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New Directions in Manufacturing: Report of a Workshop Part V Presented Papers: The Human Element in Manufacturing
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New Directions in Manufacturing: Report of a Workshop 13 Keeping America Competitive: How a Talent Shortage Threatens U.S. Manufacturing Phyllis Eisen National Association of Manufacturers Manufacturers in the United States are innovative, productive, and efficient. For decades the manufacturing sector has been the center of strength of the American economy and its prospects for future growth. Nonetheless, manufacturing faces several forces that have sparked a period of transformation. Global pressures are squeezing U.S. manufacturers as they face brutal competition from around the world. To continue to succeed, U.S. manufacturers must compete less on cost than on product design, productivity, flexibility, quality, and responsiveness to customer needs. These competitive mandates put a high premium on the skills, morale, and commitment of workers. Relentless advances in technology have infused every aspect of manufacturing—from design and production to inventory management, delivery, and service. Today’s manufacturing jobs are technology jobs, and employees at all levels must have the wide range of skills required to respond to the demands of an increasingly complex environment. Demographic shifts portend great change ahead. The “baby boom generation” of skilled workers will be retired within the next 15 to 20 years. Currently, the only source of new skilled workers is from immigration. The result is a projected need for 10 million new skilled workers by 2020.1 In addition, a long-term manufacturing employment and skills crisis is developing, one with ominous implications for the economy and national security. The loss of more than 2 million manufacturing jobs during the recent recession and anemic recovery masks a looming shortage of highly skilled, technically competent employees who can fully exploit the potential of new technologies and support increased product complexity.2 THE GROWING TALENT SHORTAGE A study in workforce issues in manufacturing was conducted by the National Association of Manufacturers (NAM) at the onset of the recent recession and published in its report The Skills Gap 2001: Manufacturers Confront Persistent Skills Shortages in an Uncertain Economy.3 The study revealed that more than 80 percent of the surveyed manufacturers reported a “moderate to serious” shortage of qualified job applicants—even though manufacturing was suffering serious layoffs. In sum, what manufacturing is facing is not a lack of employees, but a shortfall of highly qualified employees with specific educational backgrounds and skills. NOTE: “Keeping America Competitive: How a Talent Shortage Threatens U.S. Manufacturing,” a white paper prepared by the National Association of Manufacturers, the Manufacturing Institute, and Deloitte & Touche. Copyright 2003 by the National Association of Manufacturers. Reproduced with permission. 1 A.P. Carnevale and R.A. Fry. 2001. The Economic and Demographic Roots of Education and Training. A paper commissioned by the Manufacturing Institute, Washington, D.C. 2 National Association of Manufacturers. 2001. The Skills Gap 2001: Manufacturers Confront Persistent Skills Shortages in an Uncertain Economy. Washington, DC: National Association of Manufacturers. 3 Ibid.
