Manufacturing an Economic Recovery

Millions of goods-producing jobs have been eliminated in the past 20 years, and although the manufacturing industry has bounced back in recent months, the most consistent growth in the labor market has been tied to the service sector for the past several quarters.

 

Manufacturers, however, aren’t quite ready to cede their standing as a pillar of economic strength. In fact, experts say the industrial sector could return to a level of productivity not seen for decades—before major technological advancements, overseas outsourcing and several recessionary periods began to decimate its ranks.

 

By 2025 manufacturing could reach 15 percent of U.S. gross domestic product (GDP), which has not occurred since the 1990s, according to an analysis shared in a report titled The Manufacturing Resurgence: What It Could Mean for the U.S. Economy, published by Washington, D.C.-based think tank The Aspen Institute and the Manufacturers Alliance for Productivity and Innovation (MAPI), based in Arlington, Va.

 

“That was before the dot-com bust, 9/11 and the Great Recession,” said Aspen’s Thomas Duesterberg, executive director of the Manufacturing and Society in the 21st Century division, during the institute’s March 2013 press event to release the report. “That was 6 million jobs ago.”

 

Manufacturing currently represents 11.5 percent of GDP, but Duesterberg and other researchers say a series of trends could result in 3.7 million new manufacturing jobs by 2025. This best-case scenario is tied to projected increases in U.S. exports, a decline in energy prices, and future trade agreements that are being negotiated with Asian nations and the European Union. A rise in productivity in the service sector, particularly in health care and retail trades, also could drive the need for more manufacturing of medical devices and consumer products.

 

The implications for HR professionals in the industry are significant. Human capital remains the industry’s biggest challenge, according to Ronald Bullock, chairman of St. Charles, Illinois-based manufacturer Bison Gear & Engineering Corp., an underwriter of Aspen’s study.

 

“We’re not producing enough people with the right skill sets to suit our needs in advanced manufacturing,” Bullock said at the event, adding that the country is facing a wave of Baby Boomer retirements from manufacturing sectors.

 

“At our own company 55 percent of our associates are eligible for retirement within the next 15 years,” Bullock said.

 

There are other barriers to the best-case scenario outlined by Aspen. Among them is the cost of doing business in the U.S., which is 20 percent higher at domestic manufacturers (after the cost of labor is removed from the equation) than anywhere else in the world, said Jay Timmons, president and CEO of the National Association of Manufacturers.

 

“What gets lost in this discussion is this very heavy [financial] burden on the backs of manufacturers,” Timmons said. “We’ve got a corporate tax rate that does not encourage investment in the U.S. If we don’t deal with that, we won’t see this resurgence.”

 

Tax issues aside, the solutions to manufacturers’ problems lie more with talent management. To solve the workforce problem, Duesterberg said the industry needs the following:

 

 

More evidence that HR’s talent management skills are needed more than ever: The skills gap has the attention of the White House, as well. President Obama’s budget proposal includes $8 billion for a community-college-to-career fund that would support state and community-college partnerships with businesses to promote career and skills development.

 

In the interim, manufacturers are keeping the skills issue in the spotlight and touting their industry’s potential role in an economic recovery. Research has shown that every dollar of sales in manufacturing products generates $1.48 in economic activity in other sectors, Timmons said.

 

“It’s the greatest multiplier we have,” he noted. “Intuitively, growth in manufacturing will lead to a stronger economy.”

 

For more information, visit SHRM’s Labor Market and Economic Data page.