We have been treated to many articles and theories about the demise of manufacturing in America. However, it is a fact that the percentage of the gross domestic product (GDP) that comes from manufacturing has not changed in the last three decades. But, the number of “manufacturing jobs” has certainly declined in this time period. So let’s look at these two facts together. The value of manufactured products has remained the same but the number of manufacturing jobs has declined. When I was a production manager, if I could produce the same output with fewer resources I got a fat bonus. If this makes sense for a production operation why doesn’t it make sense for the economy as a whole? Why are we wringing our hands over efficiency in manufacturing?
The question of declining manufacturing jobs can be muddled by how we define manufacturing jobs. For example, if I have a janitor at my production facility, he is counted among the manufacturing jobs in the economy. But if I contract the janitorial services to an outside company, they are classified as a service company and their employees are service employees. I have lost manufacturing jobs but have I lost work? Perhaps the “loss of manufacturing jobs” is not necessarily a loss of the work but simply sourcing the work to someone else outside the production facility. How many outside companies do you contract to perform work that used to be performed by your employees?
In the early days of the 20th century as mass production was becoming more widespread, companies were more vertically integrated. They controlled and managed almost the entire production chain from raw materials to shipping the finished product. In a recent article I wrote about “Make or Buy”, I pointed out that in the late 20th century and early 21st century this vertical integration trend began to change as companies began to realize that smaller suppliers could actually make the sub-assemblies and parts more cheaply than the customer company. This spawned the rise of clusters of suppliers sending parts to their customer. The supply chain was extended outside the main production facility. The customer’s production facilities could layoff or reassign workers to other jobs and have an overall cost reduction. (This “Buy” trend has been altered in recent years as companies in new technologies have realized that their suppliers can’t make the parts for them.)
So the question is still there: Are we losing manufacturing jobs? And if so, why?
If manufacturing operation installs CNC machines or robots to improve productivity, there may be a downsizing of the work force. Is this bad? Shareholders would not say so. The remaining labor force has to be retrained to use the new equipment. This requires more education and a high skill level. Is this bad? Well, those employees thrown out of work and not having the necessary skills to move up to the higher paying jobs would say, “yes”.
Is sending low paying semi-skilled or unskilled job to overseas suppliers a bad thing? It reduces the cost of production and makes the final goods more affordable to consumers. Companies are more profitable, share prices rise and shareholders are happy.
All of this good news masks the fact that many former employees no longer have a job. Should we bring back the low paying jobs to employ these semi-skilled workers, or should we retrain them to perform higher skilled and higher paying jobs?
The retraining question has to be addressed by industry, education and government. All three groups have a stake in making productive workers more productive. The government can provide incentives to industry to provide skills training. The manufacturing companies can encourage workers to enhance their job skills and make themselves more valuable with new job skills. The education system can prepare students and workers for higher skilled jobs by providing courses that make it easier for workers to progress to new jobs. Perhaps one can say that the job of education is to show students how to constantly reeducate themselves as they go through life. Education can’t end when you get the diploma.
Let’s ask ourselves the question: Are we losing manufacturing jobs or are we too focused on cost reductions to keep willing employees because it is too much effort to retrain them? You are willing to up-grade a machine to improve its production volume or quality. Are you willing to up-grade an employee to achieve productivity gains?
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