The Economic Overview of Manufacturing

Manufacturing has long been a cornerstone of our national economy.  This crucial sector is central to the creation and retention of good jobs and a good standard of living for working families.  In both larger cities and smaller communities, manufacturing jobs – especially unionized jobs – offer powerful economic benefits.  As a sector, manufacturing firms are especially valuable to the economy because, when they export goods, they bring back to their communities much of the wealth earned from sales around the country and the world. 

The positive effects of a healthy industrial sector spread far beyond manufacturing itself.  Reports from the National Association of Manufacturing (NAM) indicate that each dollar’s worth of manufactured goods creates another $1.43 of activity in other sectors, twice the $.71 multiplier for services.  Also, two thirds of U.S. research and development capacity is concentrated in manufacturing.  Manufacturing has long been a dynamic economic sector, registering remarkably sustained productivity growth.  The Industrial Union Council of the AFL-CIO points out that, "Annual labor productivity growth in manufacturing averaged 2.57 percent in the 1980s and 3.51 percent in the 1990s, compared with .57 percent and .71 percent, respectively, in non-manufacturing sectors."

For regional economies, manufacturing firms – and unionized firms in particular – are an essential building block.  In the communities where these firms are located, manufacturing has traditionally been one of the better-paid economic sectors: Average hourly earnings of production workers in manufacturing were $16.14 in 2004 – markedly higher than the average of $15.67 for production workers in all private industry.  In certain important manufacturing sub-sectors with greater-than-average union densities, these wages are even higher.  The 2004 national average production worker’s wage in Aerospace Products and Parts, for example, was $23.93; in Motor Vehicles it was $ 28.35, and in Iron and Steel Mills it was $23.12. 

In addition to the productivity levels, the good wages and the value multipliers, high-wage manufacturing is critical to communities in other ways.  This sector has been a basic contributor to tax revenues, responsible throughout the 1990s for over one third of all corporate taxes collected by state and local governments.

Manufacturing – despite the job losses it has recently sustained – is still a vital and important sector for regional economies throughout the nation.  More than 14 million people are working in manufacturing today, and many firms report that they are hiring.  Nationwide, manufacturing hiring projections for the second quarter of 2006 are outpacing last year’s numbers, according to the Bureau of National Affairs’ latest quarterly survey.  Prospects are especially bright for manufacturing workers looking for jobs in smaller firms, over one third of which report that they expect to hire in the spring and summer.

The U.S. manufacturing sector today faces serious challenges that cannot be ignored and should not be minimized.  But at the same time, unions and their manufacturing employers are fighting to build and keep these important jobs here at home.  And the public workforce system can be an important contributor to this fight.  The National Association of Manufacturers predicts, for example, that if current trends continue, America will face a shortage of 13 million skilled industrial workers by 2020; manufacturing unions, their employers, and training and public partners are taking steps to guarantee that this gap in our country’s economy does not develop.

At the AFL-CIO Working for America Institute, we have found that innovative strategies can enable employers, unions and the public workforce system to collaborate and ensure that this critical sector keeps growing.  Together, manufacturers, manufacturing unions, and the economic and workforce development advocates who support them can create and improve the programs in education and training necessary to guarantee that manufacturers are able to recruit, retain and advance the skilled employees they need. 

The importance of education and training programs to unionized manufacturers and their workers cannot be overstated.  To remain competitive in a hostile trade environment with a relatively high-wage workforce, manufacturing firms need to maintain a high level of technological innovation.  This imperative makes programs in education and training a priority for action.  In today’s global economy, U.S. manufacturers cannot hope to compete on cost alone; rather they must expand and exploit their advantages in such areas as product design, productivity, flexibility, quality and responsiveness to customer needs.  Because technological changes have impacted every phase of manufacturing, there is a critical need for highly skilled, technically competent workers who can use new technologies, create more complex products, and adapt to new production processes and work organization models.  Whereas U.S. firms may lose large orders based on cost alone, they can retain and grow smaller, specialized orders.  This is where a highly trained, highly motivated worker, who understands the business needs of the employer as well as the realities of the market place, can use his/her knowledge and skills to participate in making the improvements necessary to compete.  Unions, working with their employers, can build high performance work organizations that can put lean manufacturing techniques to work in order to become more efficient and to use the savings achieved to improve or expand product lines.  Such a high performance work organization motivates employees who can self-manage and thus reduce costly supervisory overhead.  The specialized knowledge and skills possessed by those directly performing the work are required for long-term continuous improvements.

Targeted workforce strategies and training programs with unionized manufacturers and their unions can coordinate the training necessary to respond rapidly and flexibly to changes in the demand for skills and, frequently, achieve economies of scale – saving valuable time and resources – through multi-employer, multi-union initiatives.  Workforce investments in incumbent worker training should be tied to the necessary technological and production changes needed by employers.  Workforce strategies should also make use of existing skill standards and credentialing programs in order to ensure that the necessary foundational and specialized skills are being taught by the education and training community.

Workforce strategies need to take into account that not all manufacturing is equal.  Successful partnerships should look to assist those firms (both big and small) that pay good wages, have high productivity and are closely linked to the regional economy.  They can be identified by looking at pay and benefits, efforts to improve the performance of their local facilities, and their exports from the regional economy and purchases from within it.   

Unions are particularly important to creating programs with a multi-employer reach.  By providing the structure needed to identify and coordinate the changing training needs of employers and workers across an industry, unions can contribute to their firms’ bottom line while ensuring that their members have secure high-wage jobs.  In Dallas, for example, the IAM and the UAW work with a consortium of aerospace employers to guarantee that their members are trained and able to respond quickly to the demand for specialized skills in a volatile labor market.  And in Milwaukee, the USW and the IAM play a similar role, benefiting their members, their employers, and their industry.  You will read more about these efforts in the Case Studies section of this Tool Kit.

Such partnerships promote inter-regional cooperation among companies in key sectors of the economy and, by virtue of their existence, help shape public investments and encourage inter-regional purchasing practices.  Thus, investments are targeted to those employers who pay good wages and invest in the local/regional economies. 

By showcasing successful joint labor/management training programs, this Tool Kit can help unionized employers, unions, and their public and training partners enhance the competitiveness of this vital part of our nation’s economy.  The Tool Kit outlines the steps necessary to establish or replicate training partnerships, as well as the basic considerations required to sustain and expand them.  We also include checklists to identify resources that can contribute to a successful joint strategy.

We urge the labor-management partners, and their public workforce and economic development counterparts who use this guide, to think boldly about their common interests in building a high road economy in their regions and communities.  Our objective is to help preserve good jobs by continually modernizing the plants and factories fundamental to the economies of our nation’s cities and regions: by keeping vital firms at the top of their industries; by channeling young workers and other job-seekers into high-wage jobs; and by moving incumbent workers up into rewarding careers.  Using joint approaches to the challenges of change, manufacturing firms, unions and their public partners can help make sure that we continue to maintain the highly-skilled men and women needed to sustain America’s families and strengthen our country’s economic foundation.

Dan Luria, the Research Director of the Michigan Manufacturing Technology Center, delivered a well-received Power Point presentation entitled “Manufacturing Matters and You Matter to Manufacturing!” which covered much of the content above at the Institute’s Advanced Manufacturing Workforce Strategies Forum in Dallas, Texas.  That presentation is available here.