering the trade deficit is imposing a value-added tax (VAT). The tax, which is used in more than 130 countries, would be applied to each step along a production chain as a product or material increases in value or is consumed. Currently, almost all countries with VATs waive them on exports but impose them on imports. The VAT would need to be coupled with an elimination/reduction of existing taxes on businesses, and consumers would need tax relief to compensate for the higher prices they would face for many purchases. The advantage of this proposal is that it would put the U.S. on the same kind of tax system used throughout the world, making our exports more attractively priced. The disadvantage is that it’s a regressive tax placed on essential, everyday items that every buyer faces regardless of their ability to pay.
  3. Look at the true cost of offshoring: When companies offshore production, they often seek out the lowest initial price per unit. If they were required to take into account the hidden costs of foreign production, American-made goods would become more cost-competitive. Overseas manufacturing carries many unaccounted expenses and consequences, but companies often don’t account for costs such as transportation, as well as expenses associated with product reliability, undependable supply chain, or the need to hold more inventory if overseas deliveries are delayed. Supporters of this strategy say that the requirement would raise awareness of the total cost of offshoring.
  4. Purge duplicate regulations: When federal agencies instate new rules, they rarely repeal old ones or check to see if any other agency has a similar or conflicting regulation. As such, over decades this has resulted in layers of rules that are often redundant or outdated. The National Association of Manufacturers estimates that regulatory compliance costs manufacturers roughly $139 billion annually. If federal agencies removed redundancies, manufacturing executives say that complying with federal mandates wouldn’t be so difficult.
  5. Look beyond jobs: Typically, state and federal governments view manufacturing as employment generators. But economic-development policies that focus on boosting head counts risk missing a broader trend in manufacturing – automation. Analysts say that policy makers should do more to encourage investments in manufacturing technology and automation, even if it seems to undermine manufacturing-employment growth.
  6. Spend more on R&D: Advocates say that training workers is not enough, and governments also need to spend more on applied research to solve specific problems in the sector and bring new products to market.
  7. Create regional centers of expertise: Advocates argue that the U.S. will not be able to produce high-tech, high-margin products if it continues to abandon the ability to perform more basic manufacturing work. A proposed solution is to create regional centers of expertise, where a region looks to leverage an existing set of skills or an industrial legacy, such as casting metal or machinery.

Create career factories: One of the biggest issues in manufacturing, despite recent low payrolls, is that companies have difficulty finding skilled craft workers to replace retiring employees. Community colleges offer programs for skilled trades, but companies argue that the course work is often too generalized to meet job requirements, which means firms have to invest in on-the-job-training for new hires and are unable to quickly increase productivity through additional hiring. Some manufacturing companies are starting to collaborate with community colleges to design job-training programs specifically for their needs.

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