1. Role of Advanced Manufacturing in the Future U.S. Economy Yung C. Shin Donald A. & Nancy G. Roach Professor of Advanced Manufacturing Purdue University

2. Common Misunderstanding on Manufacturing Nothing is made in the U.S. anymore. Nothing is made in the U.S. anymore. Manufacturing is shifted to low labor cost regions. Manufacturing is shifted to low labor cost regions. The U.S. does not need to rely on manufacturing for the country’s well-being. The U.S. does not need to rely on manufacturing for the country’s well-being.

3. Some facts on Manufacturing Manufacturing has the strongest pull on U.S. economic growth of any business sector Manufacturing has the strongest pull on U.S. economic growth of any business sector Manufacturing production is at the highest point in history Manufacturing production is at the highest point in history The U.S. share of world wide manufacturing is stable since 1982 The U.S. share of world wide manufacturing is stable since 1982

4. Manufacturing Share of GDP

5. Facts about U.S. Manufacturing

6. Prices of Manufactured Products

7. Manufacturing Output after Price Adjustment

8. U.S. Inflation Adjusted Manufacturing Output and Employment Source: Bureau of Labor Statistics and Bureau of Economic Analysis 80 90 100 110 120 130 140 150 160 19871988198919901991199219931994199519961997199819992000200120022003 1987 = 100 Real OutputEmployment

9. U.S. Manufacturing Sector is the Eight Largest Economy 53% of GDP 11.7% of GDP

10. U.S. is a constant leader in manufacturing (share of worldwide manufacturing value added)

11. Manufacturing’s Role in State Economics Largest percentages in the state’s GDP Largest percentages in the state’s GDP Indiana, Iowa, Wisconsin, Ohio, Kentucky, North Carolina, Arkansas, Michigan, Oregon Indiana, Iowa, Wisconsin, Ohio, Kentucky, North Carolina, Arkansas, Michigan, Oregon Largest manufacturing workforces Largest manufacturing workforces California, Texas, Ohio, Illinois, Pennsylvania California, Texas, Ohio, Illinois, Pennsylvania

12. Manufacturing in Indiana

13. Manufacturing is changing … Faster & Faster

14. There is a transition occurring in the U.S. Industrial Base Consolidation Consolidation A migration of manufacturing to Tier 1 and Tier 2 Suppliers A migration of manufacturing to Tier 1 and Tier 2 Suppliers Outsourcing of low skill jobs to overseas producers Outsourcing of low skill jobs to overseas producers A geographic migration of manufacturing facilities within the U.S. A geographic migration of manufacturing facilities within the U.S. A change in the makeup of the U.S. labor force A change in the makeup of the U.S. labor force

15. Why does it matter if we lose manufacturing jobs? Manufacturing has high paying jobs Manufacturing has high paying jobs

16. Manufacturing Pays Premium Compensation SOURCE: Department of Commerce, NAM

17. Why does it matter if we lose manufacturing jobs? Manufacturing has high paying jobs Manufacturing has high paying jobs Manufacturing funds much of R&D Manufacturing funds much of R&D

18. Role of Manufacturing Manufacturing companies account for $123 billion of the nation’s $278 billion spent on R&D in year 2003—a 45% national share. Manufacturing companies account for $123 billion of the nation’s $278 billion spent on R&D in year 2003—a 45% national share. This compares to a 13% share of manufacturing sector output in overall gross domestic product, or GDP. This compares to a 13% share of manufacturing sector output in overall gross domestic product, or GDP. Midwestern manufacturing companies have a strong orientation toward knowledge-intensive manufacturing. The region’s manufacturing companies account for 66% of the region’s R&D versus 19% of the region’s total output. Midwestern manufacturing companies have a strong orientation toward knowledge-intensive manufacturing. The region’s manufacturing companies account for 66% of the region’s R&D versus 19% of the region’s total output.

