News Column

Factory productivity offsets job losses

July 17, 2014

By Margot Roosevelt, The Orange County Register

July 17--California has lost nearly 40 percent of its factory jobs since 1990, mirroring national trends. But thanks to soaring productivity and clusters of high-tech companies, the state remains the country's biggest manufacturing powerhouse, with the value added by its industries growing at twice the national rate.

A new report by the Los Angeles County Economic Development Corporation, a nonprofit research group, finds encouraging trends in a survey of California's manufacturing data, offering a sober counterweight to widespread public hand-wringing over the state's competitiveness and business climate.

"We are optimistic about manufacturing in California," said Economist Christine Cooper, the report's lead author. "The state has great competitive strength in a wide variety of industries."

California is competitive in high-technology sectors, including semiconductors, computers, peripherals electronic components, communications equipment, and the sophisticated radar and satellite instrumentation used in aerospace, the report notes.

The state is also competitive in low-technology industries, such as apparel, beverages, machinery and food processing, it found.

Despite Texas Gov. Rick Perry's highly publicized efforts to poach California businesses, the Golden State beat out the Lone Star State in its contribution to the nation's manufacturing gross domestic product, 11.4 percent to 10 percent in 2012, the most recent year for which complete data is available. California had 1.25 million factory jobs; Texas had 863,568.

The 64-page report, titled "California'sManufacturing Industries: Employment and Competitiveness" describes the dramatic industrial upheaval led by revolutionary advances in materials, an explosion of computing power and the globalization which has made it possible to move factories to countries with lower labor costs.

Perry Wong, a Milken Institute economist who specializes in manufacturing, praised the report for "illustrating that global trends are cutting into our manufacturing employment, but California maintains competitiveness domestically."

He said, however, that the conversation should turn to ways the state can improve its position.

"Is there something that we could do better?" he asked. "Other states are gaining in auto equipment and aerospace. And in biotech, with our first-class universities, we could be even more competitive."

In California -- and globally -- far fewer workers are needed when products are designed, modeled and simulated digitally. An early example: Boeing's 777, the first "paperless" aircraft manufactured with only a single prototype.

"Manufacturing is becoming a desktop capability," the report noted.

As Cooper, the report's lead author, put it: "The engineering may be done in the cloud, with a design team in Shanghai or San Jose, while the manufacturing may take place in Vietnam or Valencia, depending on who can deliver the quality needed.

"In today's modern factory, rather than a whole bunch of guys on the production line, you can have a couple of engineers and skilled technicians operate the plant. A single technician with a computer can monitor an automated line that runs continuous shifts, without breaks for coffee, lunch or vacation."

Even as manufacturing has hemorrhaged employment, software automation has spurred a dramatic boost in productivity, higher than any other sector of the economy. Nationally, manufacturing jobs have dropped by 33 percent since 1990, but output increased by almost 50 percent.

According to the report, "each hour of manufacturing labor today produces twice the value of output it did in 1990 (in real terms)."

Cooper predicts that factory employment in the United States, which has been declining for 30 years, will continue to do so because more companies will innovate and automate.

Moreover, employment will continue to shrink as some companies move operations to "countries in Southeast Asia and South Asia now emerging with large labor pools and lower costs," she said.

Still, official statistics may fail to capture the changing composition of the workforce. Research, design and engineering functions, traditionally included in manufacturing employment numbers, are shifting to specialty shops that are measured as part of the service economy, the report said.

"We all know that technology is disruptive," said Wong, the Milken economist. But investment in education can mitigate "the replacement of humans by robots. If we have a better qualified workforce, we might lose some jobs but we can also create jobs along the path."

While Northern California manufacturing is concentrated in technology-related industries, Southern California's manufacturing economy, with 814,000 workers, is more diverse. It includes low-tech industries such as apparel and food manufacturing, and high-tech businesses in aerospace parts and instruments, in computer and electronic components and medical devices.

Between 2002 and 2012, Los Angeles lost 32 percent of its factory jobs, but remains a "manufacturing powerhouse," the report noted, with 365,000 manufacturing workers who account for 9.2 percent of the county's employment.

Orange County lost 17 percent of its factory jobs over the decade, but 157,748 remained employed in manufacturing in 2012, accounting for 11 percent of the county's employment. Technologically sophisticated industries predominate, including communications equipment, computer and electronic components, medical devices and pharmaceuticals.

Regional competitiveness is partly driven by geographical concentrations of industries.

"Firms in clusters can more easily learn from each other, share infrastructure, spur innovation and operate more efficiently," the report noted, thus lowering costs and gaining market share.

California clusters are particularly dense in aerospace, biomedical, communications equipment, fashion, food processing, information technology and analytical instruments, and metal technology, among others.

Although the aerospace industry shrank after the end of the Cold War, and some companies have moved to other states, the cluster still employed more than 100,000 highly-paid workers in 2012, accounting for 16.5 percent of all aerospace jobs in the nation.

In biopharmaceuticals and medical devices, California's competitiveness is increasing, the report said, and the state employs more than 17 percent of the nation's workers in that sector.

For fashion, on the other hand, the outlook is "dismal," the report said, with the industry continuing to lose jobs as low value-added apparel manufacturing migrates to Southeast Asia -- as well as to lower-cost regions of the United States.

Contact the writer: mroosevelt@ocregister.com or on Twitter @MargotRoosevelt

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(c)2014 The Orange County Register (Santa Ana, Calif.)

Visit The Orange County Register (Santa Ana, Calif.) at www.ocregister.com

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Source: Orange County Register (CA)


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