The Face Of American Manufacturing

It should surprise nobody to learn that the number of U.S. workers employed in manufacturing has been on the decline over the past decade, with annual employment dropping from 17 million in 1997 to just over 14 million in 2006. Those are the hard, fast numbers that the U.S. Department of Labor's Bureau of Labor Statistics (BLS) compiles, and for some industry observers, those are the only numbers that are relevant to a discussion of the future of manufacturing in the United States. But what exactly is manufacturing? Are the people who make products for U.S. companies being paid more, or less, than they used to be? Are they better educated, or less so? What about their productivity -- is there any evidence that today's manufacturing workforce is doing a better job at making stuff than previous generations of workers? And what happened to those 3 million jobs, anyway? Let's find out.

First of all, "manufacturing" as defined by the BLS refers to "establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products." That includes all the industries typically thought of as manufacturers based on the North American Industry Classification System (NAICS) codes, including food, beverage and tobacco; textiles; apparel; leather and wood products; paper and printing; petroleum and coal; chemicals; plastics and rubber products; metals and fabricated metal products; nonmetallic mineral products; machinery; computers and electronic products; electrical equipment and components; transportation equipment; and furniture.

Manufacturing Jobs Are Down
Employees (in millions)

Source: U.S. Dept. of Labor, Bureau of Labor StatisticsThe dramatic decline in manufacturing jobs is a relatively recent development. Over a 20-year period from 1982-2001, according to BLS statistics, the number of people employed in manufacturing in the U.S. fluctuated modestly between 16 million and 18 million. It wasn't until the recession at the beginning of this century that employment dipped into the 15 millions and then into the 14 millions. Thanks to a steady dip throughout this decade, it's quite likely that manufacturing employment could drop into the high 13 millions by the end of 2007; preliminary numbers for March 2007 put the total at 14.03 million, the lowest employment level since 1950, more than a half-century ago.

Total employment figures only tell part of the story, though. The percentage of U.S. workers employed in manufacturing has dropped from 16.5% in 1987 to 10.8% today. Even so, as the National Association of Manufacturers (NAM) points out, when you consider that manufacturing accounts for $1.5 trillion in gross domestic product (GDP), if U.S. manufacturing was a country, it would be the eighth largest economy in the world. In fact, three manufacturing sectors -- food and beverage, computers and high-tech, and transportation/motor vehicles -- account for roughly 30% of the total manufacturing GDP.

Productivity Is Up
Percent change from previous year

Source: U.S. Dept. of Labor, Bureau of Labor StatisticsThe most significant counterbalance to the drop in total employment has been the dramatic rise in productivity. Indeed, during the recession years, productivity (as measured by output per hour) rose by 7.0% in 2002 and 6.2% in 2003. According to NAM, over the past two decades, manufacturing productivity has grown by 94%, considerably faster than the rest of the U.S. business sector, where productivity grew by 38% over the same period.

Although the total number of people employed in the manufacturing industry continues to shrink, their compensation has been on a steady rise, evidence that productivity pays off in terms of higher salaries. As of 2005, the average full-time manufacturing employee earned $50,180, according to the U.S. Department of Commerce's Bureau of Economic Analysis (BEA). That represents an 11.8% gain since 2002. The typical manufacturing manager earns $106,588, according to the IndustryWeek 2007 Salary Survey.

Production workers tend to be much better educated than their counterparts of years past. The NAM cites statistics that indicate the number of high school graduates working at manufacturing facilities has steadily risen by 10% over the past three decades. Today, nearly 50% of production workers finished high school, and roughly 25% have attended college, though less than 10% have degrees.

Salaries Are On The Rise
Average hourly earnings of production workers

Source: U.S. Dept. of Labor, Bureau of Labor StatisticsHowever, as production becomes more specialized and more reliant on precision machining, there is concern of a widening skills gap between what young people are learning in school and the specific needs of manufacturers. According to a NAM/Deloitte Consulting study, 80% of manufacturers anticipate a shortage of skilled production workers over the next couple years, while 35% believe there will also be shortage of scientists and engineers.