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New Directions in Manufacturing: Report of a Workshop The most critical shortages of employees identified were in production and the direct support of production, including engineering and skilled crafts. Manufacturers also cited shortages in technical skills; inadequate basic employability skills; and inadequate reading and writing skills among both job applicants and incumbent workers. These skill deficiencies impaired manufacturers’ ability to maintain production levels to meet customer demand, implement new productivity improvements, or deploy quality initiatives. In fact, some manufacturers said they could not accept new orders because they lacked the workers to produce their products. This shortage of skilled workers particularly hampered smaller firms. Some reported hat they could not schedule needed second or third shifts for the same reason. Others reported that they had advertised extensively for employees with specific skills—such as welders or electricians—and could not find acceptable candidates, or they hired entry-level workers whose skills were barely adequate. While manufacturing’s current situation is difficult, it may soon get worse. A research study conducted by the Educational Testing Service shows that the U.S. economy as a whole may face a growing shortage of skilled workers in the coming decade. The shortage for jobs requiring at least some degree of postsecondary education or training will exceed 10 million in the second decade of this millennium. This projected shortfall in the skilled-labor force is largely due to the interaction of demographics and technology and the failure of the educational system to keep up with the needs of manufacturing. Unfortunately, the sector’s need for technically savvy employees comes at a time when experienced “baby boomer” employees will be retiring in large numbers and are being replaced with a relatively smaller pool of U.S.-based workers who often lack the appropriate technical skills. These factors, when taken together, deepen the concern that many manufacturers did not successfully compete for talent in the 1990s and even in the current recession. Competition will only intensify in the next decade. This means that competent managers, engineers, technicians, skilled craftspeople, and front-line workers will be in even greater demand. American Youth Are “Turned Off” by Modern Manufacturing To uncover the reasons behind the talent shortfall and identify why fewer young people appear to be entering careers in this sector, the NAM, the Manufacturing Institute, and Deloitte & Touche recently conducted two major research studies. The findings reveal a troubling picture. Among a geographically, ethnically, and socio-economically diverse set of respondents—ranging from students in middle-school through college, parents, and teachers to policy analysts, public officials, union leaders and manufacturing employees and executives—the sector’s image was found to be heavily loaded with negative connotations and universally tied to an old stereotype of the “assembly line,” as well as perceived to be in a state of decline. When asked to describe the images associated with a career in manufacturing, student respondents offered phrases of the kind listed in Table 13-1, such as “serving a life sentence,” being “on a chain gang” or “slave to the line,” or even being a “robot.” Even more telling, most adult respondents said that people “just have no idea” of manufacturing’s contribution to the American economy. The research also explored what today’s young people were looking for in their careers, how they make career choices, and how well today’s educational programs support successful preparation for careers in manufacturing. With near unanimity, respondents across the country saw manufacturing opportunities to be in stark conflict with the characteristics they desire in their careers—and as a result, they do not plan to pursue careers in manufacturing.
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New Directions in Manufacturing: Report of a Workshop TABLE 13-1 Student Respondents’ Perceptions of Manufacturing Careers Versus Their Aspirations Perception of Manufacturing Careers Desired Career Characteristics Assembly line Interesting Repetitious/boring/tedious Creative/non-cookie cutter Not something you dream about Emotionally rewarding Not ambitious/settling for less Good quality of life Serving a life sentence Freedom to choose Chain gang/slave/torture Dangerous/dark/dirty Hard work/long hours Low pay Prestige No benefits Financially rewarding No chance for promotion/dead end Opportunities for growth/advancement Sector in decline Stable, high-growth sector Jobs leaving the country Ample U.S.-based jobs Our Education System Is a Weak Link The research also emphatically showed that the U.S. education system exacerbates the negative perception of manufacturing because it is largely out of step with the career opportunities emerging for young people in today’s economy, including those in manufacturing. The United States sends more than two-thirds of its high-school graduates to college, but half of them drop out. The educational system fails to engage these students and help them enter alternative postsecondary programs. For those who do graduate, one-third fail to find employment requiring a 4-year degree. Meanwhile, many well-paid and rapidly increasing manufacturing jobs remain unfilled, including those requiring 2- and 4-year technical degrees or short-term skill certificates. THE MANUFACTURING REALITY The good news is that, as a whole, the reality of modern manufacturing is far different, far more complex, and much more attractive than the negative stereotypes identified by the research studies. Manufacturing is the productive core of the American economy, driving technological advance and providing enormously varied, exciting, and well-compensated careers. Much More Than Assembly Lines Employing professionals and skilled and semiskilled workers in nearly every imaginable specialty—from graphic designers, sales executives, and physicians to scientists, lawyers and marketing managers—manufacturing companies offer one of the broadest ranges of possible career paths. These employees are also well compensated, with the average manufacturing worker earning $46,000 per year in wages and an average total compensation package of $54,000 in 2000. Both of these figures are more than 20 percent higher than comparative averages for all U.S. workers.4 In addition, 83.7 percent of manufacturing workers received 4 U.S. Department of Commerce Bureau of Economic Analysis.
