Oregon is the all-star of states when it comes to growing manufacturing’s share of GDP over the last decade or so, but that growth hasn’t translated into a commensurate increase in manufacturing wages, according to a data analysis published by Quartz.
“From 2003 to 2015, [Oregon’s] manufacturing GDP grow 180 percent, the fastest pace not only in the United States, but in virtually all of North America,” the Quartz article reported. “Yet the news for the workers themselves wasn’t so bright. While they would have expected to earn 10 percent more than the average statewide wage in 2003, that premium today has shrunk to 3 percent. In other words, manufacturing in Oregon is now barely better than the average job as a ladder of social mobility.”
The thrust of the article is to take issue with President Trump’s stated policy of promoting increased US manufacturing, renegotiating trade deals and returning displaced workers to their jobs. “It’s not only Oregon that debunks the view of manufacturing as an engine of growth,” according to the report. “Across the US, Mexico and Canada, the data we analyzed show that building more factories doesn’t lead to as many jobs as it used to, nor to higher wages, and that closing factories doesn’t necessarily lead to a loss of prosperity.”
Data assembled by the three-person Quartz reporting team indicates manufacturing has dwindled as a share of GDP in the United States, Canada and Mexico, the signatories to the North American Free Trade Agreement (NAFTA). They note Mexico has seen a recent manufacturing boomlet, but it hasn’t resulted in a sharp uptick in wages.
While the article’s authors say free trade and automation have played a role in the decline of North American manufacturing and job losses, they pin the biggest blame on industrial non-competitiveness.
“According to the McKinsey Global Institute, which has studied the US manufacturing sector’s ailments in depth, the root cause of the problem is neither robots nor free trade; it’s non-competitiveness. While some US companies have kept up with international competition and technological change, many are losing out not only to countries with cheap labor, but also to some advanced economies such as Germany and South Korea, where many companies are more productive and profitable. Other experts see a similar problem in Canada and Mexico, too.”
The McKinsey study titled “Manufacturing the future” says, “Manufacturing's role is changing. The way it contributes to the economy shifts as nations mature. In today's advanced economies, manufacturing promotes innovation, productivity and trade more than growth and employment.”
The study adds, “Manufacturing is entering a dynamic new phase. As a new global consuming class emerges in developing nations, and innovations spark additional demand, global manufacturers will have substantial new opportunities, but in a much more uncertain environment.”
The Quartz article attributes the anomaly of higher manufacturing wages in some areas with declining manufacturing rates to developing diversified economies and training workers for those jobs. The authors cite two examples – Ontario, Canada and Arkansas.
- Ontario has branched out from auto manufacturing to add pharmaceutical, finance, biotech and information technology business sectors. The interaction has created wage competition for jobs, whether union or not.
- Arkansas experienced a typical drop in manufacturing as a share of state GDP, but that is being reversed as Wal-Mart has pulled in its suppliers to Bentonville, creating an economic boom in the northwest corner of the state. The authors note, “Average wages in Arkansas grew faster than in Oregon, North America’s manufacturing champion.”
US manufacturing can flourish, say the authors, by continuing to export and invest in research and development to remain competitive. The overall US economy also can realize a greater benefit from manufacturing by finding ways to loop in small businesses, especially ones with inventive approaches.
The authors highlight Alberta-based Poppy Barley, which teams with Mexican suppliers to produce made-to-order shoes. Unlike Asian shoe suppliers that produce in high volumes, Poppy Barley and its suppliers are nimbler, work with smaller production lots and can shift to better-selling models based on real-time results. Poppy Barley now works with four factories – up from one as recently as 2012 – where workers earn six times the Mexican minimum wage.
Attempting to promote US manufacturing by restricting foreign trade may have unintended adverse consequences, the reporting team warns. A better approach, they say, is to find innovative ways to engage US small businesses with creative ideas and flexible manufacturing to join multinationals in the stream of international commerce. It’s also imperative, they add, to ensure the workforce has access to the training it needs to fill the jobs in an evolving industrial world.