When The Labor Disappears

Evaluating the strength of U.S. manufacturing according to the number of people employed in it is like evaluating the range of an automobile according to how much gas in the tank. The gas is an essential input, but it’s not the only factor. Fuel efficiency will determine how much distance the car can get out of a given volume of gasoline.

In the same way, the quantity of employees in a given plant may be a critical input, but it’s still nothing more than an input. The productivity of the equipment, processes and systems that those people use will determine just how much output the plant can deliver. For most U.S. manufacturers, this productivity is way up. As a result, while manufacturing employment may be much lower than it once was in this country, the headcount is no measure of vitality. The overall output of U.S. manufacturing is the highest it has ever been.

This productivity may be more fortunate than we know. Data reported by the National Council for Advanced Manufacturing suggest that a profound shift lies ahead. In 12 years, 20 percent of the U.S. workforce will disappear. That is, 70 million people will retire, but only 40 million will replace them. Efficient use of labor is about to become dramatically more important.

Imagine being invested in some service industry, or in a business that is highly dependent on manual labor, and facing this change. The recent attention to illegal immigration in the media and in the government provides a clue to what the demand for labor may look like. Already, businesses in some industries are so desperate for labor that they feel compelled to edge outside the law in order to find it. In the future, we are likely to see that same kind of desperation reaching higher and farther to encompass a much larger range of available jobs.

It may be understandable that the decline in headcount in our own industry over the years has been falsely seen as a decline in the industry itself. However, I think the strength of our industry is about to be revealed. U.S. manufacturing has internalized the importance of maximizing labor’s value, and our productivity is only going to get better. While we certainly need employees—and many plants struggle to find good ones—we do not need labor in the same volumes that other industries do.

In short, when the labor disappears, we will be affected less. Far from being weak because headcount is low, U.S. manufacturing is secretly well-positioned to face the challenge that is coming.