American Manufacturing Resurgence Accelerates

Comments Off on American Manufacturing Resurgence Accelerates
American Manufacturing Resurgence Accelerates

Between 2000 and 2009, as tens of thousands of American factories closed their doors, the nation lost 6 million manufacturing jobs, according to the Bureau of Labor Statistics.  The Economic Policy Institute estimates that about one-third of those jobs—2.1 million—went overseas to China.

At the time, the financial incentives for off-shoring production to China seemed impossible for companies to ignore.  In 2001, Chinese factory workers were earning just 72 cents per hour, while American factory workers in southern states were making $15.81 per hour.  Even with shipping costs, it was cheaper to outsource production to Chinese factories than to pay American workers.

But less than a decade and a half later, the economics have changed.  There are four reasons why American manufacturing is currently making a comeback despite foreign competition.

The first reason is that Chinese wages are rising.  The increases have averaged 15 to 20 percent per year over the past decade, but in recent years the increases have been even larger.  For example, in 2010, Foxconn International doubled wages for its workers in Shenzhen in response to a wave of suicides by employees.  In that same year, strikes at Honda plants forced the company to give all of its workers raises of 47 percent.

This escalation of wages means that, instead of 72 cents per hour, Chinese workers are projected to make $6.31 per hour by 2015, according to Hal Sirkin, senior partner at Boston Consulting Group (BCG). 

Even though the difference in labor costs was $17 per hour as recently as 2006, the gap is expected to narrow to just $7 per hour by 2015, according to economist Dan North.

The second reason is that U.S. manufacturing workers are more productive than factory workers in other countries.  According to the Bureau of Labor Statistics, American factory workers produce $73.45 per hour in output, which is twice as much as factory workers in Taiwan.1 

Even more compelling, U.S. manufacturing productivity is accelerating rapidly.  According to Bureau of Labor Statistics data analyzed by Mark J. Perry, University of Michigan professor of economics and finance, using 2011 dollars, the average U.S. factory worker in 1950 produced $19,500 in output. 

Twenty-six years later, output doubled to $38,500 in 1976.  Twenty-one years after that, it doubled again, to $74,400.  Only 13 years later, output doubled once more, to $152,800 in 2010. 

So not only is productivity increasing, but also the rate at which it is increasing is increasing.  Today, as Perry points out, the average American factory worker produces more output in one hour than it would take 10 hours to produce in 1947...

To continue reading, become a paid subscriber for full access.
Already a Trends Magazine subscriber? Login for full access now.

Subscribe for as low as $195/year

  • Get 12 months of Trends that will impact your business and your life
  • Gain access to the entire Trends Research Library
  • Optional Trends monthly CDs in addition to your On-Line access
  • Receive our exclusive "Trends Investor Forecast 2015" as a free online gift
  • If you do not like what you see, you can cancel anytime and receive a 100% full refund