Manufacturing in the U.S.
Manufacturing is good for workers
Manufacturing jobs pay higher wages and offer more generous benefits than non-manufacturing jobs. Figure 1 shows the average hourly wage for manufacturing workers in the U.S. was $29.75 in 2010,1 8 percent higher than the $27.47 paid in non-manufacturing industries. Manufacturing workers earn 59 percent more ($8.52 per hour vs. $5.37) in benefits than non-manufacturing workers. In part, these differences reflect the fact that manufacturing workers are more likely to receive retirement benefits (78 percent vs. 62 percent) and health benefits (90 percent vs. 66 percent) than non-manufacturing workers.2
The higher wages and benefits of manufacturing careers are not due to manufacturing attracting a higher share of workers with college degrees or more experience. For instance, Figure 2 presents the average wage (left panel) and share with health insurance (right panel) for manufacturing and non-manufacturing workers by education level. At all levels of education, manufacturing workers earn more on average than non-manufacturing workers. At all levels of education, manufacturing workers are more likely to have health insurance.
Over the past 20 years, however, wage growth in manufacturing has been slower than in non-manufacturing at all levels of education (and was negative for low-skilled workers). As such, the manufacturing wage premiums are smaller today than they were 20 years ago, but they appear to have grown in recent years.3
Manufacturing workers are half as likely to quit their job as are other private-sector workers,4 and manufacturing workers have higher productivity and higher value-added per worker than their non-manufacturing counterparts.5
Manufacturing is good for innovation and long-term economic growth
Some economists consider innovation the “single, most important component of long-term economic growth.”6 Over the long-term, regions grow through one of two means. First, a region can accumulate more of the four forms of capital – workers and skills, machines and infrastructure, natural resources or social institutions and trust. Second, a region can grow by getting more output from the resources they already have – in other words, they innovate. A substantial proportion of growth stems from existing businesses through innovating.7
Innovation results from a variety of factors, including efforts to create new products or processes and from employing people with the skills and training to come up with new ideas. That means that innovation is closely related to investments in research and development and the employment of workers with Science, Technology, Engineering and Mathematics (STEM) training. Compared to other sectors, manufacturing firms invest a much larger amount in research and development, and they employ a much bigger share of STEM workers. As a result, they produce more innovation.
Manufacturing is good for research & development
In 2009, $400 billion was invested in research and development in the U.S. Figure 3 shows $195 billion of this was from manufacturing firms: 49 percent of the overall total and 69 percent of the total invested by private industry.
In 2009, Oregon ranked 13th among states in research and development investment as a share of Gross Domestic Product. Oregon’s relatively high ranking stems from very high business investment in research and development. Eighty-four percent of Oregon’s research and development dollars comes from business investment with the remainder primarily from government sources.
Manufacturing is good for STEM workers
Manufacturing employs a higher percentage of workers with science, technology, engineering and mathematics (STEM) degrees than other sectors. Nationally, one-third of college-educated workers in manufacturing have a STEM job. In contrast, only one-tenth of college educated workers outside of manufacturing had a STEM job. STEM concentrations are even higher in Oregon, where 45 percent of college-educated workers in manufacturing have a STEM job. By contrast, only 19 percent of college-educated non-manufacturing workers have a STEM job (Figure 4).
Greater research and development investment and more STEM workers explain in part why manufacturing firms are much more likely to report innovation. Between 2006 and 2008, 22 percent of manufacturing firms reported that they introduced a new or significantly improved product or service, and 22 percent of manufacturing firms reported a new or significantly improved process. In contrast, only 8 percent of non-manufacturing firms reported introducing a new or significantly improved product, service or process.
Based on these facts, many economists argue that a functioning manufacturing sector is important – and perhaps critical – for economic innovation and thus a healthy economy.
Manufacturing is good for the local sector
Nearly all manufacturing falls in the “traded sector.” In other words, most manufacturing firms make products in one place and sell them to consumers in other places. A previous report, conducted for the Value of Jobs Coalition, showed the important role played by traded-sector firms in regional economies.8 One of the main themes of that report is the effect of a healthy traded sector on the local (or non-traded) sector.
Manufacturing, as part of the traded sector, generates the same positive effects on local sector employment, income and activity. On average, each additional manufacturing job generates 1.5 jobs in the local economy.9
Several recent studies document the effects of manufacturing on the local economy. Comparing places where large manufacturing facilities were built to the other areas considered for the same plant, these studies find that adding a large manufacturing plant to an economy increases property values by 1.1 to 1.7 percent. They also find that local firms in the same industry in the winning location experience faster productivity growth, suggesting that winning the plant generates spillover benefits for other local businesses and employers.
Generally speaking, more manufacturing generates more activity in the local sector and is associated with higher property values, greater employment in the local sector, higher wages outside of manufacturing and greater productivity within manufacturing.
1 The figure and the national compensation data come from Langdon, Lehrman (2012) “The Benefits of Manufacturing Jobs,” U.S. Department of Commerce Economic and Statistics Administration Issue Brief #01-12.
2 City specific data on retirement benefits and the cost of benefits are not available; however, data on health insurance coverage indicate that differences in health insurance coverage by industry resembles the national data described above.
3 Lombardi, B. and W.A. Testa (2011) “Why are manufacturers struggling to hire high-skilled workers?” Chicago Fed Letter August 2011, Number 289, Langdon and Lehrman (2012)
4 Bureau of Labor Statistics, Job Openings and Labor Turnover Survey
5 Genre, V., K. Karsten, D. Momferatou (2009) “Understanding inter-industry wage structures in the Euro area” IZA Discussion Paper No 4114.
6 Rosenberg, N (2004) “Innovation and economic growth” OECD.
7 Rosenberg (2004).
8 Ward, B., P.Thoma, T. Moore, and J. Tapogna (2012) “The traded sector in Portland’s regional economy” ECONorthwest.
9 Moretti. E. (2010) “Local Multipliers” American Economic Review.