We have all been exposed to the current doom and gloom about the state of manufacturing in the United States. We see the stories in the media about manufacturers shutting down plants and eliminating thousands of jobs. Young people today are seldom encouraged to look at manufacturing as a career choice. Should we all just abandon manufacturing and become part of the service economy? I don’t think so.
Looking at U.S. Census Bureau data for the 29-year period from 1977 through 2005, a whole different story is told, although with some downside as well. The number of people employed in manufacturing companies in 1977 was over 18.5 million but employment declined almost 29% by 2005 to just over 13 million. The number of hours worked by production operators also declined by the same amount to just over 18 billion.
This paints a distressing picture of a shrinking manufacturing sector, but there is an offset to this decline. Over the same period, the value added by manufacturing operations in the United States
increased 377% from $585 billion to over $2.2 trillion, and manufacturers’ sales increased 349%. The combination of increased value-add and reduced production hours results in the manufacturing value-add per production worker hour increasing by 530%.
What this data shows is that manufacturing is certainly not dead, and we should not be willing to just write it off. With sales up almost 3.5 times and the value-add up by a factor of 3.7 while employment and production hours decline, this is a story of productivity increasing, not manufacturing shrinking. Thomas Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, in a recent issue of Quality Digest states that manufacturing value-add has grown sevenfold since 1947, the same as the growth of the nation’s gross domestic product.
There are two key drivers in this increase in productivity. One is the more widespread adoption of continuous improvement to make the manufacturing process more efficient, and the other is the increased use of capital. In the early 1980s, people became aware of the Japanese manufacturing technique called just-in-time production and started to learn about it. Today, more and more manufacturers are adopting lean as a business system and are using continuous improvement as a key driver of productivity increases in their businesses.
During the 29-year period of the Census data, capital investment in manufacturing companies increased from $51.9 billion to more than $128.3 billion, almost 2.5 times the investment in 1977. When you look at this in relation to the number of production hours worked, it’s an increase of almost 3.5 times from $1,945 per production operator hour to $6,729 per hour. This increase in the use of capital instead of production labor, along with the wider adoption of continuous improvement and lean techniques, has resulted in the reduction of manufacturing employment and production hours worked, while manufacturing company sales and value-adding work continue to increase.
This has also yielded much higher wages for the people still employed in manufacturing. The wages paid to production workers rose from just over $157 billion in 1977 to almost $337.5 billion in 2005. The average hourly wage (not including benefits) rose from $5.89 per hour to $17.70 an hour over this period. This is why we keep talking about manufacturing jobs helping create the middle class in the United States. These wages are much higher than the service sector.
What else does this data tell us? We are seeing higher skilled production operators now making higher-value products with much more capital-intensive equipment than in the past. The lower-value commodity consumer products are being sourced from low-cost countries. Having higher-skilled manufacturing workers using continuous-improvement techniques to increase productivity and using more expensive (and more capable) capital equipment contributes to lower manufacturing employment but higher value-add per employee and higher sales for manufacturers. This is not the story of the death of manufacturing in the United States, just one of change and continuous improvement.