Contents

• Introduction
• Employment in the Manufacturing Sector
• The Changing Character of Manufacturing Work
• The Declining Wage Premium
• The Disappearance of the Large Factory
• Start-Ups and Shutdowns
• Is There a Chemical Comeback?
• Selected Policy Issues for Congress

Summary

The health of the U.S. manufacturing sector is of ongoing interest to Congress. Numerous bills aimed at promoting manufacturing have been introduced in Congress, often with the stated goal of creating jobs. Implicit in many of these bills is the assumption that the manufacturing sector is uniquely able to provide well-paid employment for workers who have not pursued advanced education.

U.S. manufacturing output has risen significantly over the past five years as the economy has recovered from recession. Thisapproximately 9% since the most recent low point in 2009, but almost all of that expansion occurred prior to the end of 2014. The upswing in manufacturing activity, however, has resulted in negligible employment growth. Although a variety of forces seem likely to support further growth in domestic manufacturing output over the next few years, including higher labor costs in the emerging economies of Asia, higher international freight transportation costs, and increased concern about disruptions to transoceanic supply chains, evidence suggests that such a resurgence would lead to relatively small job gains within the manufacturing sector. Manufacturing wages are below those in many other industries and are declining in relative terms, suggesting that the modest resurgence in manufacturing activity has not improved the bargaining power of workers in the manufacturing sectorcontinue to decline in relative terms. Data taking insurance, pensions, and other employee benefits into account indicate that production workers have experienced a decline in average total compensation relative to workers in other occupations over the past decade.

The past few years have seen important changes in the nature of manufacturing work. A steadily smaller proportion of manufacturing workers is involved in physical production processes, while larger shares are engaged in managerial and professional work. These changes are reflected in increasing skill requirements for manufacturing workers and severely diminished opportunities for workers without education beyond high school. Even if increased manufacturing output leads to additional employment in the manufacturing sector, it is likely to generate little of the routine production work historically performed by workers with lower education levels.

As manufacturing processes have changed, factories with large numbers of workers have become much less common than they once were. This suggests that promotion of manufacturing as a tool to stimulate local economies is likely to meet with limited success; even if newly established factories prosper, few are likely to require large amounts of labor.

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Introduction

After a prolonged slump, the U.S. manufacturing sector is showing notable signs of revival. In part, the upturn in manufacturing output is cyclical, as global economic growth recovers following the downturn in 2008-2009. At the same time, however, there are indications that other forces may be contributing to the revival of U.S. manufacturing. Higher labor costs in the emerging economies of Asia, higher international freight transportation costs, and heightened concern about the risk of disruptions to long, complex supply chains all increase the relative attractiveness of the United States as a location for factory production.

The strengthening of U.S. manufacturing is a subject of ongoing interest in Congress. In the 114^th Congress, bills have been introduced to make grants to manufacturers that provide training to military veterans (H.R. 344); improve manufacturing competitiveness by eliminating duties on imported goods when similar goods are not produced in the United States (S. 998); emphasize manufacturing in university engineering programs (H.R. 1441, S. 771); provide tax credits to start-up companies that construct advanced manufacturing facilities in the United States (H.R. 255); make manufacturers of trucks and vessels eligible for grants under the Advanced Technology Vehicles Manufacturing Program (S. 1181); offer financial assistance to manufacturers for investments in energy efficiency and renewable-energy technologies (H.R. 2296); strengthen requirements that federally supported transportation and infrastructure projects use domestically produced steel, iron, and manufactured goods (S. 1043); increase the tax credit for manufactured products if substantially all the related research and development occurs in the United States (H.R. 1852); and support manufacturing activity in a variety of other ways.

In public discourse, the revival of manufacturing is often associated with a variety of policy objectives, particularly with respect to employment. Most notably, proponents of support for the manufacturing sector often associate increased manufacturingThe development of large supplies of oil and natural gas from shale formations in several states has led to considerable speculation about prospects for expanded chemical manufacturing. While substantial new investment has occurred in the chemical industry, many announced plants and plant expansions have been postponed or canceled. In any event, chemical plants are extremely capital-intensive, and even large amounts of new investment are likely to result in the creation of relatively few jobs.

