America needs to solve its manufacturing labor shortage, and these are the steps it can take to do so
Supply chain disruptions during COVID-19 have brought to light how interdependent nations are for manufacturing. The US’s inability to produce items needed during the pandemic, such as test kits and personal protective equipment, has exposed our vulnerability as a nation. China’s emergence as a global manufacturing superpower has further highlighted weaknesses in American manufacturing.
In addition to addressing supply chain disruptions, returning production to the US will benefit national security. Advanced computer chips, for example, are manufactured disproportionately by a single company, Taiwan Semiconductor Manufacturing Co. These microchips are critical for smartphones, medical devices and self-driving cars, as well as military technology. TSMC is too close to China from a US national security perspective. Taiwan’s proximity to China makes it vulnerable, as the Chinese government threatens to use force to unify Taiwan with the mainland.
My research and that of others examines how the lack of manufacturing competitiveness in the US leaves the US vulnerable to shortages of critical commodities in times of geopolitical disruption and global competition. The strategies the US is employing to bring back production, along with innovative practices, will be key to ensuring national security.
strengthening national security
President Joe Biden has signed two bills into law to rebuild American manufacturing. The CHIPS and Science Act of 2022 will allocate $52.7 billion to American semiconductor research, development, manufacturing and development.
The Inflation Reduction Act of 2022 will invest $369 billion in promoting a clean energy economy, in part through generous incentives for US-made electric cars.
Training workers for the new advanced manufacturing is another key factor in bolstering a sector increasingly reliant on technology. While US manufacturing jobs fell 25% after 2000, output did not decline. Still, American manufacturing faces a massive labor shortage, particularly for those with the skills needed to fuel a new generation of manufacturing.
This need to train a new pool of professionals explains why the CHIPS Act allocates federal funding to human resource development. Complementing federal legislation are programs such as America’s Cutting Edge, a national initiative that provides free online and in-person training to meet the growing need in the US machining and machine tool industries for skilled operators, engineers and designers.
The power of innovation
It is impractical to move all manufacturing back to the US. Offshoring is often less expensive. However, research shows that certain types of manufacturing in the country not only help ensure national security, but can also stimulate innovation.
When research and development is conducted close to where the goods are physically manufactured, that proximity can increase the likelihood of collaboration between these two activities. Collaboration can lead to greater efficiency.
Product development can also benefit from this. New research shows that US firms that located their manufacturing and R&D physically close generated more patents than firms that did not.
Despite this, the contribution of US manufacturers to innovation fell sharply between 1977 and 2016. That’s because the benefits of locating manufacturing and R&D close together depend on the type of manufacturing itself, researchers have found.
For example, the design of new drugs often requires nearby manufacturing facilities. In this respect, it makes sense to combine production and research and development in one place. This can also apply to semiconductors. World-class chipmakers in Taiwan, like TSMC, sit alongside a growing chip design industry that allows designers to quickly prototype and test new ideas.
The US and other countries are capitalizing on the same potential benefits of co-location. For example, to minimize dependence on TSMC and more generally on foreign sources for chips, the European Union is spending €43 billion, while Japan is boosting domestic chip manufacturing with an investment of $6.8 billion.
People are the bottom line
In a 2011 comment, I argued that while federal laws encouraging US manufacturing may be successful in bringing more manufacturing back to the US, there is no guarantee that large numbers of jobs will be created – an important point , which was spearheaded by those seeking to promote manufacturing.
Governments are generally bad at picking successful technologies and industries. Government failures in selecting supposedly successful industries or sectors have generally resulted in a large waste of taxpayers’ money.
In fact, I think market forces and informed business decisions should play a bigger role in picking winners than government investment. Where this investment comes from, what supports it and how much money is needed are crucial questions.
When companies decide to relocate their businesses to benefit from the synergies of research and development, they need to be able to attract the best human resource talent available. This is where US investment can help build a more skilled workforce.
As economist Gary Pisano pointed out, many US politicians have long believed that manufacturing is an attractive sector for the less educated. As a result, we as a nation have not invested many resources in training people with specific manufacturing skills.
This approach is in stark contrast to the approach followed in Germany. There, practical work is valued by both employers and workers, and as such apprenticeship schemes are routinely used to train workers who are well qualified to work in the manufacturing sector. As the US approach changes with recently announced White House investments through CHIPS and anti-inflation legislation, more is needed.
In my opinion, if the US is to remain an economic powerhouse, companies should not segregate their workforce and offshore cost-saving manufacturing while retaining the innovators. Companies like Apple have offshored nearly all of their manufacturing, retaining only the most qualified parts of the supply chain, which include activities like research and development.
Instead, the US must financially support companies looking to bring production back by making it easier for such companies to find skilled manufacturing workers at home — and close to innovators, if possible. These efforts will strengthen the US’ ability to be self-sufficient, innovative and secure in times of geopolitical conflict.
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