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

1
Role of Advanced Manufacturing in the Future U.S.
Economy

• Yung C. Shin
• Donald A. Nancy G. Roach Professor of
• Advanced Manufacturing
• Purdue University

2
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 countrys well-being.

3
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

4
Manufacturing Share of GDP
5
Facts about U.S. Manufacturing
6
Prices of Manufactured Products
7
Manufacturing Output after Price Adjustment
8
U.S. Inflation Adjusted ManufacturingOutput and
Employment
Source Bureau of Labor Statistics and Bureau of
Economic Analysis
9
U.S. Manufacturing Sector is the Eight Largest
Economy
53 of GDP
11.7 of GDP
10
U.S. is a constant leader in manufacturing(share
of worldwide manufacturing value added)
11
Manufacturings Role in State Economics

• Largest percentages in the states GDP
• Indiana, Iowa, Wisconsin, Ohio, Kentucky, North
  Carolina, Arkansas, Michigan, Oregon
• Largest manufacturing workforces
• California, Texas, Ohio, Illinois, Pennsylvania

12
Manufacturing in Indiana
13
Manufacturing ischanging
Faster Faster
14
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

15
Why does it matter if we lose manufacturing jobs?

• Manufacturing has high paying jobs

16
Manufacturing Pays Premium Compensation
SOURCE Department of Commerce, NAM
17
Why does it matter if we lose manufacturing jobs?

• Manufacturing has high paying jobs
• Manufacturing funds much of RD

18
Role of Manufacturing

• Manufacturing companies account for 123 billion
  of the nations 278 billion spent on RD in year
  2003a 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 regions manufacturing
  companies account for 66 of the regions RD
  versus 19 of the regions total output.

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Why does it matter if we lose manufacturing jobs?

• Manufacturing has high paying jobs
• Manufacturing funds much of RD
• Innovation spurs growth in economy
• Greater impact on the rest of economy

20
Manufacturings Multiplier Effects
21
General US Manufacturing Information
22
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.

23
U.S. Manufacturing has strengths

• Productivity
• Low Inflation
• Leading in innovations

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Manufacturing Drives Productivity Growth
25
The U.S. is leading Innovation
26
Foreign Investment in U.S. Manufacturing
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Foreign Investment in U.S. Manufacturing

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

28
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.

29
Concerns in Manufacturing Innovation in the U.S.

• Federally supported RD 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.

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RD Investment in the U.S.is NOT Increasing
31
Decline in Federal Funding for Physical Sciences
32
Workforce

• People are the companys 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 todays reality.
• It is the performance of the workforce that
  provides Americas competitive advantage.

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Business Driver
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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.

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The U.S. is Falling Behind in Engineering
36
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
  RD.
• 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.