Introduction

After rebounding from the 2007-09 recession, U.S. manufacturing output has grown little since the second half of 2014. Over the same period, employment in the U.S. manufacturing sector has been flat. These trends defy expectations that forces such as higher labor costs in the emerging economies of Asia, heightened concern about the risk of disruptions to long, complex supply chains, and the development of inexpensive domestic supplies of natural gas would increase the relative attractiveness of the United States as a location for factory production.

The health of U.S. manufacturing is a subject of ongoing interest in Congress. Numerous bills are introduced in each session to encourage capital investment, support training of workers for manufacturing jobs, increase research and development related to manufacturing, and strengthen mandates for the use of domestic goods in federally funded projects and programs. Proponents of such efforts often associate increased factory activity with the creation of jobs for workers without higher education. Evidence suggests, however, that even strong growth in manufacturing output could well havehave only modest impact on job creation, and is unlikely to reverse the decliningincrease demand for workers with lower levels of education.

Employment in the Manufacturing Sector

At the start of the 21^st century, 17.1 million Americans worked in the manufacturing sectormanufacturing. This number declined during the recession that began in March 2001, in line with the historic pattern. In a departure from past patterns, however, manufacturing employment failed to recover after that recession ended in November 2001 (see Figure 1), even though U.S. manufacturing output increased over the next seven years. By the time the most recent recession began, in December 2007, the number of manufacturing jobs in the United States had fallen to 13.7 million. Currently, 12.3 million workers are employed in the manufacturing sector.

The output of U.S. manufacturers hit a cyclical bottom in June 2009. Since that time, a 28.521% increase in manufacturing output has been accompanied by only a 5.2% increase in manufacturing employment (see Figure 2). The low point in manufacturing employment was reached in February 2010. Since that time the manufacturing job count has risen 7.72%.¹ The employment recovery in manufacturing lags far behind the cyclical norm following past recessions.

There is no single cause of the weakness in manufacturing employment. A sharp increase in the bilateral U.S. trade deficit with China following that country's accession to the World Trade Organization in 2001 contributed importantly to manufacturing job loss in the first half of the last decade, but changes in the bilateral balance in goods trade since 2006 are not associated with changes in employment of factory workers in the United States.² Cyclical forces aside, there are at least three distinct factors that limit the prospects for job creation in the manufacturing sector, even if domestic production gains market share from imports.

• Some manufacturing industries, notably apparel and footwear, are tied to labor-intensive production methods that have proven difficult to automate. With labor costs accounting for a much higher share of value added in these industries than in manufacturing as a whole, declining import barriers allowed imports from low-wage countries to displace domestic production. From 1.3 million workers as recently as 1980, U.S. employment in apparel manufacturing has fallen to 137133,000. Leather manufacturing has seen a similar employment decline. Over the same period, U.S. output of apparel fell by 8384%, and output of leather products fell by 7078%.
• In other industries, technological improvements have led to large increases in labor productivity that have reduced the need for workers. Steelmaking offers such an example: the 9187,000 people working in the industry in 20142015 produced 143% more steel than nearly 400,000 workers did in 1980.³
• Secular shifts in demand have dimmed employment prospects in some industries despite the general recovery in manufacturing output. Paper consumption, for example, was once closely associated with economic growth, but no longer; as electronic communication supplants print in many uses, paper output is down 3620% from its peak in 19951999, contributing to a 5661% drop in industry employment over the same period. As cigarette consumption has waned, output in tobacco products manufacturing is down by 5554% since the most recent peak in 1996, while employment has fallen by nearly two-thirds. Neither sector shows signs of a production upturn.

