America Is Still Making Things

January 17th, 2017

By Alana Semuels | The Atlantic

Columbia City-

Big companies such as Rexnord and Carrier are closing down plants in this Rust Belt state and moving their factories to Mexico. But in some corners, including this rural patch of the state’s northeast, manufacturing is growing.

In a nondescript building set among the icy cornfields of Columbia City, Brian Emerick, the CEO and owner of Micropulse, employs 306 people who make millions of dollars worth of specialized medical equipment such as orthopedic implants and the surgical tools used to install them. That’s up from the 190 he employed five years ago.

“I’m bullish on manufacturing here,” he told me, as he walked me through the 160,000-square-foot facility where workers were busy running machines and inspecting tiny metal parts with giant magnifying glasses. “There’s always going to be a certain amount of jobs you can’t automate away.”

Micropulse is an example of the type of manufacturing that’s not going to disappear anytime soon from United States. It makes high-value products that would be difficult to make overseas because they are constantly being updated and are highly regulated. Many of these products are made by machines, but Emerick still needs workers to run and program those machines and to inspect the products once they’re completed.

As some types of manufacturing disappear in America—manual jobs that can be performed in  places like Mexico where there are lower wages, and repetitive ones that can be automated—other types are growing. So-called advanced manufacturing, which is highly specialized and requires a facility with computers, is actually expanding. The U.S. economy will need to fill 3.5 million skilled manufacturing jobs over the next decade, the White House says. This is an industry that employs skilled and educated workers such as engineers and scientists. It’s also an industry that adds significant value to the economy. Manufacturing output continues to rise in the U.S., and the average factory worker makes $180,000 worth of goods every year, more than three times what he produced in 1978.

“The mantra that we’ve lost good-paying jobs to China is exactly wrong,” said Michael Hicks, an economics professor at Ball State University who has studied manufacturing in Indiana. “We’ve lost the bad-paying jobs to China and gained good-paying jobs.”

Of course, the U.S. has lost 5 million manufacturing jobs since 2000, and those losses have reverberated across the country. The scale of those losses has overshadowed areas of growth—but there has been growth. For example, the number of workers employed manufacturing medical equipment and supplies has grown eight percent over the last two decades, according to the Bureau of Labor Statistics, even as overall manufacturing employment has fallen 28 percent over that same time period.

Indeed, manufacturing job losses have been concentrated in lower-pay, lower-skill jobs, said Hicks. Since 2000, jobs in manufacturing for people with graduate degrees have grown by 32 percent. While manufacturing jobs for people with less than a high-school education fell 44 percent between 2000 and 2013, those for people with an associate degrees in academic fields rose 17 percent, according to the Congressional Research Service.

That’s because in the last decade, as manufacturing companies faced intense competition from overseas, they invested in equipment and technology that made their plants more efficient and specialized, Hicks said. That meant that thousands of jobs were automated, but also that new jobs were created for people who worked with machines in the manufacturing process. This increased specialization is exactly what economic theory predicts would happen as trade advances, Hicks said. A concept known as comparative advantage suggests that countries should use their assets to specialize—to make what they make best. Because of comparatively low costs of labor in countries such as China and Mexico, those countries specialize in making the kinds of goods that require a lot of labor but not as much technology and skill. For the United States, the result is the opposite: Its advantage is the kind of high-cost, high-skilled manufacturing that capitalizes on the country’s technology and educated labor pool. “Our comparative advantage would be towards more sophisticated production,” Hicks said.

This is a key point often missed in the debate over whether it’s trade or automation that has displaced American jobs. Automation and trade are deeply entwined phenomena; trade increases pressures to automate or export simple jobs, but also incentivizes the U.S. to specialize and create more high-paying jobs.

In some ways, the whole narrative that manufacturing is disappearing is flawed, Hicks says. Manufacturing, like most other industries in America, has modernized and become more sophisticated over the decades. To be sure, it employs millions fewer people than it did in the past. But manufacturing still makes up about 12.5 percent of America’s gross domestic product, the same as it did in 1960. People who can work in modern manufacturing—those with computer skills and advanced degrees—are in demand. The average manufacturing worker now makes $26 an hour, according to the Bureau of Labor Statistics.

The catch is that traditional manufacturing workers don’t have those advanced degrees, and can’t get those jobs. “Maybe the problem isn’t so much the industry job losses, but that the men and women in manufacturing had much poorer educational attainment, and had been in less technically dynamic workplaces, Hicks told me. “ So, when the world changed, they could not.”

Half a century ago, almost no manufacturing workers went to college; they graduated from high school and went straight to the factory, where they could find a good job for life. Now, it’s becoming more and more common for manufacturers to hire workers who have some higher education. Nearly 20 percent of the manufacturing workforce had a bachelor’s degree in 2012, up from 16 percent in 2000. Just 10 percent had less than a high-school education, down from 14 percent in 2000. Nearly 9 percent of the manufacturing workforce has a graduate or professional degree.

