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Economic Impact of the Manufacturing Sector

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Every so often, I get a question about the manufacturing sector. It’s usually driven by concern that the entire sector is going to move offshore and that the industry is too important to our overall economy.
Employment trends certainly show the manufacturing sector is shrinking. It employed 31 percent of the nation’s workforce in 1940 compared with 9 percent in 2010. Part of the decline in manufacturing employment is because of its success in becoming more efficient and productive. Manufacturing firms located in the United States invested $159.7 billion in domestic research and development in 2008, or 68.3 percent of all the domestic R&D investments made that year, according to data from the National Science Foundation.
That R&D leads to new products as well as more efficient processes.
Productivity in the manufacturing sector rose an annual average 3.6 percent from 1989 through 2009 compared to annual gain of 2.3 percent for all nonfarm businesses. With a more productive workforce, not as many workers are needed to produce the same amount, which is causing some of the decline in the nation’s employment base.
But more productive workers get paid more – manufacturing workers were paid an average annualized salary of $55,150 in the first quarter of 2010 compared with an average of $45,640 for all industries.
Of course, offshoring of labor also is causing part of the decline in manufacturing employment. Some firms are moving operations abroad where labor costs are much lower. The competitive advantage of the U.S. has always been our more highly trained and educated workforce. From that perspective, many manufacturing firms that remain in the U.S. use more highly-skilled workers.
Those jobs requiring higher skills, such as a college education, account for 12 percent more of the manufacturing industry’s employment in 2010 than it did in 2003. The group with the lowest skills, such as those with a high school diploma and no on-the-job-training, accounts for 9 percent fewer manufacturing jobs during the same period.
The trend toward a more highly-skilled manufacturing workforce tells me that the industry is transitioning toward one that is likely to show more stability in employment over time and, at some point, will begin to add employment again. In the meantime, the Bureau of Labor Statistics forecasts that manufacturing industries such as medical equipment and pharmaceuticals will be adding jobs in the next 10 years and the total output of the manufacturing industry will increase during the same period.
To remain competitive, we must continue to replace obsolete workforce skills.
Just as the concept of moveably type transformed the productivity of the printing industry, computers have transformed the look of the production floor as well as the type of worker needed.
Reprinted with permission from the Richmond Times-Dispatch.

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