These changes have resulted in a significant shift in the composition of manufacturing employment even as all manufacturing industries have experienced declining employment. Food manufacturing, which two decades ago accounted for 1 in 11 manufacturing jobs, now accounts for 1 in 8. FabricatedTransportation equipment, fabricated metal products, machinery, and chemicals manufacturing have become more important parts of manufacturing—although these sectors have not been immune from the decline in employment. Transportation equipment accounted for a larger share of manufacturing employment in 2014 due to job growth in motor vehicle manufacturing. Apparel, textiles, printing, and computers and electronic products now account for substantially smaller shares of manufacturing employment than was formerly the case (see Table 1).

The Changing Character of Manufacturing Work

In the public mind, the word "factory" is associated with the concept of mass production, in which large numbers of workers perform repetitive tasks. While mass production is still an important aspect of manufacturing, routine production functions, from welding joints in truck bodies to removing plastic parts from a molding machine, have proven susceptible to automation. This has had important consequences for the nature of work in manufacturing establishments and for the skill requirements of manufacturing workers.⁴

Goods production is no longer the principal occupation of workers in the manufacturing sector. Only two in five manufacturing employees are directly involved in making things. That proportion fell 3.3 percentage points between 2000 and 2014 (see Figure 3), although it has risen 1.6 percentage points since 2013 as durable goods manufacturers added production workers. As of 20142015. Employment in other occupations within the manufacturing sector, notably office clerical work, has also declined (see Figure 3). As of 2015, 31% of all manufacturing workers held management and professional jobs.⁵

Figure 3. Manufacturing Employment by Occupation

Percentage of manufacturing workforce

Source: Bureau of Labor Statistics, Current Population Survey, Table 17, http://www.bls.gov/cps/cpsaat17.htm. In many manufacturing sectors, the shift to higher skill requirements is even more pronounced. Total employment in the U.S. computer and electronic product manufacturing sectorsubsector has declined due to automation, sharp falls in demand for certain products once produced in the United States (notably television tubes and audio equipment), and changed production economies that cause manufacturers to concentrate worldwide production in a small number of locations. Of the 1.05 million people employed in this sector in 2014, 29subsector in 2015, 28% were engaged in production work, for which a high school education may be sufficient and for which workers received median annual pay of $33,16037,220. Some 22% of the industrysubsector's workers were in architecture and engineering occupations paying a median annual wage of $81,85090,210, and another 13% were in computer and mathematical occupations with a median annual wage of $100,730104,870; the latter two occupational categories require much higher education levels than production work. Similarly, some 3233% of the workers in the pharmaceutical manufacturing subsector are involved with production. Many of the rest have scientific skills associated with higher education levels.⁶

The increasing demand for skills in manufacturing is most visible in the diminished use of "team assemblers"—essentially, line workers in factories and warehouses. In 2000, 1.3 million people were employed as team assemblers. In May 2014May 2015, employment in this occupation, which typically requires little training and no academic qualifications, was 1.1 million. Of those, 836,060850,780 worked in manufacturing, representing less than 7% of manufacturing jobs. This type of job, once the core of manufacturing, has decreased in importance to many manufacturers and warehouse operators to the extent that one-sixth15% of all team assemblers work for employment agencies, which furnish workers to other companies on an as-needed basis. Team assemblers working for employment agencies earn an average of $11.6396 per hour, some 26% less than those employed directly by manufacturing companies.⁷

There are also far fewer manufacturing workers performing individual tasks on a piecework basis. Piecework compensation used to be the norm in industries such as apparel and shoe manufacturing, as each worker was responsible for a specific step in the production process and was paid according to the number of units he or she processed. In recent years, however, many of the surviving U.S. apparel plants have reorganized production workers into groups that are collectively responsible for multiple aspects of production. According to the Bureau of Labor Statistics (BLS), "many companies are changing to incentive systems based on group performance that considers both the quantity and quality of the goods produced."⁸ A similar change appears to be occurring in other sectors, as firms seek to move away from pay systems that reward workers simply for the quantity of goods produced rather than for quality and problem-solving.⁹