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New Directions in Manufacturing: Report of a Workshop direct health-care coverage through their employers in 2001. Only the government provides healthcare coverage to a greater proportion of its workers. Contrary to perception, assembly-line jobs are only a relatively small, and declining, part of modern manufacturing. Today, most modern manufacturing companies are light, clean, airy, pleasant, and safe places to work. Since the 1990s, workplace injuries have dropped by 30 percent. In keeping with their focus on innovation, manufacturing companies also invest heavily in research and development and increasingly use the most advanced, cutting-edge technologies the world has to offer. Manufacturing accounted for 62 percent of all R&D performed in the United States.5 This is telling, as R&D is the single most important source of the technological advances that lead to higher productivity and increased living standards for all Americans. From 1992 to 2000, manufacturing productivity grew at double the pace of overall productivity growth. During this same period, manufacturing was responsible for one-third of the overall economy’s growth in productivity. This increased productivity was in turn passed through to workers in the form of higher real wages and enabled the economy to grow faster without inflation. Manufacturing’s Place in the Economy Also contrary to perception, the number of manufacturing jobs has remained roughly constant since the 1940s.6 It is true, however, that manufacturing’s share of non-farm employment has decreased, from 35 percent in 1947 to 14 percent today. Because of rapidly increasing productivity, manufacturing has sustained its overall share of a growing economy with the same absolute number of workers.7 Manufacturing also has one of the highest “multiplier” effects in terms of job creation. This means that every $1 million in final sales from manufactured products supports eight jobs in the manufacturing sector and an additional six jobs in other sectors, such as services, construction, and agriculture. In total, manufacturing jobs support 9 million jobs in other sectors.8 It is also true that the manufacturing sector as a whole is not in decline. Historically, the manufacturing sector has driven much of the U.S. economy’s growth, although this contribution is not always recognized. From 1992 to 2000, manufacturing GDP grew at 4.6 percent annually—faster than the overall U.S. economy, which grew at 3.6 percent annually. Manufacturing also represents a significant and growing portion of the U.S. GDP, contributing a full 22 percent during this same period (Figure 13-1). By comparison, the service sector contributed 14 percent to economic growth, while transportation and utilities supplied 10 percent.9 Manufacturing’s share of gross domestic product (GDP) as adjusted for inflation has been stable since the 1940s. For more than a half-century, the ratio of manufacturing output to GDP has ranged from 16 to 19 percent. GDP tells only part of the story, however, because it is measured by final sales. Forty-three percent of the nation’s economic activity is composed of intermediate activity: the production of goods and services that go into making up final sales. Well over half of manufacturing activity takes place at this intermediate level—for instance, 5 National Science Foundation, 2000. 6 National Institute of Standards and Technology, Washington, D.C., 2001. 7 U.S. Bureau of Labor Statistics, 2001. 8 National Association of Manufacturers’ calculations from U.S. Department of Labor data, 2000. 9 National Association of Manufacturers’ calculations from U.S. Labor Department data, 2001; from 1992 to 2000, manufacturing contributed a full 22 percent to the U.S. GDP.
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New Directions in Manufacturing: Report of a Workshop FIGURE 13-1 Manufacturing’s contribution to the U.S. gross domestic product in 2000. Source: National Association of Manufacturers’ calculations from U.S. Labor Department data, 2001; National Association of Manufacturer’s calculations from U.S. Department of Commerce data. primary metals and components of other products. When manufacturing’s intermediate activity is combined with final sales, then manufacturing’s share of the nation’s total economic output rises to more than 25 percent. Another way of looking at manufacturing’s contribution to the economy is through its multiplier effect. For every $1.00 of a manufacturing product sold to a final user, an additional $1.26 of intermediate economic output is generated. Manufacturing’s multiplier effect is greater than the general multiplier effect of 98 cents for all industries and far greater than that of the service sector, which generates only 74 cents of intermediate activity per $1.00 of final sales—40 percent less than the additional intermediate output generated by $1.00 of manufacturing final sales.10 In addition, it is important to remember that the United States is the world’s largest exporter of goods and services. Manufacturing is responsible for 64 percent of the U.S. exports, making the United States the world’s largest manufacturing exporter, and manufacturing’s exports have grown rapidly in recent decades. THE FUTURE OF MANUFACTURING Manufacturing is, however, a cyclical sector and one that is undergoing a period of 10 U.S. Department of Labor. 2001. National Association of Manufacturers’ calculations from U.S. Department of Commerce data.
