Transcript State of the School

Role of Advanced
Manufacturing in the Future
U.S. Economy
Yung C. Shin
Donald A. & Nancy G. Roach Professor of
Advanced Manufacturing
Purdue University
Common Misunderstanding on
Manufacturing



Nothing is made in the U.S. anymore.
Manufacturing is shifted to low labor cost
regions.
The U.S. does not need to rely on
manufacturing for the country’s well-being.
Some facts on Manufacturing



Manufacturing has the strongest pull on
U.S. economic growth of any business sector
Manufacturing production is at the highest
point in history
The U.S. share of world wide manufacturing
is stable since 1982
Manufacturing Share of GDP
Facts about U.S. Manufacturing
Manufacturing Employment and Wages
Employees, April 2008
13,545,000
Manufacturing businesses, 2005
333,460
Average manufacturing compensation, 2006
$68,860
Average national compensation, 2006
$56,717
Manufacturing Share of the Economy, 2007
National Manufacturing Growth
19.5%
Gross Domestric Product ($ trillions)
$13.8
Manufacturing share of the economy
($trillions)
$1.6
Manufacturing as percent of GDP
11.7%
Prices of Manufactured Products
Manufacturing Output after Price
Adjustment
U.S. Inflation Adjusted Manufacturing
Output and Employment
160
150
1987 = 100
140
130
120
110
100
90
80
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Bureau of Labor Statistics and Bureau of Economic Analysis
Real Output
Employment
U.S. Manufacturing Sector is the
Eight Largest Economy
53% of
GDP
11.7% of
GDP
U.S. is a constant leader in manufacturing
(share of worldwide manufacturing value added)
Manufacturing’s Role in State
Economics

Largest percentages in the state’s GDP


Indiana, Iowa, Wisconsin, Ohio, Kentucky, North
Carolina, Arkansas, Michigan, Oregon
Largest manufacturing workforces

California, Texas, Ohio, Illinois, Pennsylvania
Manufacturing in Indiana
Manufacturing is
changing…
Faster & Faster
There is a transition occurring
in the U.S. Industrial Base
 Consolidation
 A migration of manufacturing to Tier 1 and Tier
2 Suppliers
 Outsourcing of low skill jobs to overseas
producers
 A geographic migration of manufacturing
facilities within the U.S.
 A change in the makeup of the U.S. labor force
Why does it matter if we lose
manufacturing jobs?

Manufacturing has high paying jobs
Manufacturing Pays Premium
Compensation
2005 Annual compensation
(per full-time worker)
70000
60000
50000
40000
Benefits
Wages
30000
20000
10000
0
Manufacturing
SOURCE: Department of Commerce, NAM
Rest of Workforce
Why does it matter if we lose
manufacturing jobs?

Manufacturing has high paying jobs

Manufacturing funds much of R&D
Role of Manufacturing



Manufacturing companies account for $123 billion
of the nation’s $278 billion spent on R&D in year
2003—a 45% national share.
This compares to a 13% share of manufacturing
sector output in overall gross domestic product, or
GDP.
Midwestern manufacturing companies have a
strong orientation toward knowledge-intensive
manufacturing. The region’s manufacturing
companies account for 66% of the region’s R&D
versus 19% of the region’s total output.
Why does it matter if we lose
manufacturing jobs?

Manufacturing has high paying jobs

Manufacturing funds much of R&D

Innovation spurs growth in economy

Greater impact on the rest of economy
Manufacturing’s Multiplier Effects
General
US Manufacturing
Information
Current situation


The U.S. is stuck between high-wage countries
competing on the basis of new products and
processes, and developing countries competing on
the basis of low wages.
Often the response of U.S. firms to this
competition has been to make good jobs worse –
cutting pay and benefits, increasing hours – rather
than drawing on and developing the skills of
workers and pursuing innovations.
U.S. Manufacturing
has strengths
Productivity
 Low Inflation
 Leading in innovations

Manufacturing Drives Productivity
Growth
The U.S. is leading Innovation
Foreign Investment in U.S.
Manufacturing
Foreign Investment in U.S.
Manufacturing



One in twelve American manufacturing
workers are now employed by a foreignowned firms.
5.3 million Americans are directly employed
by foreign-owned firms.
Their average wages are $63,000 a year, or
about 50 percent more than the average U.S.
wage.
Offshore Manufacturing?



If the differential shrinks after many U.S.
firms have gone out of business, it would be
difficult to regain its capabilities.
One study finds that it adds 24% to the
estimated costs of offshoring1.
In long run, a flung supply base makes it
difficult for firms to innovate in ways that
link design and production processes.
Concerns in Manufacturing
Innovation in the U.S.



Federally supported R&D in the physical
science has fallen from 0.25% of GDP to
0.13% over the last 20 years.
More than 80% of manufacturers report
shortages of qualified workers.
The number of engineers has declined by
20% since 1985.
R&D Investment in the U.S.
is NOT Increasing
Decline in Federal Funding for
Physical Sciences
Workforce

People are the company’s greatest asset.



74% of manufacturers report that a high performance
workforce is the key business driver.
Other two drivers: product innovation and low cost
producer.
The common perception that being the low-cost
producer is the only factor that leads to business
success does not match today’s reality.

It is the performance of the workforce that provides
America’s competitive advantage.
Business Driver
Manufacturing has become more
skilled



In 1973, more than half of workers on the
factory floor did not finish high school.
In 2001, nearly a third of production workers
had some form of post-secondary education
(associate/college/graduate degrees).
Never has there been a greater demand for
high-skilled workers in the U.S.
The U.S. is Falling Behind in
Engineering
Conclusions




It is much cheaper to act now to preserve the
manufacturing capacity we have than to try to
reconstruct it once it is gone.
The U.S. must continue to invest in innovation
R&D.
Advanced manufacturing is the key to the future
health of U.S. manufacturing and economy.
It requires continuous efforts to upgrade the U.S.
workforce in manufacturing.