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Innovation and manufacturing labor: a value-chain perspective

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Policies and initiatives to promote U.S. manufacturing would be well advised to take a value chain perspective of this economic sector. Currently, our economic statistics do not include pre-production services to manufacturing such as research and development or design or post-production services such as repair and maintenance or sales. Yet, manufacturing firms invest heavily in these services because they are crucial to the success of their business. 

In a new paper, Kate Whitefoot, Walter Valdivia, and Gina Adam offer a fresh insight into the sector’s labor composition and trends by examining employment in manufacturing from a value chain perspective. While the manufacturing sector shed millions of jobs in the 2002-2010 period—a period that included the Great Recession—employment in upstream services expanded 26 percent for market analysis, 13 percent for research and development, and 23 percent for design and technical services. Average wages for these services increased over 10 percent in that period. Going forward, this pattern is likely to be repeated. Technical occupations, particularly in upstream segments are expected to have the largest increases in employment and wages.

In light of the findings, the authors offer the following recommendations: 

  • Federal manufacturing policy: Expand PCAST’s Advanced Manufacturing Partnership recommendations—specifically, for developing a national system of certifications for production skills and establishing a national apprenticeship program for skilled trades in manufacturing—to include jobs outside the factory such as those in research and development, design and technical services, and market analysis.
  • Higher education: Institutions of higher education should consider some adjustment to their curriculum with a long view of the coming changes to high-skill occupations, particularly with respect to problem identification and the management of uncertainty in highly automated work environments. In addition, universities and colleges should disseminate information among prospect and current students about occupations where the largest gains of employment and higher wage premiums are expected. 
  • Improve national statistics: Supplement the North American Industry Classification System (NAICS) with data that permits tracking the entire value chain, including the development of a demand-based classification system. This initiative could benefit from adding survey questions to replicate the data collection of countries with a Value Added Tax—without introducing the tax, that is—allowing in this manner a more accurate estimation of the value added by each participant in a production network.

The authors stress that any collective efforts aimed at invigorating manufacturing must seize the opportunities throughout the entire value chain including upstream and downstream services to production.

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