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Manufacturing, Like the U.S. Economy, is Evolving and Offers New Opportunities
Written by Matt Camp, ICIC
After the recession, the U.S. economy looks very different than it did just five years ago. There’s persistent unemployment, a widening income gap, fewer homeowners and rising debt. While these trends are certainly worrisome, there is another difference that’s more positive: U.S. manufacturing is making a comeback.
But even manufacturing looks different than it has in years past.
The competitive advantages associated with manufacturing abroad are eroding. The gap in labor costs between the U.S. and China, which was $17 per hour in 2006, will be as low as $7 per hour by next year. Similarly, wages for U.S. workers are flat,
meaning that it’s more affordable to employ workers locally. At the same time, U.S. organized labor is not as prevalent; fewer workers are unionized which has made it more affordable to employ American workers generally. Finally, the hidden costs
associated with manufacturing are rising; managing operations halfway around the world, along with high turnover, inconsistent quality and inadequate protection of intellectual property are making it more affordable to manufacture onshore where
operations can be monitored more closely.
Not only have the conditions benefiting local industry changed, but so too has the type of work. U.S. manufacturing has shifted from scale to skill — the quality of goods is increasingly important; quantity less so.
Yet these high-quality goods are produced with high-tech equipment. Technologies like 3D printing and cold spraying
are making it more important for manufacturing employees to be highly-skilled, especially in the STEM fields.
It’s increasingly important for cities, then, to link local residents to vocational and other training opportunities. At the 2014 Forbes Reinventing America Summit last week, Cheryl Hyman, Chancellor of City Colleges of Chicago, talked about how Chicago is trying to address the “skilled trades gap”: they are making an effort to engage technology companies so the college can tailor curricula to meet the needs of industry. Hyman also discussed the importance in rebranding industrial so that younger residents –
and importantly, their parents – understand how industry has
evolved from “dirty” assembly line jobs to highly-skilled work.
The evolved industrial economy provides a foothold for inner city residents to access well-paying jobs. ICIC research indicates that the median full-time salary for industrial workers is $45,000, which represents a 200% increase over minimum wage and 40% increase over median retail wages. Moreover, 65% of indus
trial jobs do not require a college degree, versus only 34% for the job market as a whole.
Before cities jump the gun to and chase the promise of higher-paying jobs, it’s important to identify what industrial activity (if any) makes sense for their local economy. In Boston, the Back Streets program has helped to attract or retain at least 700 jobs over the past year alone. Specifically, Boston plays to its strengths in food manufacturing, processing and wholesale business. Many of the food businesses, for instance, serve as suppliers to Boston’s 2,107 restaurants, 102 hotels, 28 hospitals and 25 universities.
In Chicago, efforts are geared more towards investing in infrastructure in order to support existing industrial activity. At the Forbes Summit, Mayor Rahm Emanuel touted the City’s effort to replace all water and sewer infrastructure more than 100
years old.
Each city must carefully consider its unique competitive advantage in the context of economic trends.
One final trend we’re seeing in manufacturing – or “wholesale”–
is the rise of “factoryless goods producers.” These are firms that handle every part of production except actual fabrication, and this model is proliferating throughout the U.S. If these firms were to be counted as part of the industrial economy, it would show an even greater uptick and would be more representative of the nation’s productive capability. “Factoryless goods producers” are unquestionably an important driver of the economy.
Whether federal policymakers choose to reclassify some of these wholesalers or not, what’s clear is that the new industrial economy presents local policymakers with a chance to connect residents to well-paying jobs. Workforce training and new public-private partnerships will be critical to ensure inner city residents have access to these evolving opportunities.