25% less than those employed directly by manufacturing companies.⁷ The changing occupational mix within the manufacturing sector is mirrored by changing educational requirements. In 2000, 53% of all workers in manufacturing had no education beyond high school. Between 2000 and 20142015, that share dropped by eightseven percentage points, even as the proportion of manufacturing workers with collegebachelor's degrees or graduate degrees rose by seveneight percentage points. Given that college-educated workers generally command significantly higher pay in the labor market than high-school dropouts and high-school graduates, it is unlikely that manufacturers would willingly hire more-educated workers unless there is a payoff in terms of greater productivity.

It is noteworthy that, despite the loss of nearly 4 million manufacturing jobs between 2000 and 20142015, the number of manufacturing workers with graduate degrees increased by 2032% (see Figure 4). Demand for workers with associate (community college or proprietary school) degrees in academic fields, which qualify the recipient to pursue education to the bachelor's degree level, rose 1117%, even as the total number of manufacturing workers without degrees beyond high school fell by one-third. Workers with academic-track associate degrees fared much better than those with associate degrees in occupational fields, which prepare students for immediate vocational entry and typically require less coursework in English, mathematics, and science. As manufacturing employment has recovered from its cyclical low in January 2010, manufacturers have shown a preference for workers with academic-track associate degrees; from 2010 to 20142015, the manufacturing sector added 115151,000 workers with academic-track associate degrees, while the number of manufacturing jobs held by workers with occupational degrees rose by 8580,000.¹⁰

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Figure 4. Manufacturing Employment by Worker Education Percentage change, 2000-2014 2015

Source: Bureau of Labor Statistics, Current Population Survey.

The proportion of manufacturing workers who are female has fallen from 32% as recently as 1993 to 27% currently (see Figure 5). Women have long accounted for a large share of employment in some of the industries that have experienced the steepest drops in employment, notably apparel, textiles, and electrical manufacturing. The female workforce was significantly less educated than the male workforce in manufacturing: in 2000, only 41% of female manufacturing workers had any education beyond high school, compared with 61% of their male counterparts.

This gender gap in education has closed since 2000, due largely to the departure of these less educated women from the manufacturing workforce. The number of female manufacturing workers with no education beyond high school fell 45% from 2000 to 20142015. As a result, the number of years of schooling of female manufacturing workers is now very similar to that of males in manufacturing. Some 2930% of women workers in manufacturing in 20142015 held four-year college degrees or higher degrees, whereas 11% had failed to complete high school.

Female employment in manufacturing is essentially unchangedhas risen little since 2010, even as male employment has increased by nearly 800,000 jobs. The main reason for this is that within the overall manufacturing workforce, women are less likely than men to work in some of the highly cyclical durable goods industries that have experienced the largest increases in employment, such as machineryfabricated metal products and transportation equipment manufacturing.

Figure 5. Manufacturing Employment by Gender Percentage of manufacturing workforce that is female

Source: Bureau of Labor Statistics, Current Employment Statistics. Note: Data are for January of each year and are not seasonally adjusted.

The Declining Wage Premium

Policymakers traditionally have attached special importance to manufacturing because manufacturers appear to pay a wage premium, compared to employers in other industries. Based on pay, a 2012 U.S. Department of Commerce publication asserted, "manufacturing jobs are good jobs." According to that source, manufacturing jobs offered average hourly pay of $29.75 in 2010, compared to $27.47 for nonmanufacturing jobs. Including employer-provided benefits, the Commerce Department reported, manufacturing workers earned 17% more per hour than workers in other industries.¹¹9 Those other industries, it should be noted, include the low-paying retailing and leisure and hospitality industries, which jointly account for 22% of nonfarm employment.