Where The Jobs Are Average manufacturing employment by state (in thousands)
1	California	1,504.5
2	Texas	926.3
3	Ohio	796.8
4	Illinois	683.0
5	Pennsylvania	671.9
6	Michigan	648.4
7	New York	567.9
8	Indiana	565.9
9	North Carolina	553.3
10	Wisconsin	505.0
11	Georgia	448.8
12	Florida	402.7
13	Tennessee	400.1
14	Minnesota	347.4
15	New Jersey	325.0
16	Missouri	306.8
17	Alabama	303.1
18	Massachusetts	299.0
19	Virginia	288.7
20	Washington	286.0
21	Kentucky	261.4
22	South Carolina	251.6
23	Iowa	231.1
24	Oregon	206.8
25	Arkansas	199.0
26	Connecticut	193.8
27	Arizona	187.3
28	Kansas	182.8
29	Mississippi	175.7
30	Louisiana	152.4
31	Colorado	149.3
32	Oklahoma	149.1
33	Maryland	136.4
34	Utah	122.7
35	Nebraska	101.6
36	New Hampshire	77.1
37	Idaho	66.1
38	West Virginia	61.0
39	Maine	60.2
40	Rhode Island	52.7
41	Nevada	50.5
42	South Dakota	41.5
43	New Mexico	37.7
44	Vermont	36.1
45	Delaware	33.5
46	North Dakota	26.1
47	Montana	20.2
48	Hawaii	15.2
49	Alaska	13.1
50	Wyoming	10.1
U.S. Dept. of Labor, Bureau of Labor Statistics, 2006 data

In terms of demographics, more than 10% (1.5 million) of the country's manufacturing employees work in California. Texas comes in second place with just under 900,000 employees, followed by the traditional Rust Belt states: Ohio, Illinois, Pennsylvania and Michigan. Nearly every state lost manufacturing jobs during the recession earlier this decade, with the exception of Alaska (percentage-wise, the fastest growing state for manufacturing, though total numbers still have Alaska in 49th place), Nevada and North Dakota.

During the recession years 2001-2004, 34 states saw a double-digit drop in total manufacturing employment, but since then, according to the BLS, employment has stabilized in most parts of the country. In the past couple years, 23 states have seen employment gains, and only 12 states saw their employment drop by more than 1%. Percentage-wise, the two hardest hit have been Michigan (3.1%) and Rhode Island (3.0%)

Over the past decade, again according to the BLS, although the total number of women employed in manufacturing has fallen, the total percentage of women in manufacturing has actually risen by 2%, from 29% to 31% of the workforce. When it comes to running their own companies, while women have at least 51% ownership of roughly 30% of all companies in the United States, their interest in owning manufacturing companies is extremely small. According to the Center for Women's Business Research, of the 7.7 million companies owned by women, only 0.1% of those are manufacturing firms, or fewer than 8,000 firms.

Perhaps the single-most controversial question facing the U.S. manufacturing sector is: Are the 3 million manufacturing jobs lost since the recession due to increases in productivity, or due to foreign trade imbalance? As you might expect, there is no clear answer to that question. According to the BEA, foreign investment in U.S. manufacturing is roughly $100 billion more than U.S. investment in foreign manufacturing. NAM estimates that one in 12 U.S. production workers is employed by a foreign-owned company. Thanks to its open-market policies, the United States also attracts more foreign investment overall than any other country, including China. Seen in that light, the United States seems to be doing just fine by global trade.

On the other hand, there's the trade deficit -- $765 billion in 2006 -- and contained within that amount is another number -- $232 billion -- which represents the United States' trade deficit with China alone, an all-time high for U.S. trade imbalance. What's more, based on current trends, China is poised to overtake the U.S. by the end of 2007 to become the world's second-leading exporter of goods, behind Germany (and pundits likewise predict China could overtake Germany by 2008).

Many of the millions of laid-off production workers in recent years ended up shifting into lower-salaried service jobs, while U.S. manufacturers relocated production facilities to low-cost countries. That strategy helped shorten the recession in the short term, but there's a real fear that in the long term, U.S. manufacturing may be mortgaging its future by permanently offshoring production. Many are hopeful that the Bush Administration, prodded by the new Democrat-led Congress, will respond to U.S. manufacturing's plight by getting tougher on China's trading practices.

In any event, the United States remains the largest manufacturer in the world in terms of total output, and while the country faces numerous challenges both domestic and abroad, that No. 1 status is not likely to change any time soon.

For Further Information

Center for Women's Business Research
www.cfwbr.org

National Association of Manufacturers
www.nam.org

U.S. Dept. of Commerce, Bureau of Economic Analysis
www.bea.gov

U.S. Dept. of Labor, Bureau of Labor Statistics
www.bls.gov