Ups and Downs of Manufacturing Employment

A variety of sources got me to thinking about manufacturing jobs again today.  First, Steven commented on a post from a couple months ago that took a couple of new trade groups to task for complaining about trade policy instead of working to actually improve domestic manufacturing operations.

The bottom line is JOBS. The U.S. lost 46,000 manufacturing jobs in August 2007. More significantly, the ongoing losses are taking a cumulative toll on communities throughout the country.

Perhaps.  Many of us saw the same news about manufacturing employment, which some then presume to equate to the what’s going on with manufacturing itself.  For a different take, here’s a post from Cafe Hayek, which paraphrases a Cato report.

1) In what year did U.S. Manufacturing output reach its all-time peak? Answer: 2006

2) In what year did U.S. Manufacturing revenue reach its all-time peak? (inflation adjusted) Answer: 2006

3) In what year did U.S. Manufacturing profits reach their all-time peak? (inflation adjusted) Answer: 2006

4) In what year did U.S. Manufacturing exports reach their all-time peak? (inflation adjusted) Answer: 2006

5) Average annual compensation (wages + benefits) for US manufacturing jobs is?  Answer: $66,414

Today’s Manufacturing News, recently the purveyor of a biweekly dose of manufacturing doom and gloom, actually showed a slight sense of balance by also publishing the Cato report.

Early this year in a multi-part series we explored the impact of offshore outsourcing of intermediate products on productivity and concluded that productivity improvements are real and just slightly miscalculated.  Just as happened with farm workers in the last century, productivity improvements are creating massive manufacturing job losses while increasing total output and value.  Those displaced workers are having to find new jobs and skills.  Is that a bad thing?

Actually I’m not sure.  Doing more with less helps a lot of people through cheaper prices and improved availability.  Coincidentally that’s also what Wal-Mart has done.  But those displaced workers are also real people supporting real families, and we know it isn’t exactly easy to acquire new skills in your 40s and 50s. 

But more importantly, people think.  A machine can’t lead a kaizen, brainstorm a more efficient process, or make the innumerable small changes that occur in an effective continuous improvement environment.  This is the fallacy of the ubiquitous "lights out" factory that many traditional operations managers dream about.  They are highly efficient… and stagnant.  Although I understand the desire to be free of the babysitting aspects of people management, a machine-oriented or highly efficient organization also can’t capitalize on the knowledge, creativity, and experience of its employees.

So what’s the solution?  Productivity will always be with us, and it should.  More and more will be done with less and less.  But traditional productivity metrics don’t capture the true value of people, just the labor "cost."  If the value of knowledge, experience, and creativity could be treated as a financial asset, organizations would be less likely to get rid of that asset in exchange for saving a few bucks an hour.

I would much rather have a factory teeming with creative people, making more and more with less and less but also using their knowledge to find ways to add value to more and more new customers, than in a factory full of highly efficient machines that never changed.  I’m glad we’re more productive, and I know that will result in less people for a defined amount of output.  But let’s be aware of the value of the people asset, and if we’re smart we’ll use it to find and expand new markets and opportunities.