The average American worker is edging up against a boundary of productivity that places a ceiling on how efficient companies such as manufacturers can be.
Employee output was able to rise at a 1.9% annual rate in the third quarter, doing slightly better than the 1.8% rate achieved in the second quarter but still below the expectation of roughly 2.3%, according to the Labor Department. Expenses companies paid per worker decreased at a 0.6% annual rate for the most recent quarter.
With minimal gains, economists and news agency analysts are split on what the numbers actually mean. The AP says that these steady gains could prevent companies from increasing their hiring, either seasonally or permanently, while Bloomberg thinks the increase means that businesses have squeezed as much as they can out of existing workers and will need to hire new staff in order to increase sales.
More Americans are filing for unemployment, regions and states such as Maryland are continuing to see job struggles in the manufacturing sector, and the trade deficit is growing by 8%, more than most estimates expected.
The current U.S. job climate is one of slow wage growth and mixed opportunity.
Manufacturing and wages
Manufacturers and other labor-intensive industries are finding labor that’s mostly inexpensive, which may encourage near-term hiring. Even when looking to higher-skilled workers, wages often have not recovered to pre-recession levels.
The cost of labor requires a close inspection for specific subsectors as, overall, hourly wages increased by 1.3%, though this is generally offset by the 0.6% decline in expenses per employee. However, for manufacturers, unit labor costs were up 1.3% as manufacturing-specific productivity rose just 0.4%.
Comparing numbers across a 12-month period, manufacturers in the U.S. are seeing roughly flat productivity against a 1.9% rise in unit labor costs. Compensation for manufacturing employees is up around 1.8% over the same period, though this likely includes an increase in insurance costs.
Generalizations about the sector are limited, however, in their scope and efficacy. For example, expectations and projections would different when considering that durable goods manufacturers had a 0.4% decrease in unit labor costs but non-durable goods averaged a 3.4% increase in unit labor costs.
Manufacturing touches every product and service sector, making trends of “inexpensive” labor and marginal productivity gains lean toward the positive-investment side of things. Unfortunately, worthwhile credit and investment capital for the industry are still scarce in many areas.
Growth in manufacturing will need to be organic. And, despite what dueling economists may say about the market, organic growth is a time for evaluation and smart investment.
Manufacturers must balance present production with future fulfillment and extend their thoughts beyond the current holiday quarter. Internal reviews must be put in place to examine whether operations are best served by increases in current wages, expansions of the workforce at current wage and salary rates, or investments in line technology and other services.
Looking far forward
When such news hits, making the industry examine itself in the mirror, it can difficult to look to the near future for a silver lining.
Sometimes it’s best to look a little farther down the road to the space of innovation, such as the new robotic arms that the University of Buffalo is testing. These arms and other pieces of machinery operate on the power of human thought, taking commands from experienced operators.
The eventuality of these robotic arms is use in manufacturing and medicine as well as some specialized environments. They rely on brain-to-computer interface software and helmets already available, but are pushing operations to a level of finesse. The UB trials are working with just non-invasive models, so no units installed in brains, for the purpose of expanding the usefulness of this technology to the shop floor.
While projections often turn to replacing workers with these new innovations, it could actually see manufacturers employ more workers for longer periods of time, improving wages.
Not only would we need to hire technicians and IT professionals to ensure the equipment is operating properly, but these machines can reduce injury rates related to repetitive strain and stress. Thought-based machines save backs, knees and joints, and they help keep workers alert as tasks progress. As we know, alertness often prevents injury.
While these innovations are not yet ready for the line, a brighter future that requires better skilled and better paid workers is coming.