Higher Skills, Fewer Jobs

In the past three years, U.S manufacturers have suffered their most dramatic job losses since the Great Depression. Even with the turnaround in job creation reported this fall, manufacturing lost another 19,000 jobs in November.

The sector's low-skilled and lowest-paid workers have been especially hard hit because they engaged in repetitive work at outmoded plants. But even more highly skilled workers who performed statistical process control in automated clean rooms weren't immune. Manufacturing job opportunities for the high-school educated have evaporated across the board.

The 48 percent of Americans over 25 with no education beyond high school have traditionally looked to the manufacturing sector for jobs, and for good reasons: Not only does manufacturing pay better than average but manufacturers often provide the high-school educated with a semblance of a career ladder compared with alternatives in fast food, warehousing and other low-wage but fast-growing service industries.

For nearly a quarter-century, the leading thinkers in workforce development have preached a consistent sermon on how to maintain these good job opportunities for the non-college-educated crowd. By adopting Japanese-style lean manufacturing techniques and training their workers to perform in a computerized and robotized environment, U.S. manufacturers could compete with anyone in the world. Indeed, the jobs that remained would pay better than the ones that fled offshore. It was the task of employers to take the high road and modernize their factory floors.

And it was the task of the schools to provide young people with the basic skills and attitudes needed to thrive in the new environment. Working in manufacturing no longer meant showing up at the factory door on time and ready to take orders; a displaced peasant in China or Indonesia could do that. The modern American factory worker had to be able to read, compute, solve problems, work in teams and be willing to take on a half-dozen tasks in the course of a typical day. If they were going to get paid 10 times as much as workers in the developing world, they would need to work 10 times as smart.

However, something went terribly awry on the way to the manufacturing high road. Opportunities for the semi-skilled have suffered a severe setback in the recent recession and this thus-far jobless recovery. The United States has lost 2.6 million manufacturing jobs since George W. Bush became president. Since the recent peak in the spring of 1998, the United States has lost more than 3 million manufacturing jobs, or one in every six. As of this writing, the sector has suffered 40 consecutive months of job declines. Many economists, including some leading liberal ones, have resigned themselves to the gradual withering away of manufacturing jobs -- like agriculture after the turn of the 20th century.

What's happening? Are companies vanishing because they failed to modernize? Have the productivity gains fostered by the computer-robot revolution finally outstripped the nation's ability to consume and export? Are firms being overwhelmed by a flood of cheaper imports? Have these jobs disappeared forever, even after the economy recovers? And, most important of all, what does it mean for high-school educated workers, or even those with community-college training, who upgraded their skills in hopes of finding a place in this better-than-average-paying world? Has the high road turned into a narrow pass, accessible only to a lucky few?

The answer to all those questions, I learned from touring factories that span the technological spectrum and reviewing recent research from the Russell Sage and Rockefeller foundations, is "yes."

The Jytek Industrial Park in Leominster, Mass., about 50 miles west of Boston, was built during the 1960s to meet the needs of the region's growing plastics manufacturers. The park's 20 single-story buildings, with accessible loading docks and attractive front offices, line a meandering drive just a few miles from an interstate entrance.

But the park's modern appearance is deceptive. Several companies in the park have recently gone out of business. Others operate with skeleton crews or shut down for weeks on end.

Basque Plastics Corp., run by 53-year-old Cliff Basque, who took over the business from his father a decade ago, is one of the firms struggling to hold on. Basque's sales in 2003 will total $1 million, less than a third of what they were five years ago.

Back then, Basque Plastics was one of the more successful small companies in the park. It sold computer-disk boxes, printer parts and bird feeders to Fortune 500 manufacturers and big-box retailers. Basque did not rely on leading-edge technology to stay competitive. He instead used $8- to $9-an-hour nonunion workers, many of them Hispanic, to scrape the excess plastic from the finished parts as they fell from his machines' molds before hand packing them in boxes for shipment to their final destinations.

