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OM in the News: US Productivity Gains Make Manufacturing More Competitive

January 18, 2012

Two recent articles in the Wall Street Journal provide some good talking points as you start your new semester, discussing productivity in Chapter 1. The first piece (Jan.12,2012), reminds us that manufacturing employment in the US has declined steadily in the past 6 decades. And despite a growth of 334,000 jobs in the past two years, we are still down 2.3 million factory jobs since the recession began. “That’s not to say American manufacturing is withering,” writes the Journal. “Factories have been producing more with fewer workers.” Productivity is up an amazing 40% since 2007 as producers have adopted new technologies, with  better-skilled workers whose wages are staying low.  And,  “Productivity, in the long run, is good. US manufacturing may do ok in the  decade ahead,” especially as the cost of manufacturing overseas  narrows. Modern factory  jobs that require “brainpower often pay well and are secure.”

The second Journal  piece (Jan.6,2012)  cites sharply lower costs in the US relative to Canada and describes how US manufacturers have become more competitive globally because of efficiency, flexible work standards, and increased automation. The US, with a decrease of 13% per unit of output since a decade earlier, has outperformed Germany (where costs are up 2% ), Canada (up 18%), and Korea (up 15%). This means some manufacturers are bringing production back to the US, partly to reduce logistical snarls and to take advantage of the cheap dollar and cheap natural gas.

In particular, the article cites Caterpillar (moving  jobs from Ontario, to Illinois, where wages are 1/2 of what they are in Canada),  Navistar (from Ontario to Ohio  for lower wages and more flexible work rules), Electrolux (from Quebec to Tennessee), and Siemens (from Ontario to North Carolina). There is a short video embedded in the Journal article.

Discussion questions:

1. Will the US ever recover the full number of manufacturing  jobs lost?

2. Why has productivity increased so dramatically in US factories?

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