Such comparisons, however, are not as straightforward as they may appear. At least some of the purported manufacturing wage premium exists because manufacturers employ far fewer young workers than industries with lower pay. In the lowest-paid sectors of the economy, a large share of the workforce—13.314% in leisure and hospitality, 6.87% in retailing—is under age 20, compared with only 1.3% of manufacturing workers.¹²10 Also, large numbers of workers in those two relatively low-paid industries are employed part time; the average work week is around 2625 hours in leisure and hospitality and 3130 hours in retailing, versus 4142 hours in manufacturing.¹³11 Full-time workers in any industry are more likely to receive benefits than part-time workers.

Contrary to the popular perception, manufacturing workers, on average, earn significantly less per hour than workers in industries that do not employ large number of teenagers and that have average work weeks of similar length. Moreover, average manufacturing wages have declined over time, compared to those in other industries, with the exceptions of retailing and transportation and warehousing (see Figure 6). In 2000, for example, nonsupervisory workers in manufacturing earned 5.1% more, on an hourly basis, than workers in the services sector; in 20152016, they earn 4.3% less than services workers. These trends reflect both competitive pressures on employers and the diminished bargaining power of workers in a sector with comparatively few employment opportunities.¹⁴

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Figure 6. Wage Trends in Selected Industries Relative Hourly Pay of Nonsupervisory Workers in Manufacturing

Source: Bureau of Labor Statistics, Current Employment Statistics.

Compensation trends show that manufacturing workers are experiencing a relative decline similar to that in wages. In general, manufacturing employers tend to offer more generous employee benefits than those in other industries. Nonetheless, the relative position of manufacturing workers has eroded over the past decade compared to workers in utilities, transportation and warehousing, and the broad services sector (see Table 2). Manufacturing workers' total compensation per hour has improved slightly relative to that of workers in wholesale and retail trade and in leisure and hospitality.

According to Bureau of Labor Statistics data, 3.3% of jobs in manufacturing were unfilled in April 2016, up from 2.7% one year earlier. However, all of the increase in unfilled jobs occurred in non-durables industries, where the average wage, $18.72 per hour, was well below the $21.45 average in durable-goods manufacturing. Manufacturers responded to the rising number of openings by increasing production workers' wages in non-durables much faster over the year to April 2016 (3.5%) than in durables (2.4%). Traditionally, manufacturing employers have tended to offer more generous employee benefits than those in other industries. This may no longer be the case. Data from the Bureau of Labor Statistics compensation survey, which takes the cost of insurance, pensions, and other employee benefits into account, show that production workers have experienced a decline in average compensation relative to workers in other occupations over the past decade.¹³ The vast majority of production workers are employed in manufacturing (see Table 2).¹⁴

On balance, then, modest job creation in manufacturing has not been accompanied by an improvement in the position of manufacturing workers, relative to those in other sectors. Although workers in some manufacturing industries earn high wages, the assertion that manufacturing as a whole provides better jobs than the rest of the economy is increasingly difficult to defend.

The Disappearance of the Large Factory

The stereotypic U.S. manufacturing plant has thousands of employees filling a cavernous factory hall. This stereotype is seriously outdated. The United States now has very few factories with large employment: of more than 292,000 manufacturing establishments¹⁵ counted by the Census Bureau in March 20132014, only 824846 employed more than 1,000 workers (see Table 3). The number of large factories has risen slightly since reaching a modern low of 795 in 2010, but remains far below the level of the 1990s. Those large factories, the ones most prominent in public discussion of manufacturing, collectively employ 1.7 million workers, 1415% of the manufacturing workforce and slightly more than 1% of the U.S. labor force.¹⁶

As the number of large factories has plummeted since the late 20^th century, the number of small factories, those with fewer than 100 workers, has declined far more slowly. Most of the plants in the latter category are extremely small, with 60% of them having fewer than 10 workers. The growing prominence of small factories contributed to a decline in mean employment in U.S. manufacturing establishments, from 46.3 workers in 1998 to 36.2 in 2010. Since then, mean employment size has risen to 38.639 workers, due mainly to employment increases at large establishments in aircraft and automobile manufacturing.

