Manufacturing's Worker-less Future

The picture of manufacturing's future in America is coming into focus, and it's not pretty. A region like the Midwest, that hopes its glory days of industrial power will come back, should take heed.  

The signs are everywhere, especially in the collapse of manufacturing employment when the recession began and the slow recovery since then. But some recent articles highlighted the changing nature of manufacturing -- the growing use of robots to do jobs that men and women used to do, the increasing ability of corporations to hammer down wages and benefits, and a growing skepticism about the much-vaunted shortage of highly-skilled manufacturing workers and the willingness of companies to pay for them.

If there's a link in these stories, it's the global economy and its impact on manufacturing. Much manufacturing has gone overseas, forcing Midwestern workers to compete for jobs with workers in China and other countries making one-tenth as much as they do. Employers who don't want to pay American-style wages but are dissatisfied with Chinese-style quality have two choices -- push down wages or turn to robots, which never take coffee breaks and don't get pensions.

Both are happening.

A peek into the future indicates a probable return of much manufacturing to the United States and other first-world nations. But this manufacturing is likely to produce ever fewer jobs. And those jobs will pay less and offer fewer benefits than before.

A story in the New York Times told about two Philips Electronics plant, one in China where hundreds of workers assemble electric shavers by hand, and the other in the Netherlands, where 128 robots do the same work, overseen by a work force only one-tenth as big as the one in China. The same automation is transforming not only manufacturing but distribution, with robots doing the work that forklift drivers once did. 

"This is the future," the Times said. "A new wave of robots, far more adept than those now commonly used by automakers and other heavy manufacturers, are replacing workers around the world in both manufacturing and distribution."

There are still jobs that robots can't do -- most construction work, for instance. But a new generation of robots permits precision work far beyond that done by earlier robots. There is no reason to think this process will be reversed.

The reason, of course, is cost. The Times cited one robotic system that cost $250,000 and replaced two machine operators, each earning $50,000 per years. Thus, the robots paid for themselves in two and a half years: over their 15-year lifespan, they saved the company $1.25 million in base wages, plus another $2.25 million in benefits and increased productivity.

Of course, if the two employees each made only $25,000, it would take the company five years to amortize the investment. If the employees wanted to keep their jobs, they would have been smart to take a 50 percent cut in wages.

Which is what manufacturing workers are being asked to do -- and are agreeing to do.

A bellwether event in this process took place this month in Joliet, southwest of Chicago, where Caterpillar demanded that workers hired before 2005 accept a six-year wage freeze, while those hired since 2005 agree to a one-time 3 percent wage increase. All this was coupled with doubled worker contributions to health programs, a pension freeze and diminished seniority rights.

The machinists, outraged, struck. Three and a half months later, they caved in. Partly, they were feeling the loss of wages. But more, they knew that their jobs could be moved overseas -- Caterpillar already has facilities in China -- or could be replaced by robots.

Caterpillar demanded the deal despite record profits over the past year. It argued that its machinists were paid more than the market average -- the company has a two-tier wage system, with top-tier workers making $26 an hour and lower-tier workers $12 to $19 per hour -- and the concessions were needed to keep Caterpillar competitive and to enable the company to keep jobs in this country .

Unfortunately for the workers, Caterpillar probably is right. Caterpillar is a global corporation and needs to pay globally-competitive wages, which may end up being far below the American norm. And workers know the company has the ability and proven willingness to ship their jobs overseas unless it gets what it wants.

In this sense, the workers' plight lies in the arrival of the global economy, not in Caterpillar itself. The company traditionally has been a tough labor negotiator, and is only doing today what other companies probably will do in the future. 

None of this implies that what Caterpillar did was illegal. But it was certainly unfair. Any company that squeezes its hourly workers in a year of record profits and solid increases for executives is behaving unfairly. Caterpillar may not care about this appearance of unfairness. The workers care, of course, but as the strike showed, they are powerless.   

This is the problem facing industrial unions. Any union's most powerful weapon is the strike, which it once could wage and win because companies had nowhere else to go. Now they can, which makes most strike threats meaningless.

But still, there are some manufacturing jobs for which there are many openings and few applicants. Given the law of supply and demand, there should be solid salaries available for industrial workers with the right skills. Or so you'd think.

For years, Midwestern manufacturers have complained that they can't find qualified workers for high-skilled jobs -- welders, for instance, or machinists. This complaint gets aired at virtually every meeting of manufacturers and has been taken to prove that employers are willing to pay good wages to qualified workers.

An interesting story in the Minneapolis Star Tribune indicates there may be less to this than all the noise indicates. If there is a shortage of skilled welders, it said, you'd expect welding wages to be rising to lure good workers to the trade. But welding wages in the Midwest have actually been trailing inflation. 

Ditto for machinists, another trade in allegedly short supply. This shortage obviously didn't stop Caterpillar from freezing its machinists' pay. In Minnesota, the paper said, hourly wages for machinists have gone up in the past seven years by more than inflation -- nine cents more.

There are two conclusions here. One is that the so-called "skills gap" is a chimera. The other, more likely, is that would-be welders and machinists are assessing what global-era employers are likely to pay them, and are choosing some other job instead.  

Comments

[Erik]

Great thoughts! Living here in Peoria for the past 2 years, I can tell you that sentiment towards CAT is on the rapid decline. However, those lucky enough to have jobs consider them so and often the perception for the rest is that they want a job "just like that one."

As you have explained, the employed of these manufacturing jobs are virtually powerless in this Global Economy ruled by the almighty hourly wage. It's a sad truth, but now reality.

So what do cities do? Continue to hope to reel in the big fish of manufacturing. Packaging together a ransom of incentives to give to these companies who in turn aren't investing the same back into the communities the same way. It's a vicious cycle. City leaders think we are a few hundred manufacturing jobs away from the "old days," but those days are over.