An earlier post discussed the reality behind the proliferation of “Made in China” (or other countries) labels on the goods that we purchase. The product of outsourcing of the manufacturing processes, these labels can nevertheless hide the origin of other often more valuable inputs, such as the design and brand of the product. The post challenged readers to “look behind the label to better understand the real threats to jobs and economic growth, and how to address them” . One of these realities, the post explained, was that China would remain a manufacturing superpower only so long as it is able to keep its labor and other manufacturing costs low, a situation which was already changing.
A recent Financial Times article has underscored this point. While in 2000 the average hourly rate in China was about 50 cents, today (2012) it is $3.50. Other manufacturing costs have also risen, the article continues, as the Chinese government has begun to enforce environmental regulations. Hurrah for these changes, which speak of improved standards of living for the Chinese workers. At the same time, they bring higher manufacturing costs which, when added to the shipping costs are making inroads into the competitive advantage that China has enjoyed. All of these changes are also creating an opportunity for “in-shoring,” i.e., the return of manufacturing jobs to the United States. It could also be an opportunity for other countries to take up the mantle of “manufacturing superpower”.
Which brings us to the other essential point raised in the Financial Times article. The United States or any country wishing to develop a manufacturing base in the 21st century faces the key challenge of ensuring an adequate supply of skilled labor. In the article, a U.S. furniture manufacturer whose family had been in the business for five generations had been forced to sell the factory to new owners, who then moved production to Asia. Today, the manufacturer is getting ready to re-open a factory in his North Carolina home town but faces a problem shared by many other US manufacturers – few of the unemployed former furniture workers know how to use the latest equipment. In order to pay the high wages that US workers seek while remaining competitive, US-based manufacturers need skilled workers who are comfortable with the sophisticated machines and other equipment that characterize today’s factories. Such workers appear to be in short supply. Providing vocational skills to high schoolers and retooling the skills of older workers are among the steps that must be taken to provide long-term approaches to job creation and economic growth.