The decline in the number of large factories has been widespread across the manufacturing sector, with the exception of the food processing industry. Four industries—chemicals, computers and electronic products, machinery, and transportation equipment—accounted for more than half the decline in the number of factories with more than 1,000 workers between 1998 and 2010. Since then, the number of large factories has increased in machineryprimary metals, machinery, and transportation equipment (see Table 4).¹⁷ These are among the most cyclical manufacturing industries, and the renewed growth in the number of large factories suggests that existing plants have added workers as business conditions have improved.

The recent economic literature on the causes of changes in factory size is scant, but evidence suggests two principal causes. One is automation: as firms substitute capital for labor, fewer workers are required to produce a given quantity of output. The other is the increase in what economists refer to as "vertical specialization," with individual plants making a narrow range of the components required for a finished product, and those partially finished goods, known as "intermediate products," being shipped from one location to another along a sometimes lengthy supply chainthrough sometimes complex production network before the final good is manufactured.¹⁸ Much of the growth in international trade in recent years has involved intermediate products in international supply chainsproduction networks, and one logical—although undocumented—corollary of that growth would be that large factories reduce the scope of their activities and shed workers who formerly made inputs that are now obtained elsewhere.

Among the remaining factories with more than 1,000 workers, average employment size has held steady since 2004. In aggregate, however, large factories account for a diminishing share of manufacturing employment (see Table 5). Approximately 15% of manufacturing workers are employed in plants with more than 1,000 workers, down from 19% in 1998.

Start-Ups and Shutdowns

The employment dynamics of the factory sector differ importantly from those in the rest of the economy. In other economic sectors, notably services, business start-ups and shutdowns account for a large proportion of job creation and job destruction. In manufacturing, by contrast, employment change appears to be driven largely by the expansion and contraction of existing firms, with entrepreneurship and failure playing lesser roles. This may be due to obvious financial factors: the large amounts of capital needed for manufacturing equipment may serve as a deterrent to opening a factory, and the highly specialized nature of manufacturing capital may make it difficult for owners to recover their investment if an establishment shuts down entirely rather than reducing the scope of its production activities.

The dynamics of employment change in manufacturing can be seen in two different government databases. The Bureau of Labor Statistics' Business Employment Dynamics database, which is based on firms' unemployment insurance filings, offers a quarterly estimate of gross employment gains attributable to the opening of new establishments and to the expansion of existing ones, and of the gross job losses attributable to the contraction or closure of establishments.¹⁹ In manufacturing, BLS finds, less than 10% of gross job creation since 2005 is attributable to new establishments, and more than 90% to the expansion of existing establishments. This is quite a different picture from that offered by the service sector, in which openings routinely account for more than 20% of all new jobs (see Figure 7).

Similarly, while plant closings are frequently in the headlines, closings are responsible for less than 12% of the manufacturing jobs lost since 2005, according to BLS data. The vast bulk of manufacturing job losses occur at establishments that remain in operation. Closure is far less likely to be the cause of job loss in the manufacturing sector than in the service sector, where 19% of job losses are due to establishments closing (see Figure 8).²⁰

The other source of data on the connection between new factories and manufacturing job creation is the longitudinal business database maintained by the Census Bureau's Center for Economic Studies. This database, which contains data since 1976, covers some establishments (notably certain public sector employers) not included in the BLS database and links individual firms' records from year to year in an attempt to filter out spurious firm openings and closings.²¹ The Census database has different figures than the BLS database, but identifies similar trends, in particular that establishments open and close at far lower rates in the manufacturing sector than in other sectors of the economy.

The Census Bureau data make clear that the rate at which new business establishments of all sorts were created fell significantly during the 2007-2009 recession.²² As of 20122013, the business creation rate had not recovered to pre-recession levels. The data also show that, within the manufacturing sector, the rate at which new factories have opened increased in 2011 and 2012 after declining for more than three decades, but fell back again in 2013. The number of manufacturing establishments opened in 2012 (19,0372013 (16,412) was less than half the number that opened in 1977) was less than half the number that opened in 1977.