Advanced manufacturing presents a glimmer of hope for Rust Belt states such as Indiana, which lost huge numbers of jobs over the last two decades, creating a class of people with few prospects. Manufacturing employment in Indiana fell by 35 percent, from 671,000 in 2000, to 439,000 in 2010. Yet Indiana has the highest share of advanced manufacturing in the country, according to a studyfrom Ball State University, with 53 percent of manufacturing jobs in the state in advanced manufacturing. There are now 516,200 people working in manufacturing in Indiana.

Examples of advanced manufacturers in Indiana include Rolls Royce, which makes jet engines and employs thousands of engineers in Indianapolis; Cook Medical, which makes medical devices in an old RCA television plant in Bloomington; and Zimmer Biomet, which makes surgical products in Warsaw, Indiana, which is a national hub for orthopedic devices.

“In a higher-wage environment like Indiana, competing on lowest cost is simply not going to be effective,” Mohan Tatikonda, a professor at Indiana University’s Kelley School of Business, told me. “What can be done in higher-wage environments is making products that are more innovative, more customized to customer requirements.”

Emerick says there are a few reasons why his clients, which are orthopedic medical-device companies, choose to have their products made in Indiana by Micropulse, rather than overseas. In order to finalize the devices’ design, there’s a lot of communication back and forth between the companies and Emerick’s engineers. Doing such discussion in multiple languages and over a 12-hour time difference would be challenging, he said. What’s more, since the devices are used in surgery, or inserted into patients’ bodies, they are subject to a high degree of regulation. Micropulse has frequent inspections by the FDA and other regulatory bodies, and such inspections would be difficult to conduct overseas.

“We’re not known for low prices, but we provide the highest value in terms of reliability and ease of doing business,” Emerick said. “Our products are low volume, but they’re pretty tough to make and the materials have to be certified and traceable.”

I also stopped by an Indianapolis manufacturing facility operated by the pharmaceutical maker Eli Lilly, where the company makes pills, capsules, and devices such as injection pens for insulin users. The factory is highly automated—I saw few people as Darin Moody, Eli Lilly’s senior vice president for global dry product and API manufacturing, gave me a tour. Moody showed me a continuous-manufacturing unit, which is essentially a series of highly automated machines that can make pharmaceuticals around the clock, assessing ingredient volumes and production independently. Yet even continuous manufacturing needs some human input: There was a group of workers in what’s called the control room, where technicians were preparing programs on computers to run a test of a placebo. “One of the things we’ve learned is that the more complex and the more automated your facilities are, the more dependent you are on having people who understand how those very complex facilities operate,” Moody said.

Though some of the workers in the control room had just a high-school degree, most had more education, such as a bachelor’s degree in chemistry. One of the reasons Lilly has kept so much manufacturing in Indiana is because the company has close relationships with local colleges and universities, who serve as a pipeline for these educated workers. About half of the 3,000 workers at the Indianapolis facility have bachelor’s degrees or higher. “We’re heavily dependent on engineers and scientists,” Moody said.

And as I’ve written before, people who work in manufacturing and lose their jobs to trade or automation often don’t seek retraining, even though there are resources available to them. Timothy Slaper, the director of economic analysis at Indiana University’s Business Research Center, studied what happened to nearly 200,000 people making transportation equipment and primary metals in Indiana between 2003 and 2014. He found that while, over that time period, one-third of the workers were still in their respective manufacturing industries, 44 percent had no payroll record at all by 2014. Only about 3 percent of these workers graduated from a public college or university in Indiana during that time period. “Very few went back to school, and relatively few seemed to avail themselves of a lot of the government programs available,” Slaper told me.

Still, a new generation of workers may be more likely to seek out the education required for these advanced manufacturing jobs. Cole Love, 22, loves working with his hands, and wanted to work in manufacturing after seeing his father’s job at an orthopedic company. Love, who has a two-year degree in machine-tool technology, recently started working a Micropulse, where he operates a Swiss lathe making instruments that doctors use in surgery. Though Love only makes $14 an hour now, he is planning to go back to school and get a bachelor’s degree so he can work his way up at Micropulse. “I figure there’s always going to be people to program and set up the machines,” he said.

The companies that employ people like Love are going to have to keep changing, too. Manufacturers who aren’t constantly innovating and doing things that their overseas competitors can’t will be left behind. Emerick, for instance, started the company out of his garage in 1988; it was a tool-and-die company making instruments for all sorts of industries. But in the late 1990s and early 2000s, many of his customers, including United Technologies, the parent company of Carrier, moved operations overseas, and he lost business. The company was barely surviving when Emerick decided to auction off equipment and specialize in making tools and parts for medical companies. Micropulse now generates $40 million in sales annually.

“The key is focus,” he said. “It’s about getting good at what you do, then doing more of it, so you're recognized by your customers as being the expert.”

Specialization worked at Micropulse, and it could work, too, for others who want to continue to be employed in manufacturing. Unskilled jobs in the industry have been disappearing for decades as technology and globalization have made them obsolete. Yet technology is also enabling new types of jobs that provide a career for people who know how to use it. The hard part is what happens to everyone else.

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