After decades of decline and political indifference, the U.S. manufacturing is getting fresh attention. “American Manufacturing Is Having a Moment,” declared CNN in a recent headline.1 During his reelection campaign, President Obama set a goal of bringing back 1 million of the manufacturing jobs that had been lost after the recession, and supported bold new investments in the nation’s manufacturing capacity.2 President Trump made restoring manufacturing jobs a key part of a winning campaign among Rust Belt states that carried him to election as president.
Is this renewed focus on the manufacturing sector sound economic policy, or as pundits from across the political spectrum have complained, is it just a nostalgic bid for middle-class jobs that are gone for good?
This report examines prevalent assumptions about the value of a renewed commitment to manufacturing, particularly from the vantage point of the needs of communities that have depended on manufacturing jobs, and on workers who have looked to this sector as a source of a living-wage career.
The report begins by reviewing the status of U.S. manufacturing activity today, including how it compares internationally. It looks at shifts in composition of U.S. manufacturing activity, identifying which industries within the sector have been growing, and which have been declining. It examines the debate over what caused the manufacturing decline of the past few decades and whether this decline was inevitable, or reversible, and how important a manufacturing recovery is to the nation’s economic future.
Most importantly, the report takes a deep dive into regional data on the current and future role of manufacturing to the economic recovery of communities across the country. It takes a hard look at the quality of manufacturing jobs today, and the major workforce challenges facing a manufacturing revival.
The report’s principal findings include:
The U.S. manufacturing sector was reshaped by a steep decline in the first decade of the century, dropping from 13.1 percent of the total workforce in January of 2000 to 8.8 percent in in January of 2010. But unlike after the 2001 recession, manufacturing has grown alongside the rest of the economy, adding 945,000 jobs from 2010 to 2017.
Current growth and future potential of manufacturing is now focused on a concentrated core of goods, such as transportation, fabricated metals, machinery, chemicals, and food products—subsectors that account for 52.6 percent of manufacturing jobs nationwide as of January 2017.
The steep decline of U.S. manufacturing during the first decade of the century was the result of changes in trade policy not automation. During this period, manufacturing productivity growth actually slowed, averaging only 7 percent in all manufacturing sectors other than computer and electronics.3 At the same time, the entrance of China into the World Trade Organization allowed the trade deficit to increase from $83 billion in 2001 to $347 billion and was responsible for 2.4 million job losses.4
Further economic recovery and the reshoring of manufacturing American jobs is indeed possible. Real foreign direct investment in manufacturing surged to $243 billion in 2015, up from $117 billion in 2007.5 When all the costs of outsourcing are considered, 55 percent of manufactured goods could be produced more cheaply in the United States, while only 3 percent could be based on the sticker price alone.6
Manufacturing has become more regionally concentrated, with three manufacturing regions (the Rust Belt, Agricultural Midwest, and the Industrial Southeast) holding most of the nation’s manufacturing jobs. Seven Rust Belt states (Ohio, Pennsylvania, Indiana, Michigan, Illinois, Wisconsin, and Minnesota) have 3.7 million manufacturing jobs, more than seventeen large Western states including California and Texas. Manufacturing is now of greatest importance to mostly rural communities in these manufacturing states, where it makes up one-in-four private-sector jobs, as compared to either strictly rural or urban areas.
Manufacturing jobs continue to provide above-average wages, especially for skilled positions that require on-the-job training but not college degrees. Among workers without a four-year college degree, manufacturing workers earn $150 more per week than in other industries. On average, an econometric analysis finds that workers in manufacturing earn 9 percent more per week than workers in other economic sectors, holding other differences between workers equal. However, plummeting manufacturing unionization in the Rust Belt over the past twenty-five years (from 28.4 to 14.5 percent) has shrunk the real wage advantage of manufacturing jobs from $220 to $170 per week in the crucial region.
