New kind of skilled workers needed to fill manufacturing gap

By Chris Kuehl, Fabricators & Manufacturers Association, International November 18, 2009

The dominant mood among those in political power is one of continued crisis. Every day brings a new and greater challenge that only the wise heads of government can hope to solve. The manufacturing sector has not been immune to this approach as every utterance from the Obama White House paints a grim future for manufacturing in the U.S. Comments from the new manufacturing czar, Ron Bloom, are nearly as bleak. The implication is that the U.S. is rapidly losing its ability to compete in the world and that only draconian steps will save it.

This is the motivation behind the various attempts to impose barriers and tariffs. The U.S. can’t possibly compete in the global tire market without protection and that justifies a 35% tariff on Chinese-made tires. This move is causing the Chinese to retaliate but that is ignored (for now). The same logic led to decisions to allow Mexican truckers to move through the U.S., and it has created rifts with Canada and Europe over other product imports.

The facts are not always in support of this position. Any way you slice the data, the U.S. plays a huge role in global manufacturing. In terms of total value of finished goods, the U.S. provides 45%, and if you just look at output compared to the other industrialized states the U.S. contributes the lion’s share.

These are not the figures of a nation that no longer matters in the global manufacturing community. There are at least two major differentiations to note when talking about manufacturing in the U.S. The first is manufacturing from a business perspective and the other involves manufacturing as source of employment. The situation is very different depending on one’s perspective. So are the solutions that might be offered to deal with the issue.

The U.S. manufacturing sector has changed dramatically over the last decade and that change is not solely related to the competitive pressures from Asia and elsewhere. There is no such thing as a unified manufacturing sector as each industrial sector has its own challenges and opportunities. Even in something as sensitive as imports and exports there is no unanimity as one sector gains from imports while another suffers.

Impact on manufacturers

There are very basic trends to note when talking about U.S. manufacturing. The first is that the sector has never been so efficient and productive. The other is that there has never been a time when there are fewer workers needed in the majority of manufacturing sectors.

These developments are not unrelated to one another, but from a political perspective this is problematic. The interest on the part of most serving in government is not related to manufacturing as a going concern (although there is interest in taxing those companies), but in manufacturing as a provider of jobs. Traditionally, the sector was the place that employed those who would be described as low- or semi-skilled and this served as something of a safety valve for the society as a whole.

In some respects, the manufacturing sector covered up some of the endemic failures of the system. Those that had been left behind in the education system could find work in the factories and schools could essentially ignore the needs of the factory sector by assuming that the companies would provide all the on-the-job training themselves.

There are some interesting statistics on the output of U.S. manufacturing in what has been described as one of the most serious recessions in 50 years. The U.S. manufacturing sector produced $1.7 trillion worth of goods in 2008. That is more than the total output of the Russian economy and the amount of these goods that were exported are more than the total output of the Indian economy.

U.S. manufacturing diverse

The U.S. manufacturing community is one of the most diverse in terms of global trade – exporting to every nation on the planet. This is all quite remarkable when one understands that the bulk of what the U.S. manufacturers made is consumed in the U.S. The fact is that the U.S. makes a very wide variety of goods – from the immensely complex like a jet airliner to the very simple.

It is also true that many sectors of the U.S. manufacturing community have shrunk over the years. In some cases the competition from overseas has been too much and plants have been forced to close. This has been especially true in sectors that have been more labor intensive – such as textiles and clothing manufacturing. In other cases the industry has suffered from over capacity and a collapse in demand – the automotive sector comes to mind.

The fact is that the U.S. manufacturing sector is split when it comes to the impact of the influence of global trade. For every company that has seen its markets widen there is one that has been put out of business by the arrival of foreign rivals.

This is what has created some of the challenges as far as employment is concerned. The number of people working in manufacturing was 20 million in 1980 and now that number is about 12 million. There has not been a number this small since the end of World War II. The pattern has been easy to spot for many years now.
Those industries that are labor intensive and don’t require much from their workers except for hard, repetitive labor are migrating to those nations where the cost of that labor is cheaper. These companies have left the U.S. for China and other parts of Asia as well as some nations in Latin America. The companies that feature higher value goods have gone more and more toward technical solutions and robotics. The modern manufacturer is now about as high tech as any industry, which is a trend that will only accelerate.

This leaves the political system with a dilemma. The issue of job creation is at the top of any elected official’s list and in the past that meant support for the local manufacturer. Now that this country is not the job creator it once was, the political equation has been altered. The plant still needs workers, more than ever before, but not the workers it once employed.

There is a serious disconnect between what the modern factory needs and what is being made available in the workforce and here is the challenge to the political decision makers.

Manufacturing is productive and an important part of the U.S. economy, but it needs help to advance. The issue of training and re-training will come to dominate many discussions in the future, but thus far there has been much more in the way of good intentions as opposed to action.

Dr. Chris Kuehl
Economic Analyst
Fabricators & Manufacturers Association, International .