19. Why does it matter if we lose manufacturing jobs? Manufacturing has high paying jobs Manufacturing has high paying jobs Manufacturing funds much of R&D Manufacturing funds much of R&D Innovation spurs growth in economy Innovation spurs growth in economy Greater impact on the rest of economy Greater impact on the rest of economy

20. Manufacturing’s Multiplier Effects

21. General US Manufacturing Information

22. Current situation The U.S. is stuck between high-wage countries competing on the basis of new products and processes, and developing countries competing on the basis of low wages. The U.S. is stuck between high-wage countries competing on the basis of new products and processes, and developing countries competing on the basis of low wages. Often the response of U.S. firms to this competition has been to make good jobs worse – cutting pay and benefits, increasing hours – rather than drawing on and developing the skills of workers and pursuing innovations. Often the response of U.S. firms to this competition has been to make good jobs worse – cutting pay and benefits, increasing hours – rather than drawing on and developing the skills of workers and pursuing innovations.

23. U.S. Manufacturing has strengths Productivity Productivity Low Inflation Low Inflation Leading in innovations Leading in innovations

24. Manufacturing Drives Productivity Growth

25. The U.S. is leading Innovation

26. Foreign Investment in U.S. Manufacturing

27. One in twelve American manufacturing workers are now employed by a foreign- owned firms. One in twelve American manufacturing workers are now employed by a foreign- owned firms. 5.3 million Americans are directly employed by foreign-owned firms. 5.3 million Americans are directly employed by foreign-owned firms. Their average wages are $63,000 a year, or about 50 percent more than the average U.S. wage. Their average wages are $63,000 a year, or about 50 percent more than the average U.S. wage.

28. Offshore Manufacturing? If the differential shrinks after many U.S. firms have gone out of business, it would be difficult to regain its capabilities. If the differential shrinks after many U.S. firms have gone out of business, it would be difficult to regain its capabilities. One study finds that it adds 24% to the estimated costs of offshoring 1. One study finds that it adds 24% to the estimated costs of offshoring 1. In long run, a flung supply base makes it difficult for firms to innovate in ways that link design and production processes. In long run, a flung supply base makes it difficult for firms to innovate in ways that link design and production processes.

29. Concerns in Manufacturing Innovation in the U.S. Federally supported R&D in the physical science has fallen from 0.25% of GDP to 0.13% over the last 20 years. Federally supported R&D in the physical science has fallen from 0.25% of GDP to 0.13% over the last 20 years. More than 80% of manufacturers report shortages of qualified workers. More than 80% of manufacturers report shortages of qualified workers. The number of engineers has declined by 20% since 1985. The number of engineers has declined by 20% since 1985.

30. R&D Investment in the U.S. is NOT Increasing

31. Decline in Federal Funding for Physical Sciences

32. Workforce People are the company’s greatest asset. People are the company’s greatest asset. 74% of manufacturers report that a high performance workforce is the key business driver. 74% of manufacturers report that a high performance workforce is the key business driver. Other two drivers: product innovation and low cost producer. Other two drivers: product innovation and low cost producer. The common perception that being the low-cost producer is the only factor that leads to business success does not match today’s reality. The common perception that being the low-cost producer is the only factor that leads to business success does not match today’s reality. It is the performance of the workforce that provides America’s competitive advantage. It is the performance of the workforce that provides America’s competitive advantage.

33. Business Driver

34. Manufacturing has become more skilled In 1973, more than half of workers on the factory floor did not finish high school. In 1973, more than half of workers on the factory floor did not finish high school. In 2001, nearly a third of production workers had some form of post-secondary education (associate/college/graduate degrees). In 2001, nearly a third of production workers had some form of post-secondary education (associate/college/graduate degrees). Never has there been a greater demand for high-skilled workers in the U.S. Never has there been a greater demand for high-skilled workers in the U.S.

35. The U.S. is Falling Behind in Engineering

36. Conclusions It is much cheaper to act now to preserve the manufacturing capacity we have than to try to reconstruct it once it is gone. It is much cheaper to act now to preserve the manufacturing capacity we have than to try to reconstruct it once it is gone. The U.S. must continue to invest in innovation R&D. The U.S. must continue to invest in innovation R&D. Advanced manufacturing is the key to the future health of U.S. manufacturing and economy. Advanced manufacturing is the key to the future health of U.S. manufacturing and economy. It requires continuous efforts to upgrade the U.S. workforce in manufacturing. It requires continuous efforts to upgrade the U.S. workforce in manufacturing.