Editor’s Note: In the past, point-counterpoint articles presented both sides of an issue and then continued with an argumentative essay on which side makes more sense based on the facts presented. And then the blog was born.
So I’m suggesting that we do this in a different way—present point and counterpoint in a blog and then open it up to you, the reader, to make conclusions based on the data presented and, of course, your own experiences (and biases). Are you game?
A Quick Intro:
According to the Bureau of Labor Statistics (BLS), 7,231,000 manufacturing jobs were lost to offshoring, a 37% decrease, since 1979. There were 19,553,000 U.S. manufacturing jobs in June 1979, and by April 2015, the number of jobs plummeted to 12,322,000. In addition, the U.S. Census Bureau reports that the medial household income of a high-school graduate peaked in 1973 at $56,395 (in 2013 dollars), compared with $40,701 by 2013, a drop of almost 28%. Of course, manufacturing represents many industries. For example, according to BLS figures, between 1978 and 2007, textiles lost 67% of jobs, garments 78%, and computers and electronics, 35%.
The loss of jobs has not meant a corresponding loss in productivity, however. Between 1987 and 2007, the manufacturing sector saw an overall productivity increase of 181%, spurred primarily by the electronics/computer segment. And it is that segment that has seen the greatest offshore exodus.
So here we are in 2016. We hear politicians blame corporations, corporations blame NAFTA, and citizens blame all of the above for the dramatic loss of work. We also hear that these jobs will never come back, or they are in the process of returning in droves, depending on who’s talking. There are the naysayers, who are sure the jobs will never come back, while others cite the number of re-shored jobs in the past few years. It may not be quite so black and white.
Point: Manufacturing will not return
The strongest evidence that the jobs we knew aren’t coming back is that the factories have started to return. A still small, but growing, roster of companies are returning, but they aren’t bringing back the jobs we lost. These resurrected factories are as fully automated as possible, and they employ a small number of workers as they did just a few years ago.
Since the end of the last recession in 2009, manufacturing output, adjusted for inflation, is up more than 20%. This is based on both re-shoring and pent-up domestic demand. Common sense then indicates that employment should mirror the rise in output but it doesn’t. Instead the sector’s employment is up a mere 5%. The growth is in production, but it isn’t translating to jobs. This trend continues.
And the jobs that are available from the re-shored companies are, for the most part, not your father’s or grandfather’s factory jobs that were coveted through generations, offering great pay and benefits, and longevity. Now the jobs that are finding their way home are coming primarily to right-to-work states, where labor unions are less active and wages are low. Average production wages are lower (adjusted for inflation) than they were 30 years ago. Some of the jobs returning are good jobs, but too many just aren’t.
According to the National Employment Law Project, today 600,000 manufacturing workers make $9.60 an hour or less, and 25% make $11.91. Manufacturing workers now make almost 8% less than the median wage for all occupations, and indications are that they are still declining.
We seem to be confused about jobs coming back. Production may come back, however the manufacturing jobs we remember won’t.
Counterpoint—Manufacturing will return
“Made in the U.S.A.” has always been a mantra—and it has resurged lately. Some say the number of manufacturing jobs that are returning to the U.S.—or coming to the U.S. for the first time—from overseas is at record levels. According to the Reshoring Initiative, 60,000 manufacturing jobs were added in the U.S. in 2014, compared to a mere 12,000 in 2003. This represents re-shoring, or foreign investment, in the U.S. where they bring production here. Approximately 50,000 jobs were “offshored” in 2014, down from approximately 150,000 in 2003. So the net increase is 10,000 jobs for the year. It was, however, the first net gain in the past 20 years. The Initiative’s founder, Harry Moser, recently indicated that there were between three million and four million manufacturing jobs offshore, and those in China especially are seeing escalating labor costs to the tune of 15-20% annually.
