Role of Advanced Role of Advanced Manufacturing in the Manufacturing in the Future U.S. EconomyFuture U.S. Economy

Yung C. ShinYung C. ShinDonald A. & Nancy G. Roach Professor of Donald A. & Nancy G. Roach Professor of

Advanced ManufacturingAdvanced Manufacturing

Purdue UniversityPurdue University

Common Misunderstanding Common Misunderstanding on Manufacturingon Manufacturing

Nothing is made in the U.S. Nothing is made in the U.S. anymore.anymore.

Manufacturing is shifted to low Manufacturing is shifted to low labor cost regions.labor cost regions.

The U.S. does not need to rely on The U.S. does not need to rely on manufacturing for the country’s manufacturing for the country’s well-being.well-being.

Some facts on Some facts on ManufacturingManufacturing

Manufacturing has the strongest Manufacturing has the strongest pull on U.S. economic growth of pull on U.S. economic growth of any business sectorany business sector

Manufacturing production is at Manufacturing production is at the highest point in historythe highest point in history

The U.S. share of world wide The U.S. share of world wide manufacturing is stable since manufacturing is stable since 19821982

Manufacturing Share of Manufacturing Share of GDPGDP

Facts about U.S. Facts about U.S. ManufacturingManufacturing

Employees, April 2008 13,545,000Manufacturing businesses, 2005 333,460Average manufacturing compensation, 2006 $68,860Average national compensation, 2006 $56,717

Manufacturing Employment and Wages

National Manufacturing Growth 19.5%Gross Domestric Product ($ trillions) $13.8Manufacturing share of the economy ($trillions) $1.6Manufacturing as percent of GDP 11.7%

Manufacturing Share of the Economy, 2007

Prices of Manufactured Prices of Manufactured ProductsProducts

Manufacturing Output after Manufacturing Output after Price AdjustmentPrice Adjustment

U.S. Inflation Adjusted U.S. Inflation Adjusted ManufacturingManufacturing

Output and EmploymentOutput and Employment

Source: Bureau of Labor Statistics and Bureau of Economic Analysis

80

90

100

110

120

130

140

150

160

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

198

7 =

100

Real Output Employment

U.S. Manufacturing Sector U.S. Manufacturing Sector is the Eight Largest is the Eight Largest

EconomyEconomy

53% of

GDP11.7%

of GDP

U.S. is a constant leader in U.S. is a constant leader in manufacturingmanufacturing

(share of worldwide manufacturing (share of worldwide manufacturing value added)value added)

Manufacturing’s Role in Manufacturing’s Role in State EconomicsState Economics

Largest percentages in the state’s Largest percentages in the state’s GDPGDP Indiana, Iowa, Wisconsin, Ohio, Kentucky, Indiana, Iowa, Wisconsin, Ohio, Kentucky,

North Carolina, Arkansas, Michigan, North Carolina, Arkansas, Michigan, OregonOregon

Largest manufacturing workforcesLargest manufacturing workforces California, Texas, Ohio, Illinois, California, Texas, Ohio, Illinois,

PennsylvaniaPennsylvania

Manufacturing in IndianaManufacturing in Indiana

ManufacturinManufacturing isg ischangingchanging……

Faster & Faster

There is a transition There is a transition occurring in the U.S. occurring in the U.S. Industrial BaseIndustrial Base

ConsolidationConsolidation A migration of manufacturing to Tier 1 and A migration of manufacturing to Tier 1 and

Tier 2 SuppliersTier 2 Suppliers Outsourcing of low skill jobs to overseas Outsourcing of low skill jobs to overseas

producersproducers A geographic migration of manufacturing A geographic migration of manufacturing

facilities within the U.S.facilities within the U.S. A change in the makeup of the U.S. labor forceA change in the makeup of the U.S. labor force

Why does it matter if we Why does it matter if we lose manufacturing lose manufacturing jobs?jobs? Manufacturing has high Manufacturing has high

paying jobspaying jobs

Manufacturing Pays Manufacturing Pays Premium CompensationPremium Compensation

SOURCE: Department of Commerce, NAM

0

10000

20000

30000

40000

50000

60000

70000

Manufacturing Rest of Workforce

2005

An

nu

al c

om

pen

sati

on

(p

er f

ull-

tim

e w

ork

er)

BenefitsWages

Why does it matter if we Why does it matter if we lose manufacturing lose manufacturing jobs?jobs? Manufacturing has high Manufacturing has high

paying jobspaying jobs

Manufacturing funds much Manufacturing funds much of R&Dof R&D

Role of ManufacturingRole of Manufacturing Manufacturing companies account for $123 Manufacturing companies account for $123

billion of the nation’s $278 billion spent on billion of the nation’s $278 billion spent on R&D in year 2003—a 45% national share.R&D in year 2003—a 45% national share.

This compares to a 13% share of This compares to a 13% share of manufacturing sector output in overall manufacturing sector output in overall gross domestic product, or GDP. gross domestic product, or GDP.

Midwestern manufacturing companies have Midwestern manufacturing companies have a strong orientation toward knowledge-a strong orientation toward knowledge-intensive manufacturing. The region’s intensive manufacturing. The region’s manufacturing companies account for 66% manufacturing companies account for 66% of the region’s R&D versus 19% of the of the region’s R&D versus 19% of the region’s total output.region’s total output.

