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Manufacturing: it's still the industrial age

Occupational Outlook Quarterly - September 22, 1994

You may find this hard to believe, but manufacturing in the United States is not dead. True, the images of decline come readily to mind. Dilapidated steel mills in Pennsylvania; closed auto plants in Michigan; abandoned apparel factories in North Carolina. These powerful images represent a harsh reality for many workers, but they give an inaccurate picture of U.S. manufacturing. In terms of production, efficiency, and competitiveness, U.S. manufacturing is holding its own. It currently accounts for 30 percent of the Nation's total output of goods and services, only slightly less than its share three decades ago. (See chart 1.) And in coming years, it will remain one of the most dynamic sectors in the economy.

[CHART OMITTED]

Why do so many people think manufacturing is in such bad shape? Undoubtedly, because manufacturing employment has declined. It lost 3 million jobs (14 percent) between 1979 and 1992. Another 400,000 jobs are projected to disappear by 2005. But it still provides employment for over 18 million workers, 1 of every 7 workers in the economy. Furthermore, some parts of the manufacturing sector are thriving.

The size and complexity of the manufacturing sector may obscure the good health of some of its industries. It is difficult to take into account the many different trends affecting manufacturing because it encompasses such a wide variety of industries and jobs. For example, newspapers are part of the manufacturing sector and so, therefore, are most reporters. So are over 280,000 secretaries.

The different industries and occupations in manufacturing are often affected by economic change in contradictory ways. Expanding trade is a boon for some manufacturing industries, while threatening the very existence of others. Similarly, technology is fostering the growth of certain occupations while ushering in the demise of others.

Major Factors Affecting Manufacturing Employment

Manufacturing employment in coming years will be affected by three major forces:

* Changes in domestic demand,

* Increased international trade, and

* Improved productivity.

The domestic market. The health and direction of American manufacturing is still largely determined by consumer demand for goods in the United States. Personal consumption expenditures--what people pay for the goods and services they buy--account for more than 60 percent of the gross domestic product (GDP) and are expected to grow between 1992 and 2005. As the population ages, this consumption will increasingly be directed toward medical supplies and health care products. Demand for housing and household fixtures will also be strong. Purchases by businesses of durable capital equipment, like machine tools, will also be an abiding source of manufacturing jobs in coming years.

In contrast to recent years, however, American manufacturers will not be able to count on strong demand generated by Government spending for national defense. The end of the cold war and corresponding reductions in defense outlays have meant lost jobs for many workers in the manufacturing sector. Although defense spending was a relatively small part of GDP, reductions have had effects throughout the economy, especially in manufacturing industries like shipbuilding, aircraft, ammunition and ordnance, and guided missiles and space vehicles.

International trade. Increasing international trade has been a growing source of demand, as well as anxiety, for U.S. producers in recent years. Manufactured goods accounted for about 80 percent of U.S. merchandise trade in 1990, and this share is projected to grow as more nations develop their manufacturing sectors. Major U.S. trading partners include Canada, Mexico, Japan, the United Kingdom, and Germany. In recent years trade has grown rapidly with Asian nations, especially the newly industrializing economies of Singapore, Hong Kong, South Korea, and Taiwan.

Growing international trade has been made possible by technological advances in transportation, communications, and production. Moreover, the increasing international mobility of capital, technology, and labor has been promoted by a more open trading environment fashioned by agreements like the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA). Although passage of these agreements has often been accompanied by heated debate, they have been ratified largely because most nations see growing, open trade as serving their interests. For example, tennis shoes can be produced at lower cost in nations with relatively low-skilled, low-wage workers. On the other hand, devices like semiconductors require more highly skilled workers to fabricate and are more efficiently produced in nations with an educated work force. When nations trade tennis shoes and semiconductors, each has access to lower priced products than if the same product was produced at home. In this way, consumers are able to purchase lower priced products, and resources are used more efficiently.

Consumers are not the only people affected by growing trade, though. Trade obviously has an important impact on producers as well. When U.S. consumers buy more television sets from abroad, workers in the United States may lose their jobs due to the increased competition. On the other hand, when European countries buy more U.S. computers, chances are that more American workers will be employed to produce them. This is why foreign economic conditions increasingly influence employment in this country. The recent recessions in Japan and Europe have hampered U.S. export growth in spite of the stronger competitiveness of American-made products.

Purchasing and investment decisions by firms also play a large part in determining manufacturing employment in the United States. Just like consumers, firms have a variety of suppliers to choose from. Firms that make plastic products like mugs or Frisbees, for example, can buy their machine tools at home or abroad. U.S. manufacturing jobs increasingly rely on these decisions.

Another important question is site location. When U.S. firms locate production centers in other countries, it detracts from U.S. manufacturing employment. Likewise, when foreign companies manufacture goods in the United States, it adds to manufacturing employment.

In these ways, the international economy is becoming more interconnected at every level, and, with it, trade is becoming a more powerful influence. Growth in trade, however, has not been without its problems. It does not make everyone better off. Prices are lowered on some products and overall employment may even rise, but some workers lose their jobs. They may remain unemployed for long periods, be hired at a lower wage in their next position, or face retirement with a smaller pension than expected. The fear of a continuing decline in manufacturing employment was highlighted during the fierce debate over NAFTA. The intensity of this debate was a telling indicator of the major role that trade has come to play in the U.S. economy and the lives of American workers.

Clearly, international trade means different things to different workers. To an auto worker or a sewing machine operator, it has mostly posed a threat. To some machine tool and computer fabricators, however, it has presented an opportunity. Between 1992 and 2005, exports of American-made goods are projected to grow more rapidly than imports. In this environment, manufacturing firms may be able to take advantage of an increasing number of export opportunities to create jobs, but they must still compete with imports in the U.S. market. The future of American manufacturing depends on the ability of its firms to do both simultaneously.

Productivity. A major factor in determining whether U.S. manufacturers will grow is their ability to increase productivity. Simply defined, labor productivity is a worker's output in a given period. For example, say bagel bakers each produce 320 bagels during an 8-hour day. Their productivity is 40 bagels per hour. Now suppose that a new oven can bake more bagels at a time. This new oven could raise productivity to 50 bagels per hour. Part of this increase in revenue may go to increase wages, another part to pay for the new oven, and the rest to increase the company's profits. In this way, productivity gains can be the basis for a higher standard of living in a community.

Purchasing capital equipment like the new oven is the most common way of improving worker productivity in manufacturing. The increasing use of computer-controlled machine tools and office machines has paid off in productivity gains. Worker productivity can also be augmented through training and education. A well-trained worker is more flexible and capable of fulfilling a number of roles for a company as it adapts to changing market conditions. Reorganizing workplaces can also save time and prevent wasted effort.

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