The company maintained its niche, and even grew, by supplying nearby manufacturers and assemblers who had small orders and needed quick delivery. It was the kind of work that could never go offshore, Cliff Basque assumed. At its peak the company employed 45 people, 30 full time and the rest from temporary agencies when orders got backed up. John Ballantine, a finance professor at Brandeis University's International School of Business, visited Basque Plastics when it was in full swing. "These firms have found ways to survive," he says. "Low-wage. Temporary workers. ... [T]hey went to temporary workers in the mid-1980s as a way to serve their markets, which have seasonal demand."

But those strategies failed to insulate the company from the recent cooling trend. First, disk-box manufacturing followed the disk manufacturers to China. Then the bird feeders went as well. "I've lost almost half of my business overseas," Basque says. "Before, business would slow, but it was still there. It was an inventory correction. But now the work has simply gone away." He released the last of his temporary workers this past fall.

During a tour of Basque's factory, we walk past his 17 aging plastic-injection molding machines. Only two are operating. He estimates his capacity utilization is 20 percent. That sounds generous.

The one machine operator on the floor is a woman in her 60s. She offered to work three days a week at near minimum wage so she'd have something to do in retirement. The other, more skilled workers who remain -- a tool-and-die mold builder, the mechanics -- are well into middle age. Historically the company had relied on getting in on the ground floor of new products at larger firms -- like the disk boxes -- and growing with their business. Basque is looking for something like that now, so far without success. "The growth industries? I don't know where they are," he says.

In nearby Clinton, Mass., Nypro Inc., the sixth-largest plastic-injection molder in the United States, held its own through the recent downturn, making everything from cell-phone casings to drug inhalers. The employee-owned company represents a textbook example of how a U.S. manufacturer can stay globally competitive by adopting advanced technology, training its workforce and providing leading-edge designs for top-drawer customers like Nokia, Motorola, Dell and Pfizer.

Nypro experienced explosive job growth in the 1990s compared with most domestic plastic manufacturers. It doubled its workforce to 10,000 in 60 facilities in 16 countries. Most of the growth came overseas, especially in China. But the company also added 1,600 workers to its U.S. workforce, which now totals 4,200.

The recent downturn has stopped Nypro's growth in its tracks. Last year, worldwide sales grew just 2.6 percent, to $605 million. Domestic sales declined. Over the past two years, there were two small layoffs at the company's picturesque Clinton plant, which is housed in a converted carpet mill that dates from the 1840s. The company's original U.S. factory now employs about 1,000 workers, down from 1,100 at its peak.

Once inside the mill, it's easy to understand how Nypro managed to weather the storm with minimal damage. Almost all of its manufacturing processes have been automated, a change that has been ongoing for more than a decade. In a room dedicated to making an unobtrusive insulin injector for Eli Lilly (they're shaped like pens), plastic pellets travel from basement drying machines through pneumatic tubes and into plastic molding machines. At each machine, a twirling robot inserts the internal parts of the insulin pens into the mold on the front end of the process, and at the end pulls the finished products from the machine and inserts them in a box. A conveyor belt carries the bar-coded shipping container past an optical-recognition system that reads and records the data. This industrial ballet takes place in a clean-room environment where the workers wear hairnets and booties to avoid contaminating the medical device.

The workers (there are just seven in a room with 20 machines) do not operate the equipment. They watch over it. They keep detailed production logs. They occasionally measure individual parts coming off the line to ensure that the machines haven't begun turning out injectors that don't meet Eli Lilly's exacting standards. It is somewhat complex work, but nothing that a reasonably diligent, high-school educated person couldn't do.

Because of their productivity, the 600 production workers at Nypro earn about $14 an hour once they've been on the job a few years. This is significantly more than the few remaining production jobs at firms in nearby Jytek park that haven't modernized their operations. Writing in the study "Low-Wage America: How Employers Are Reshaping Opportunity in the Workplace," Ballantine and Ronald Ferguson note that "these wage and benefit differences are far from arbitrary. Instead, they represent strategic, firm-level decisions calculated to attract and retain workers with skills, attitudes, and work habits that firms deem necessary for their business success."