The manufacturing sector must address major workforce challenges if it is to experience a revival. The aging of the manufacturing workforce will create a shortage of as many as 2 million qualified manufacturing workers, especially among skilled manufacturing positions such as industrial mechanics (paying $51,890 per year and expected to add 18 percent more positions over the next ten years) and operators of computer-controlled machine tools needed for advanced means of production (paying $39,500 and growing by 17.5 percent over ten years). Yet, only 13 percent of manufacturers recruit at high schools despite a coming workforce shortage that could be met by a new generation of high school graduates. Despite conventional wisdom, manufacturing is not a white male field. Hispanic workers (16.1 percent of all manufacturing workers) and Asian workers (6.8 percent) are just as likely to work in manufacturing as any other field. African-Americans represent 10 percent of manufacturing workers, only slightly less than their 12 percent share of the overall workforce. However, manufacturing has a much larger gender gap, which got worse during the recession, with women dropping from 32 to 27 percent of those on manufacturing payrolls.
The rebound since the recession demonstrates that there is indeed hope for a revival of the manufacturing sector and of good manufacturing jobs. This is no small matter for an economy with flagging productivity and a declining share of worldwide innovation. Indeed, families in communities across the country, especially those in a cluster of twenty states in the Midwest and Southeast, are counting on that continued economic revival. The workforce and economic challenges in the way of further reshoring and renewal of manufacturing jobs are real, and require a dynamic high road recovery model and policies.
The Recent Focus on Manufacturing
The 2016 presidential campaign brought about a startling transformation in the nation’s conversation about the economy, circling around the deep economic anxiety of millions of voters in Midwest states. President-elect Donald Trump declared in his Republican National Committee speech that “I am going to bring our jobs back to Ohio and to America,” while famously attacking unfair trade deals.7 Democratic candidate Bernie Sanders asserted that free trade agreements have led to a loss of American jobs and depressed American wages, and that policies should make it harder for companies to outsource jobs to China and other countries. As president, Trump publicly intervened to reverse some of the planned Carrier plant closure outside of Indianapolis (although the company kept far fewer jobs than he claimed) launched a Manufacturing Jobs Initiative, and traveled to a former auto plant to announce new policies meant to ease regulations on U.S. auto manufacturers.
The focus on manufacturing in the 2016 election was not brand new, politically. Communities have long fought to retain manufacturing capacity. They have counted on manufacturing to provide family-sustaining jobs. Factories require numerous inputs to produce their goods with their impact multiplying throughout the economy and supporting employment and the tax bases. When manufacturing is healthy, its impact reverberates nationally. Manufacturers spend more on research and development, creating the potential for new products that can make the U.S. economy more competitive and increase prosperity for all Americans. And, the success of U.S. manufacturers would shrink the size of the trade deficit, which would increase incomes for Americans.
What was new in 2016 was the intensity of the focus on manufacturing revitalization as a cornerstone of economic policy. Economic thinkers across the political spectrum had relegated manufacturing to a smaller role in the nation’s economic future, with the economy naturally evolving from agriculture to manufacturing to services as technology advanced.8 Indeed, manufacturing employment as a share of the nation’s total employment has been shrinking for decades, and it endured a precipitous decline from 2000 to 2010.
The modest recovery since 2010, however, suggests a different future is possible, one in which manufacturing remains an engine of innovation and economic growth in the economy and a provider of quality jobs—especially in Heartland communities, which have long been dependent on manufacturing jobs. The fact that two successive presidents—Obama and Trump—won election by committing on the campaign trail to advance policies to rebuild manufacturing is evidence that the public, if not the economic elite, believes in a future for manufacturing. And indeed, polls after the election found that 64 percent of American voters agreed that “manufacturing is a critical part of the American economy and we need a manufacturing base here if this country and our children are to thrive in the future.”9
The goal of this report is to examine to what extent the data about manufacturing conform to the views of the voters. The aim is to provide contemporary look at the assumptions about the value of manufacturing from the vantage point of the needs of communities that have depended on manufacturing jobs, and the workers who have looked to manufacturing as a source of a living wage career.
Status Check: Manufacturing Today
Any conversation about the future of manufacturing must be rooted in a close look at the state of manufacturing today.