Why does it matter if we Why does it matter if we lose manufacturing lose manufacturing jobs?jobs?

Manufacturing has high paying Manufacturing has high paying jobsjobs

Manufacturing funds much of Manufacturing funds much of R&DR&D

Innovation spurs growth in Innovation spurs growth in economyeconomy

Greater impact on the rest of Greater impact on the rest of economyeconomy

Manufacturing’s Multiplier Manufacturing’s Multiplier EffectsEffects

General

US Manufacturing

Information

Current situationCurrent situation

The U.S. is stuck between high-wage The U.S. is stuck between high-wage countries competing on the basis of new countries competing on the basis of new products and processes, and developing products and processes, and developing countries competing on the basis of low countries competing on the basis of low wages.wages.

Often the response of U.S. firms to this Often the response of U.S. firms to this competition has been to make good jobs competition has been to make good jobs worse – cutting pay and benefits, worse – cutting pay and benefits, increasing hours – rather than drawing increasing hours – rather than drawing on and developing the skills of workers on and developing the skills of workers and pursuing innovations.and pursuing innovations.

U.S. ManufacturingU.S. Manufacturing has strengths has strengths

ProductivityProductivity Low InflationLow Inflation Leading in Leading in innovationsinnovations

Manufacturing Drives Manufacturing Drives Productivity GrowthProductivity Growth

The U.S. is leading The U.S. is leading InnovationInnovation

Foreign Investment in U.S. Foreign Investment in U.S. ManufacturingManufacturing

Foreign Investment in U.S. Foreign Investment in U.S. ManufacturingManufacturing

One in twelve American One in twelve American manufacturing workers are now manufacturing workers are now employed by a foreign-owned firms.employed by a foreign-owned firms.

5.3 million Americans are directly 5.3 million Americans are directly employed by foreign-owned firms.employed by foreign-owned firms.

Their average wages are $63,000 a Their average wages are $63,000 a year, or about 50 percent more than year, or about 50 percent more than the average U.S. wage.the average U.S. wage.

Offshore Manufacturing?Offshore Manufacturing?

If the differential shrinks after many If the differential shrinks after many U.S. firms have gone out of business, U.S. firms have gone out of business, it would be difficult to regain its it would be difficult to regain its capabilities.capabilities.

One study finds that it adds 24% to One study finds that it adds 24% to the estimated costs of offshoringthe estimated costs of offshoring1.1.

In long run, a flung supply base In long run, a flung supply base makes it difficult for firms to makes it difficult for firms to innovate in ways that link design and innovate in ways that link design and production processes.production processes.

Concerns in Manufacturing Concerns in Manufacturing Innovation in the U.S.Innovation in the U.S.

Federally supported R&D in the Federally supported R&D in the physical science has fallen from physical science has fallen from 0.25% of GDP to 0.13% over the 0.25% of GDP to 0.13% over the last 20 years.last 20 years.

More than 80% of manufacturers More than 80% of manufacturers report shortages of qualified report shortages of qualified workers.workers.

The number of engineers has The number of engineers has declined by 20% since 1985.declined by 20% since 1985.

R&D Investment in the U.S.R&D Investment in the U.S.is NOT Increasingis NOT Increasing

Decline in Federal Funding Decline in Federal Funding for Physical Sciencesfor Physical Sciences

WorkforceWorkforce

People are the company’s greatest asset.People are the company’s greatest asset. 74% of manufacturers report that a high 74% of manufacturers report that a high

performance workforce is the key business driver.performance workforce is the key business driver. Other two drivers: product innovation and low Other two drivers: product innovation and low

cost producer.cost producer. The common perception that being the The common perception that being the

low-cost producer is the only factor that low-cost producer is the only factor that leads to business success does not match leads to business success does not match today’s reality.today’s reality. It is the performance of the workforce that It is the performance of the workforce that

provides America’s competitive advantage.provides America’s competitive advantage.

Business DriverBusiness Driver

Manufacturing has become Manufacturing has become more skilledmore skilled

In 1973, more than half of workers In 1973, more than half of workers on the factory floor did not finish on the factory floor did not finish high school.high school.

In 2001, nearly a third of production In 2001, nearly a third of production workers had some form of post-workers had some form of post-secondary education secondary education (associate/college/graduate degrees).(associate/college/graduate degrees).

Never has there been a greater Never has there been a greater demand for high-skilled workers in demand for high-skilled workers in the U.S.the U.S.

The U.S. is Falling Behind The U.S. is Falling Behind in Engineeringin Engineering

ConclusionsConclusions

It is much cheaper to act now to preserve It is much cheaper to act now to preserve the manufacturing capacity we have than the manufacturing capacity we have than to try to reconstruct it once it is gone.to try to reconstruct it once it is gone.

The U.S. must continue to invest in The U.S. must continue to invest in innovation R&D.innovation R&D.

Advanced manufacturing is the key to Advanced manufacturing is the key to the future health of U.S. manufacturing the future health of U.S. manufacturing and economy.and economy.

It requires continuous efforts to upgrade It requires continuous efforts to upgrade the U.S. workforce in manufacturing.the U.S. workforce in manufacturing.