But in the years ahead there will be fewer and fewer of these good jobs, even at Nypro. In its most up-to-date clean room, the company recently invested $6 million in new equipment for manufacturing inhalers for another major pharmaceutical firm. The totally automated line can make and combine 13 parts into a finished, boxed product ready for shipment. Not once are the parts touched by human hands.

"How do you justify a $6 million equipment purchase for such an inexpensive part?" Al Cotton, a company spokesman, asks. "You make it self-diagnostic. Any breakdown on the line is immediately identified on the overhead scoreboard," which hangs from the ceiling above the circle of machines. It takes just one operator and one quality-control person to manage the entire system.

Future job opportunities at Nypro will be further up the skill chain. The company is increasingly involved in designing parts for its customers and building ever more efficient and effective molds. A decade ago, the company earned 90 percent of its revenue from stamping parts. Last year it was about half. The plant's future clearly rests on its 20 engineer-designers and 150 elite tool-and-die mold makers, who earn $60,000 a year and more.

To recruit and train these highly skilled workers, the company runs its own two-year college in conjunction with the University of Massachusetts Lowell. It teaches everything from basic injection molding and statistical process control for entry-level workers to mold designing and blueprint reading for workers seeking to advance. The company even offers its courses online to potential plastics people around the world.

To move up the ladder into one of these premier jobs, however, you have to get in the front door. And getting in the front door, for most of Nypro's blue-collar workforce, means starting in the temporary-employment office. The company maintains about a tenth of its production workforce on temporary status, which has substantially lower benefits and pay (about $9 to $10 an hour) than regular employees. The lower pay doesn't mean that the temporary jobs are easy to get, though. Before becoming a temp, applicants must show a high-school diploma, pass a standardized reading and math test, and make it through a rigorous interview that screens people for their dependability and trainability. Once on the shop floor, company officials carefully scrutinize their work to determine who will be offered permanent jobs. For the best of them, the temp-to-hire process usually takes about three months.

"The temp workers we talked to felt the system was wasteful because they thought they had proven themselves as good workers long before they got the opportunity to become permanent," says George Erickcek, a senior analyst at the W.E. Upjohn Institute for Employment Research. "They felt a little bit abused [because] they did not get the benefits nor the wages that the permanent workers got." On the other hand, "The permanent workers thought this was a good process. They had been successful, and saw it as a buffer. Once you were permanent, you had more job security. They knew the temporary workers would be let go first."

Indeed, the number of people squeezing through the funnel has fallen sharply in recent years. Nypro released 40 temporary workers last February. Manufacturing of computer parts and cell-phone casings has increasingly migrated abroad, to those countries where the equipment manufacturers assemble their products. "We're heading to 100 percent medical products in this plant," Cotton says. "You can't make them abroad and ship them back to the United States and still meet [Food and Drug Administration] requirements."

Though overseas competition remains a paramount concern for most manufacturing firms (a recent Goldman Sachs study suggests imports accounted for slightly more than a third of recent job losses), the main story behind declining job opportunities in manufacturing remains the extraordinary gains in productivity of recent years. U.S. productivity growth during the bubble years would have stayed stuck in an intolerable 1 percent to 2 percent range had it not been for the stunning 4.3 percent gain in manufacturing productivity. Forget e-mail and the Internet, which, if anything, have only served to extend the white-collar workday. It's the increasingly robotized and computerized smart factory that is leading the productivity parade.

In the past five years alone, General Motors lopped five and a half hours, or 18 percent, off the number of person hours it takes to assemble a car. Even before the recent recession, U.S. manufacturing output was twice what it was two decades ago (with about the same number of workers). As this recovery progresses, manufacturing output is rebounding sharply even while jobs are still being cut. In the basic steel industry, about 125,000 U.S. workers produced 74.8 million tons in the first nine months of 2002. Just one year later, 3.2 percent fewer steelworkers upped the industry's output by 6.8 percent, according to data from the American Iron and Steel Institute.

