Energy and Education are Key to Factory Floor Growth

August 29, 2006

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John Engler, president of the National Association of Manufacturers, discusses key areas of concern for those stamping out a living on the factory floor, based on findings outlined in NAM's "Labor Day Report." As energy costs erode wages, a focus on education can add to recent gains in production employment.
We mark the last days of summer with the release of the National Association of Manufacturers' annual Labor Day Report, analyzing the state of the manufacturing economy.

The latest findings reveal progress and perils for the factory floor. Amid the welcome news of strong growth in employment, the 2006 report highlights a trend that could derail that progress: the soaring cost of energy.

Released at the beginning of this school year, the report also helps provide a foundation for informed discussions of manufacturing's educational requirements. Manufacturers have said they have a critical need for additional skilled workers, a shortage that hinders their ability to serve customers.

Job growth and energy certainly stood out as key areas of concern in the findings outlined in the Labor Day Report 2006, compiled by the NAM's chief economist, David Huether:

  • The good news: Factory floor employment is making real strides. Production employment increased 10 months in a row, the longest string of consecutive monthly gains in the last nine years. In the past year alone, production employment has risen by 170,000 – the largest increase since 1998.
  • The bad news: Energy costs rose a daunting 23.2 percent the last year, dramatically eroding workers' paychecks. If it weren't for those rising energy costs, real wages would be growing faster during this most-recent expansion than in previous economic recoveries.

Looking beyond their direct impact on employee compensation, soaring energy prices also impose a growing burden on U.S. manufacturers' ability to compete globally. Pushed by strong demand and limited domestic supplies, U.S. natural gas prices have doubled since 2001.

Congress returns to Washington in September with a compressed, pre-campaign work schedule. If members want to promote continued growth in factory-floor employment, adoption of energy legislation has to be foremost on their agenda.

The importance of immediate action by no means precludes longer-term planning in the energy sector. Manufacturers already lead the nation in energy conservation and efficiency. To balance that demand side, we need reliable and diverse sources of energy, such as clean coal, natural gas, petroleum, biofuels and nuclear energy.

When the topic turns to the long-term future of manufacturing employment, manufacturers must also focus on education. As parents send their children back to the classroom, several trends in the NAM Labor Day Report point to the importance of that focus.

  • The U.S. economy has added 1.7 million new private-sector jobs over the past year, representing balanced employment growth – 11 out of 13 major industrial sectors increased payrolls. Contrary to the claims of naysayers, manufacturing is not disappearing from the United States.
  • The jobs that were created over the past year were largely high-quality jobs, paying 5 percent above the national average. Sixty-one percent of those jobs represented sectors with hourly earnings at least 10 percent above the national average.

Many more of those high-paying, factory-floor jobs are going unfilled. According to the NAM's Skills Gap Report released last November, more than 80 percent of manufacturers surveyed are experiencing a shortage of qualified workers that cuts across industry sectors.

"The pain is most acute on the front line, where 90 percent report a moderate to severe shortage of qualified skilled production employees including machinists, operators, craft workers, distributors and technicians," said Richard Kleinert of Deloitte Consulting LLP, which helped produce the Skills Gap Report.

Yet that pain for employers represents opportunity for future employees, i.e., today's students. As the Labor Day Report 2006 indicates, U.S. manufacturing is adding highly compensated jobs across most sectors of the economy.

To fill those positions, students have to develop the skills required in the high-tech manufacturing sector, skills that can be measured and certified by schools, employers and independent groups.

But students must also gain an appreciation of the potential represented by the factory floor – a good paycheck, a productive and challenging career, and a contribution to America's global economic leadership.

Think of it as another kind of energy: the energy of youth. If Congress acts to broaden U.S. energy supplies, and employers can take advantage of a well-trained educated youth, manufacturers will prosper for years to come.

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John M. Engler is president of the National Association of Manufacturers (NAM), the largest industry trade group in America, representing small and large manufacturers in every industrial sector and in all 50 states. A former three-term governor who first won election as Michigan's 46th Governor in 1990, Engler had previously served for 20 years in the State legislature, including seven years as State Senate Majority Leader.

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