Companies are also finding value in making their products closer to their customers. Shipping costs are a major consideration, as are import duties and quality control. Many companies are said to be driving the return of manufacturing to the U.S., including:
- Wal-Mart: It claimed in 2013 it would purchase an additional $250 billion of U.S. products over next 10 years, an amount that Boston Consulting Group claims could fund up to one million American jobs.
- Apple: It is also pushing a "Made in the U.S.A" effort and said it would bring some Mac production to the U.S. with an investment of $100 million.
- The Manufacturing Institute: It indicates that American wages, raw materials and capital costs (excluding taxes, regulatory compliance and other “structural" costs), is 9% lower than the average raw cost of production among America’s nine largest trading partners. This compares to costs being 20% higher in 2003.
- The Reshoring Initiative: This nonprofit trade organization claims that 100,000 manufacturing jobs have returned to the U.S. from overseas in the past five years, and 60% are from China. Adding U.S. plant openings by foreign direct investment from those headquartered elsewhere, the number jumps to 2.5 times that number.
- Boston Consulting Group: It conducted a 2015 survey of U.S. manufacturing executives, and 31% say their companies are actively re-shoring and production had increased by 9% since the previous year’s survey, and 250% since 2012.
Evidence that it isn’t all rosy
Three top companies are continually touted as bringing work back, including Caterpillar, GM and GE. Each has re-shored some of their manufacturing during the past few years.
For example, Caterpillar claims it re-shored 2,100 jobs from Japan and Mexico to Georgia and Texas. The company’s Victoria plant that manufactured hydraulic excavators since 2012 will now add vocational truck manufacturing. In 2013, the company opened a brand-new facility just outside of Athens, Georgia. The new facility will shift manufacturing jobs from Japan and employ roughly 1,400 Americans building tractors and excavators. But that’s not the whole story.
Caterpillar also announced a series of painful cuts on January 29, 2016 that affects five facilities and 670 jobs in Illinois and other states. In September 2015, Caterpillar announced it would reduce its global workforce by 10,000. Half of the cuts affect management and salaried employees, and the other half will come from the consolidation of 20 of the company’s 103 manufacturing facilities globally. Between September 2014 and March 30, 2015, it had laid off 5,300 workers. Puts that re-shoring in perspective, doesn’t it?
General Motors is also claiming that it re-shored 2,345 workers from Canada and Mexico to Tennessee and Michigan. On October 23, 2015, GM announced it would cut the second shift at its Detroit Orion Assembly plant, eliminating approximately 500 hourly jobs. It did offer to move the workers to the Detroit-Hamtramck Assembly plant, as the facility was adding more than 1,200 jobs. According to the company, GM has approximately 54,000 factory workers and needs 40,500. Some took early retirement offers, however, 7,500 too few—indicating more layoffs.
General Electric claims 2,656 re-shored jobs from China and Mexico benefitted workers in Kentucky, New York and Ohio. As far back as 2009, GE claimed it would manufacture water heaters in the U.S. based on rising labor costs in China and high international shipping prices. The company is now manufacturing light bulbs in Ohio and high-energy density batteries in New York. In January 2016, however, the company announced it would move its global headquarters to Boston. It also announced the layoff of 59 aviation engineers in Lynn. The company indicated that due to its level of engine development, it would not be able to maintain its level of 4,352 engineers in the U.S. An additional 238 engineers in Cincinnati are also being laid off. In Erie, PA, the company has already laid off 400 hourly workers at its Lawrence Park Plant. Citing lower expected production volumes in 2016, the 400 layoffs are just the first installment, which are expected to total 1,500 workers.
Re-shoring is based on a ready-and-able work force and projections on labor costs. The $15 minimum wage threatens to affect 5.3 million U.S. manufacturing jobs, the number of workers that made less than $15 an hour in 2014—and 35% of all manufacturing workers.
So I’m asking for your input. What do you see and why? Are we doomed to have factories with robots running the show? What impact will the $15 minimum wage have? Please share your thoughts with me—let’s get a discussion going.