The nature of work inside the mills has changed dramatically since two decades ago, when there were three times as many workers in high-paid industries like steel. Workers no longer speak about operating the equipment but monitoring it, according to Casey Ichniowski, a professor of management at the Columbia University Graduate School of Business who studied the basic steel industry in the 1990s. Backbreaking jobs have virtually disappeared; now workers need data-analysis and problem-solving skills. "The technology made you a technician instead of an attendant," Ichniowski says.

And because the wages are so high (about $20 an hour plus benefits in the heavily unionized sector), the hurdles for the few replacement workers hired in recent years have also been raised. At one mill, applicants went through an eight-step selection process, including standardized academic tests, problem-solving exercises and interviews. Ichniowski and his co-authors in "Low Wage America" are convinced that U.S. steelmakers can compete using this highly paid and highly skilled workforce because "labor costs are a fairly small part of steel production." Their real problem is that "integrated U.S. steel firms are suffering under the huge overhead costs of pensions and health care owed to retired workers."

It's never too late for manufacturers to begin modernizing and save some jobs that might otherwise be lost to overseas competitors. On Chicago's near-southwest side, 32-year-old Dwan Powell recently began a $13-an-hour job in the brass-plating operation of a lamp-parts manufacturer, Chilo Manufacturing and Plating Co. The company now employs 28 workers, down from 70 in 1998, as more and more of its customers turn to China for their entire lamps.

But Chilo's brass-plating business is growing. A year ago, faced with an Environmental Protection Agency cease-and-desist order, the company spent $1.2 million on an automated plating line that uses fewer chemicals and less water, recycles its wastes (instead of dumping them in the city sewer), and generates a higher quality and more uniform final product. Employment in the division went from five to 10 workers as other companies in the area began sending it work. Their job titles -- quality-control engineer, preventive-maintenance technician, waste-treatment operator -- accurately describe the changing nature of work inside the plant.

Powell, who had been laid off from his job as a cable installer before getting a job at Chilo, performs multiple tasks as lead operator on the line. The former high-school football player's 6-foot, 300-pound frame easily shovels the finished parts from the bin where the automated basket dumps them after they're plated. But then he carefully weighs and measures a few of the parts, and logs the results. Occasionally he adjusts the electricity flowing through the vats to ensure a uniform coating.

"This is pretty interesting, and I don't fully understand it yet," Powell says. "I'm still learning." A picture of his two children is taped to a steel beam near his work station. The company's announcement that it will soon add health insurance to hold on to more highly skilled workers like Powell is a welcome development.

Meanwhile, the parts-stamping end of Chilo's business, which pays about $10 an hour, continues to lose jobs. "Any company that is trying to rely on low-cost labor is going out of business," says Keith McKee, a professor of manufacturing at the Illinois Institute of Technology. "Most of the unskilled jobs have moved overseas. The unskilled people who can't read or write -- there are no jobs for these people in manufacturing today."

To be sure, even modernizing won't save all the jobs that once existed. The surge in manufacturing productivity, which shows no signs of abating, guarantees that the sector will probably add back few of the jobs lost in the recent downturn.

Indeed, the upsurge in manufacturing productivity is a global phenomenon. A recent study from Alliance Capital's research unit points out that between 1995 and 2002, there was a global decline of 22 million manufacturing jobs, or 11 percent of the total. Even China lost 15 percent of its manufacturing jobs -- largely because of the collapse of its state-run sector.

Even if a new administration pursued the best policies available, the manufacturing productivity revolution ensures that the sector will never again be an employment driver in the U.S. economy. It is still critically important that the United States continue to invest in upgrading the skills of its non-college-educated youths. It improves their lifelong earnings capacities no matter where they end up. Governments at both the state and national level should expand programs for helping small- and medium-sized manufacturers modernize so that the United States can hold on to the high-paying end of manufacturing, which generates the new ideas and added value in the sector. It's also important that the United States continue to keep a vigilant eye on predatory trade practices by foreign firms and governments. America needs manufacturing. Our workers and companies shouldn't be robbed of the chance to compete.

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