Manufacturing is still recovering from the unprecedented decline in jobs since 2000. Figure 1 looks at the level of manufacturing employment and manufacturing’s share of the private workforce. After holding steady at between 17 million and 18 million jobs for the past three decades of the twentieth century, manufacturing employment plummeted by 5.7 million jobs (a 33 percent decline) in the first decade of the twenty-first century, before gaining back 945,000 jobs by May 2017 (8 percent growth). Many manufacturing employers closed up shop, shutting down 56,000 establishments from 2000 to 2010.10 Small establishments with fewer than 49 employees (37,000 establishments closed) were hurt the most, and have yet to bounce back. The manufacturing recovery has stabilized the share of manufacturing jobs at a level of about 10 percent of all private jobs. After the 2001 recession, while the rest of the economy grew, manufacturing jobs continued to decline. In contrast, during the recent recovery (2010–2016), manufacturing has grown alongside the rest of the economy. In other words, the recovery of manufacturing since 2010 has meant a change in the trajectory of the sector.
Manufacturing remains a major employer of workers in the economy: Figure 2 shows current manufacturing employment in comparison to other large sectors in the economy. The sharp decline in employment since 2000 caused manufacturing to lose its long-standing place as the number one employer of U.S. workers, with the sector falling behind retail jobs in 2003, health care in 2004, and accommodation and food services in 2008. Outside of these service sectors (two of which are low-paid, and one which is a mix of high-wage and low-wage jobs), manufacturing companies still directly employ more workers in 2017 than many other sectors, such as construction and finance.
The U.S. is the world’s second-largest manufacturer. China surpassed the United States as the largest manufacturing country in 2010 and, as a result of a larger population and increasing manufacturing intensity, it now has a dominant share of global manufacturing output.11 However, as demonstrated in Figure 3, the United States remains firmly the second-largest manufacturer in the world, as measured by its share of the global value added in manufacturing, and is not likely to cede that position in years to come. Manufacturers add value by combining components into final products that are worth more than those components alone, and it is this added value that corresponds to manufacturing’s share of gross domestic product and national wealth.12
Looking Deeper—Promising Manufacturing Subsectors
Every corner of the manufacturing sector hemorrhaged jobs during the first decade of this century. Figure 4 shows in detail the change in employment in manufacturing subsectors in the manufacturing “double recession” (2000–2010) and the modest economic recovery (2010–2016). While all subsectors declined during the recession, the recovery, however, displays a divergence, in which durable goods are favored over nondurable goods. In general, durable goods tend to be heavier and more expensive to ship, making domestic production more competitive for the U.S. market; U.S. producers of lighter nondurable goods have a more difficult time competing.13 The durable sector also includes subsectors—aircraft, cars, machinery, and medical equipment—that tend to have more complex production processes, that require greater levels of worker skills for production, and that need access to capital-intensive technology.14 Most subsectors for nondurable goods—clothing, paper products, and so on—have continued to decline during the broader manufacturing recovery. The major exception is food processing. From an economic perspective, the food processing subsector benefits from easy access to raw inputs and to the U.S. consumer market, and favorable trade and economic policies boost U.S. food producers more than other manufacturers.
The recent era of turbulence in manufacturing in the United States has also seen a transformation in what manufacturing typically means. The U.S. Census Bureau defines manufacturing as “establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products…. Establishments in the Manufacturing sector are often described as plants, factories, or mills and characteristically use power-driven machines and materials-handling equipment.”15 This definition encompasses a broader range of activities than conventional images of sweatshops or billowing smokestacks. Today’s manufacturing facilities are increasingly clean-technology-rich environments in which workers operate machines, many of which are computer controlled.16 Frequently, regional economic development strategies list advanced manufacturing as a discrete sector that they are targeting for growth. In fact, even traditional manufacturing industries, such as automobiles or steel, are dependent on advanced technology. The average car runs on millions of lines of software code and traditional industries such as steel have based their recovery on capital-intensive technology.17
Case Western Reserve University economist Susan Helper offers a useful perspective on the state of manufacturing today.18 The United States has maintained a competitive edge in a constellation of major industries, such as automobiles, aerospace and chemicals. Each of these industries depends on an ecosystem of suppliers, including fabricators of components. Entire manufacturing subsectors are in fact in competition globally with other similar sectors located in Asia and Europe.19 The ability of both manufacturers and their suppliers (large, medium, and small) to improve their productivity is a central and yet often overlooked determinant of manufacturing revitalization.
