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Research Briefs | November 24, 2020

Manufacturing in America: A View from the Field

Suzanne Berger


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U.S. manufacturing and its people face great new risks and potential new opportunities. In the fog of uncertainty about recovery from COVID-19, all economic actors have to make investment, hiring, and lay-off decisions based on guesses about whether the economy’s rebound will be a sharp V-shaped ascent or a slow exit. Six months into the pandemic, manufacturing overall was faring better than retail and service industries. The National Association of Manufacturers’ Third Quarter Outlook Survey (September 10, 2020) found that 72.5% of all manufacturing companies predicted that the number of their full-time employees would remain the same or increase over the next year. When MIT researchers recontacted manufacturing firms in Ohio, Massachusetts, and Arizona that they had visited in past years, they discovered that the companies had continued to operate through the pandemic. Automotive and aeronautics suppliers were hard hit, as demand for their products shrank. But without big changes in what they produced, most manufacturers were doing fairly well, and with the help of the federal Paycheck Protection Program (PPP) had been able to keep the majority or all of their workers.

Before the COVID-19 pandemic, U.S. manufacturing had begun to recover from the severe shocks and losses of the previous decades. Between 2000 and 2016, U.S. manufacturing had shed 5 million workers, and the number of manufacturing establishments had dropped by 22%. Initial explanations of this collapse from economists such as Nobel laureate Gary S. Becker saw this as an acceleration of the more gradual long-term decline of manufacturing. In such views, this was a natural phenomenon, much like the century-earlier decline of the agricultural workforce, as technological advances led to productivity growth and to turning out more goods with fewer workers.

Accounts that focused on productivity growth as explanations for the rapid collapse of manufacturing over a decade and a half have now been largely discredited by the research of Susan Houseman and others who have shown that productivity rose only in the computer and electronics sector, which in that industry can largely be accounted for by a fall in the price of imported inputs and unaccounted-for product improvements. The reality is, rather, that productivity growth in manufacturing in the United States is slow relative to that in other advanced industrial countries, with more workers employed in manufacturing than in the United States. Economists generally acknowledge that manufacturing collapsed under the onslaught of imports of cheaper goods from low-wage countries, particularly from China after its admission to the World Trade Organization in 2001. Still other major factors, such as the pressure of financial markets, contributed to the undermining of manufacturing over those years of decline.

Today, manufacturing companies and their workers face new challenges: technological changes that might allow big companies to take over functions which suppliers now provide; a retirement wave of older manufacturing workers; scattered resources for educating new workers in the skills required for advanced manufacturing systems; and strong competition from abroad. COVID-19 has raised the urgency for U.S. manufacturers to commit to new pathways. One possible trajectory might emerge from wider and more rapid adoption of new automation technologies and new skills. Another pathway might emerge from the U.S. retreat from globalization, which could bring back within national borders some of the outsourced and offshored production of the past 30 years. What may be opportunities in these scenarios for some firms and workers may be risks for others. If automation in large firms allows them to grow but to shrink their workforce, many workers will not do well in the coming years. If tasks that have been outsourced to China are forced by new protectionism to return to the United States, new jobs might be created at domestic suppliers. But prices would rise, and consumers will pay the cost. If large firms grow at the expense of small and medium-sized manufacturers, productivity and U.S. economic growth might accelerate, but the impact on smaller companies, their workers, and their communities may be heavy. On this terrain of new possibilities, the outcomes, winners, and losers are not yet determined. Here, we can identify spaces in which public policies on procurement, trade, R&D, taxes, and workforce education could shape and reshape opportunities for workers and firms.

Decisions on automation, new production, and outsourcing will be made by individual company owners, but much is at stake for the national economy. After years of slow productivity growth and an even slower increase in blue-collar wages, there is a strong case to make for national policies to raise the tides on which manufacturing companies could advance more rapidly. After months of COVID-19, there’s new public demand across partisan divides for relocating in the United States the production of goods and services essential to health and well-being: factories for textiles that could make protective clothing, plastics factories that could make room dividers or face screens, and pharmaceutical plants that could make common drugs like acetaminophen as well as vaccines. To design public policies that would make it more likely that U.S. industry raises productivity growth and expands its capabilities for making essential goods within national borders, we need to start from an understanding of manufacturing that is closer to the current realities on the ground than standard models provide.

The research team on manufacturing of the MIT Task Force of the Work of the Future has spent the past two years on factory floors in Massachusetts, Ohio, and Arizona trying to develop such an understanding. In this report, we first consider standard approaches to adoption of new technologies on factory floors; next, we present our research team’s “bottom-up” approach and its findings from factory visits on why, when, and how firms acquire new technology; then we outline our team’s findings on how firm strategies affect hiring, skill upgrading, and the impact of new technologies on workers; and finally we conclude with some suggestions on levers for change in manufacturing.