The True Value of Manufacturing
by: Dan Meckstroth
The Most Efficient Sector
A recent The New York Times article examined declines in manufacturing employment over the last half-century, both in the United States and abroad. It correctly identified productivity as an important factor.
The state of manufacturing jobs will always be critical to economists. As the United States is in a major election year, the topic has been mentioned frequently by elected officials, those running for office, and the media. I would like to eliminate the political talking points and let MAPI’s research demonstrate what The New York Times may have missed in its assessment of manufacturing.
The manufacturing sector’s superior productivity growth is persistent over time, creating a large productivity gap between manufacturing and other sectors of the economy. The sector is efficient in delivering value-added—it takes about 5.8 full-time equivalent (FTE) manufacturing jobs to achieve $1 million in value-added, compared with 7.7 FTE jobs for both transportation and services and 16.9 for retail trade. Without manufacturing, our standard of living would stagnate.
One complication when assessing the value of manufacturing is determining who counts as a manufacturing worker and how to define the scope of the sector’s value chain. Official statistics are based on information collected at the “establishment”—or plant—level, as opposed to the “firm” level. As a consequence, numerous manufacturing-related activities, including corporate management, R&D, and logistics operations, are not included within the NAICS codes for manufacturing. The number of jobs at manufacturing firms is much larger than the official count of jobs at manufacturing establishments.
Further, direct calculations include only the creation of value in manufacturing’s upstream supply chain and at plants. They ignore associated activities in the downstream sales chain of manufactured goods. The MAPI Foundation finds that manufacturing’s footprint is much larger than merely the value-added at the factory loading dock. Plant activities lie near the center of a substantial and complex value chain that is composed of an upstream supply chain that includes networks of scientists and engineers, specialized material suppliers, and equipment, transportation, and other service providers plus a downstream sales chain that includes logistics and a global assortment of wholesalers and retailers. Our study of the total value chain finds about one-third of U.S. FTE jobs are linked to manufacturing.
The importance of manufacturing jobs to the U.S. economy is illustrated by a popular measure called “the multiplier effect.” For each full-time equivalent job in manufacturing dedicated to producing value for final demand, there are 3.4 full-time equivalent jobs created in nonmanufacturing industries.
In short, manufacturing’s excellent productivity improves U.S. standards of living and the sector’s value chain accounts for a sizable portion of our nation’s jobs and GDP. Manufactured goods are all around us and the effects of productivity growth are evident in the products we use every day.