The future of manufacturing depends on fostering these sectors, regaining our leadership in high-tech areas, and capturing new waves of innovation and products for U.S. producers. There is cause for concern, however—the United States is losing its edge in sectors such as computer and electronics manufacturing, as Asian manufacturers have developed an ecosystem that has enabled them to design and produce advanced semiconductors, solar panels, personal computers and other complex goods. The United States now has $83 billion trade deficit in advanced technology products, double what it was a decade ago.20
Is a Continued Decline of U.S. Manufacturing Inevitable?
There is a growing economic debate about whether the decline in manufacturing jobs is an immutable result of increasing automation and forces of globalization, or a result of intentional policy choices, such as trade agreements. If policy choices bear more responsibility for fueling the erosion of the U.S. industrial core, then there is a case for pursuing a national and regional manufacturing strategy. If the decline is due to exogenous forces such as automation, then there is little policy makers can do to reverse the decline in employment and production.
As manufacturing has gained political relevance in recent years, prominent observers such as economist Brad DeLong have pushed back on the trade-based explanation, concluding that “most of the decline in the manufacturing employment share was inevitable.”21 In this view, productivity increases have ravaged manufacturing jobs in the same way they did to agriculture a century and a half ago, leaving a sector that still contributes a meaningful share of economic output, but with exponentially fewer workers. A Ball State University report focused on the fact that manufacturing output has recovered to pre-recession level with millions of fewer workers. The report concluded that manufacturing sector would have 8.1 million more workers if productivity was at 2000 levels, but manufacturers do not need those workers to produce robust levels of output, given advances in automation.22 The report’s conclusion is that the manufacturing sector is healthy, but automated.
There is a major flaw in this line of the argument. Nearly all of productivity growth that did occur in manufacturing from 2000 to 2015 was concentrated in one subsector: computer and electronic products. Most of this reported productivity growth was an anomaly, a result of the way the government calculates the value added of increasingly higher-powered computer chips.23 With computer chips becoming more and more powerful, each computer component created was counted as adding large amounts of economic output. From 2000 to 2015, the government reported that real output in the computer and electronic products sector grew by 222 percent, while the other eighteen manufacturing subsectors have seen their real value-added increase by just 7 percent.24 In fact, productivity growth has slowed over the past decade as compared to the decades of the 1970s to the 2000s, when manufacturing employment held steady and productivity grew at a steady clip.25 During the recent period of decline, the problem has been exactly the opposite of what the Ball State team posited: productivity growth has slowed, making U.S. manufacturers less competitive, and employing far fewer workers.26
The technology-based explanations do not adequately explain the especially sharp decline in manufacturing jobs from 2000 to 2015. What has changed dramatically over the past two decades has been the increase in global competition, particularly with China. On the heels of China’s admission into the World Trade Organization, and granting it permanent favored-nation trading status, the U.S. trade deficit with China grew from $83 billion in 2001, to $347 billion in 2016.27 And trade with Mexico went from being balanced in 1994, before the ratification of NAFTA, to a $63 billion deficit in 2016.28 The deficit with China was more damaging than the dollar figures indicate, however, as it coincides with the move of complete industries overseas, not just the creation of competitive sources for component parts for U.S. manufacturers.29 In a careful study, MIT economist David Autor found that areas of the country exposed to China lost 2.4 million jobs and experienced overall declines in income and well-being, as industries fled, never to be replaced.30 Other economic estimates indicate that half or more of the manufacturing jobs lost this century were due to trade.31
Increasing technology and levels of manufacturing employment do not need to be inversely correlated. A full embrace of technology could allow the United States to be a leader in producing the next generation of advanced manufacturing goods and advanced materials. While these products may not be as labor-intensive as manufacturing products were in the past, the growth of these sectors would produce skilled technical and production jobs—jobs that would simply not exist if the country takes a laissez-faire approach to manufacturing. A strategy for pursuing advanced technology in manufacturing has been in place for many years in Japan and Germany, who have maintained a trade surplus in manufactured goods by investing in strategic sectors that require an increasing portion of high- and middle-skill labor as a share of value added. Fair trade policies, especially those that stop countries from using government subsidies to undercut viable U.S. industries, could be a key part of continuing the momentum built by U.S. manufacturers.