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New Directions in Manufacturing: Report of a Workshop profound transition. It is also a sector in which many of the negative images revealed in the qualitative research remain accurate for some companies. In the United States today, there are some unattractive manufacturing jobs. As in other sectors, some manufacturers continue to fail to meet their responsibilities to their employees, shareholders, communities, and the environment. Happily, both the averages and the trends in modern manufacturing are starkly different. The responsible manufacturing community condemns such practices and offers careers that provide competitive wages, benefits, and opportunities for self-fulfillment and self-advancement. Yet, the sector’s cyclical nature is evident in the fact that it tends to suffer recessions earlier and come out of downturns later than other sectors. In the most recent recession, which has been particularly severe, manufacturing lost approximately 2 million jobs. This unhappy “availability” of unemployed manufacturing workers—or even the anticipated influx of “echo boomers”—is not a solution to manufacturing’s long-term workforce problems. Demographics make the current situation almost irrelevant. By 2005, we will be feeling repercussions from the retirement of a major portion of the working population. In addition, as the economy recovers, manufacturers will once again expand their businesses and seek technically skilled workers to help them attain their business goals in a global economy. While history indicates that some of the job losses from the recent recession will be permanent, new jobs will also be created in a cyclical recovery. Clearly, for the workers involved, such layoffs are severely disruptive. But history also indicates that many will be rehired in an upturn. Indeed, the question that many respondents raised is just how many new, higher-skill manufacturing jobs can be filled in the United States, given the shortage of skills in the labor force. Thus, what manufacturing faces is not a lack of employees but a lack of well-qualified employees with specific educational backgrounds and skills. Several important trends have also sparked a period of transformation, including the movement of labor-intensive jobs offshore in response to cost pressures from global competitors in countries such as China. The configuration of manufacturing careers is projected to shift toward higher-skills professions: management; marketing; sales and services; and maintenance operations, with higher technology becoming even more pervasive. Thus, careers in the manufacturing sector will become, on balance, even more attractive and desirable. This projected pattern of future development is reinforced by a study performed by the National Research Council.11 It concluded that by 2020 manufacturing will remain one of the principal means by which wealth is created and that it is critical that the United States be prepared to implement advanced manufacturing methods in a timely way. This study also proposed that the evolving competitive climate will require agile, rapid responses by manufacturers to market forces, because sophisticated customers around the world will increasingly demand customized products. “The basis of competition will be creativity and innovation in all aspects of the manufacturing enterprise.” Skilled workers will be a critical factor in national and organizational competitiveness. The study concluded that “workers in this climate will need a wide range of skills, including strategic planning, market analysis, engineering design, supply chain management, finance, production planning, and order fulfillment. Although not everyone in the manufacturing enterprise will be expert in all skills, the more skills an individual has, the more valuable [he or she] will be to the organization.” As the total number of manufacturing jobs has remained roughly constant for decades, many departing jobs have been replaced by new jobs created domestically by American firms or 11 National Research Council. 1998. Visionary Manufacturing Challenges for 2020. National Academy Press, Washington, D.C.
