The manufacturing sector, a traditional driver of overall productivity, has seen its pace of productivity growth slow over the last 15 years, according to a new report produced by the MAPI Foundation and sponsored by Rockwell Automation. Part of this is due to slowing productivity growth in the computer and electronic products industry, which has played an outsized role in driving manufacturing productivity growth in recent decades.
“In the manufacturing sector, strong productivity performance is needed to meet the globally driven challenges of cost pressures and competitiveness,” says Cliff Waldman, director of economic studies at the MAPI Foundation. “For both manufacturing and the economy as a whole, the recent slowdown in productivity causes concern, because it contributes to both slow output and wage growth.”
According to the study, industry subsectors that have experienced relative improvements in productivity performance since 1993 include machinery, transportation equipment and printing. But their growth has not been enough on an absolute basis to replace the decline in computer subsector productivity.
Computer subsector productivity growth in excess of 20 percent was not sustainable, even for an innovative, forward-looking industry, Waldman notes. And this remarkable performance masked a less than exciting profile for much of the manufacturing sector.
U.S. manufacturing, in effect, could be said to have been in a productivity bubble. Industries with a noticeable drop since 1993 in their relative pace of productivity growth include primary metals and petroleum and coal products.
The report reveals strong cross-subsector correlations for both labor productivity growth and multifactor productivity growth. The apparent interconnectedness of productivity performance across industries, Waldman says, is likely the result of supply chain linkages, innovation spillovers, cluster impacts and trade channels. Such evidence suggests that, where investments in any one industry lead to faster productivity growth, such expenditures can have impacts that extend to other subsectors as well.
Another key link to productivity performance is the labor force participation rate of the population holding a B.A. degree or higher, in effect the economy’s supply of educated labor.
Waldman concludes that a beneficial policy response must consist of a coordinated program that stimulates manufacturing equipment investment as well as innovation investment and increases the supply of educated labor in the broad economy.
“One such approach would be to promote industrial clusters, which should be the model for the public end of stimulating a new technology program that will enhance competitiveness,” Waldman says. “Clusters maximize the benefits of geographic proximity by coordinating resource use. I suggest an approach that makes use of regional centers to evolve and disperse new technologies in a cluster-specific manner. If this is coordinated with stimulating area schools to offer programs that produce a technology-ready workforce, then the cluster will be strong and competitive. Taken over all clusters, this will optimize the national result.”
The study analyzes productivity growth in a range of manufacturing subsectors over the past 25 years and provides statistical evidence on the importance that capital investment and educated labor have on productivity performance.