Can Manufacturing Jobs Come Back from Overseas?
Is it realistic to expect manufacturers to bring back jobs from China and other countries, as President Trump has claimed he will do? The Reshoring Initiative estimates that 67,000 jobs were brought back to the United States in 2015—more than the number of jobs offshored that year.32 Reshoring can also occur when foreign-based multinationals invest in U.S. production. Indeed, Department of Commerce data show an unprecedented $243 billion in foreign direct investment in U.S. manufacturing, well above the recent inflation-adjusted peaks in 2001 and 2006 (see Figure 5).33
When all the costs of offshoring are considered, it can be in fact more expensive to produce goods overseas, even if the sticker price of a globally sourced product is cheaper. An analysis of the total cost of production ownership reveals the hidden costs of outsourcing, such as long shipping times, which increase the risk of oversupply or shortages; quality problems with imported goods; and the higher costs of quality assurance and knowledge transfer when using a foreign producer.34 Data from users of the Reshoring Initiative’s total cost of ownership tool found that only 3 percent of U.S. firms were competitive in price when compared to Chinese imported goods, but 55 percent of U.S. firms were competitive using the total cost of ownership method.35
While there are economic forces facilitating reshoring, there are also those working against a manufacturing renaissance. Wages in China have increased by 225 percent in the past decade, narrowing the gap between U.S. and Chinese production costs.36 However, the U.S. dollar has risen by 15 percent against the Yuan since 2013, and over that time, the dollar has gained 44 percent against the Mexican peso, making U.S. exporters less competitive.37 Most important, shipping costs have dropped to historically low levels, after reaching record highs in 2008.38 With these economic forces, further reshoring will depend on efforts by government and corporations to push forward on reshoring, by making U.S. firms innovative, productive, and cost-competitive; and push against offshoring, by ending tax incentives to offshore, and by changing corporate culture to prioritize domestic production when it is economically feasible with additional technology investments.39
Reshoring is not a parochial concern of manufacturing advocates. A persistent complaint about the current economic recovery is that the economy has grown at a disappointing clip of just 2 percent per year, compared to previous economic cycles when the economy touched growth rates of 3–4 percent.40 In 2016, the trade deficit of $481 billion alone shaved off 2.6 percent from U.S. GDP. The yawning trade deficit in goods (-$750 billion) overwhelms the growing but still smaller trade surplus in services (+$250 billion).41 The large trade deficit is not an inevitable outcome of an industrialized nation like the United States. Advanced, developed nations typically make and create capital goods, which are then exported to developing nations, who then produce products for domestic consumption and export. The problem is that the United States has steadily increased its consumption of imported consumer apparel, electronics, and industrial components, with no corresponding increase in advanced manufactured goods. While the U.S. consumers have benefited from low-priced imported goods, those goods have been at the cost of increasing debt with other nations (especially China) that will eventually have to be paid back through increased ownership of U.S. assets by foreign nations or higher prices (inflation).42
Other industrialized nations have maintained a positive trade balance—such as Germany (whose trade surplus is 7.6 percent of GDP) and Japan (whose trade surplus is 3.76 percent of GDP)—even as China and other Asian nations have grown their industrial capacity. They have done that through national industrial policies that cultivate sectors where advantages in innovation can sustain high wages. A reasonable goal for U.S. manufacturing would be to produce an additional $380 billion in output per year through increased imports or decreased exports that can bring the U.S. trade back into balance, which would equate to 2.7 million more manufacturing jobs (about half of what has been lost).43 While this would not restore the manufacturing sector back to its end of the twentieth-century level in terms of employment, it represents an achievable, positive national target.
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