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New Directions in Manufacturing: Report of a Workshop by foreign firms establishing operations in the United States. Moreover, the jobs moved or created in other nations by American firms vary widely in nature. Some are labor-intensive operations no longer sustainable by manufacturers in the United States—manufacturers that cannot significantly raise prices because of global competition. In fact, they must reduce costs to survive by relocating to low-wage nations. More commonly, American manufacturers are expanding their operations abroad to respond to the opportunities presented by growing economies everywhere, especially in advanced nations. In 2000, more than 70 percent of newly acquired or established foreign affiliates of American firms were in advanced, high-wage nations—chiefly in the European Union, not in low-wage developing countries. This effect has sometimes been described as the “high-wage paradox,” with high-wage nations increasingly outperforming low-wage economies in attracting U.S. manufacturing foreign direct investment (FDI) flows, despite a common perception that FDI is mainly a means to access cheap labor. In 2000, only 17 percent of total U.S. manufacturing FDI flows went to low-wage economies, down from 29 percent in 1998.12 It is important in a global economy that American manufacturers establish a presence in large and growing markets around the world. Successful foreign manufacturers are doing the same thing, expanding their operations in the United States and elsewhere. The net effect is that in 2000, U.S.-based job-creating investment in business plant and equipment by both domestic and foreign firms totaled $1.2 trillion—more than seven times the amount invested by American firms abroad. Yet, the greater challenge to America is not low-cost goods from low-wage producers in developing countries, but rather high-quality goods made by high-skilled workers in advanced and emerging economies. The potential exists that manufacturers will increasingly move production operations overseas to seek the technological talent that is being strategically and purposefully prepared in places like the European Union, the Pacific Rim (including China), and South Asia (particularly India)—if they cannot find this talent here. THE CHALLENGE To remain strong and continue to thrive in a highly competitive environment, U.S. manufacturing must surmount many challenges. High on that list is a need to attract a new generation of manufacturing employees prepared for 21st century jobs. Our research results were clear: Manufacturing is severely challenged by an old, negative image; an education and training system that does not understand or promote careers in manufacturing; and public policies that are not supportive of a robust manufacturing sector. Unless the industry finds a compelling way to communicate a positive image and address education and training issues effectively, manufacturing could experience a shift from merely having a talent shortage to facing a serious labor crisis. This could foreshadow a significant decrease in manufacturing’s competitiveness and accelerate the movement of American productive capacity and well-paid manufacturing jobs overseas. These events could deliver a decisive blow to an already fragile economy and even undermine national security. By pulling together as so many other industries have done, a number of highly effective programs could be launched, including national advertising and public relations campaigns, career-planning development efforts, localized school outreach, plant tours and educational programs. In addition, if manufacturers want a greater share of the talent pool, then they must compete more effectively by marketing jobs that offer respected and fulfilling career paths. 12 Deloitte Consulting and Deloitte & Touche LLP. 2001. Globalizing Through Turbulence: Global Investment Trends of U.S. Manufacturers.
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New Directions in Manufacturing: Report of a Workshop Given the urgency of the situation, the National Association of Manufacturers has committed to doing its part to help make manufacturing a preferred career choice by 2010. As part of this effort, it plans to work with the administration, Congress, the press, educators, parents, and students in a long-term strategy for the renewal of manufacturing and the transformation of how it is viewed as a career choice. The National Association of Manufacturers will implement the following targeted activities at the community level: Advocating public policies that will maintain and strengthen the manufacturing sector; Launching an awareness campaign to promote the desirability of manufacturing careers in modern manufacturing firms; Filling the career-information void with copious data for counselors, teachers, parents, and students; and Working to make education and training in both the private and public sectors more relevant to manufacturing’s needs. The urgent goal is to energize and focus the sector’s many resources to solve its common problem. To that end, the NAM has issued four challenges: To the President of the United States: Declare U.S. manufacturing a national priority. To the U.S. Congress: Establish “National Manufacturing Day” to recognize this priority. To manufacturers in the United States: Open your plants and facilities to young people, teachers, and parents on National Manufacturing Day. To educators in the United States: Bring your students and guidance counselors to a modern manufacturing facility on National Manufacturing Day. U.S. manufacturing can emerge from this period of transition stronger and better equipped to compete on a global basis and maintain its core contributions to the American economy. The NAM invites all interested parties to join in this effort.
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