The new manufacturing establishments that have been created in recent years have accounted for relatively few jobs, the Census data suggest. In 2012, around 5% of all manufacturing jobs were located at establishments in operation for five years or less. Economy-wide, by contrast, 10% of all jobs were at establishments operating for five years or less. The average new manufacturing establishment provides 10 jobs during its first year in operation.²³ The Census data also indicate that from 2010 to 2012, the most recent year for which data are available, 28% of the job loss in manufacturing was related to the closure of a plant, well below the 32% of job loss that was due to establishment closure across the entire economy.

These two data sources on business dynamics thus support similar conclusions about the role of plant openings and closings in manufacturing employment. Only a small share of the jobs that are created in the manufacturing sector comes from new factories, largely because factories typically expand slowly in their early years.²³ The average new manufacturing establishment provides 10 jobs during its first year in operation.24 Conversely, a minority of the jobs lost come from the closure of existing factories, perhaps because factories shrink over a period of years before closing. These facts indicate that marginal employment change in manufacturing depends more heavily on staffing decisions at existing factories than on the creation of new factories.

Is There a Chemical Comeback?

The chemical industry figures prominently in discussions of a possible revival in U.S. manufacturing. The production of large amounts of natural gas from shale formations in several states has lowered the domestic price and provided some assurance of long-term availability, making the United States a more attractive location for producing nitrogen fertilizers and other chemical products that make intensive use of natural gas. More recentlyAdditionally, large-scale production of oil from shale formations in North Dakota and Texas has raised the prospect of increased petrochemical manufacturing.²⁵

The chemical industry's investment in U.S. fixed assets, such as machinery and structures, have averaged nearly $100 billion per year since 2007, a substantial jump from the previous level.²⁶ Many corporate announcements and news reports have pointed to substantial new investment in the sector.²⁷ As much as $50 billion of investment in chemical plants has been forecast through 2017 in Louisiana alone.²⁸ However, not all announced projects will be undertaken. Declining oil prices led to announcements in 2015 that several major projects would be postponed, including a planned $11 billion investment by the South African company Sasol to expand a plant in Lake Charles, LA; a planned $2 billion ethane cracker to be added to a Louisiana chemical plant owned by Aziall and Lotte Chemical; and Appalachian Shale Cracker Enterprise, a multi-billion-dollar chemical complex in southeastern Ohio planned by two Brazilian companies.averaged $97 billion annually from 2007 through 2012, but then moved sharply higher. In 2014, according to government data, the industry's fixed investment reached $125 billion.²⁶ Many corporate announcements and news reports have pointed to substantial new investment in the sector. In April 2016, the American Chemistry Council, an industry group, said it had counted 264 new facilities, expansions, or plant restarts completed, under way, or planned.²⁷ However, not all announced projects will be undertaken. In June 2016, BASF postponed a planned $1.4 billion propylene plant in Texas, and a month earlier Ascent Performance Materials announced it would delay construction of a $1.2 billion plastics plant. G2X Energy, which broke ground on a $1.6 billion methanol plant in Louisiana in January 2016, subsequently delayed construction.²⁸

However investment plans develop, there is little reason to expect significant job creation within the chemical industry itself. While the number of establishments in the industry is at the highest level in many years, employment is well below its level prior to 2009 (see Figure 9), as average employment per establishment continues to decline to 4847 workers. As of the first quarter of 20152016, industry-wide production capacity had risen 4% since hitting bottom in 2011. Output had grown less than 7% over the same period, and remained lower than eight years earlierwas at the lowest level since 2002, and industry output was at roughly the same level as in 2012 (see Figure 10). The industry had $1.1 million of plant and equipment for each employee in 20132014,²⁹ implying that even very large capital investments will lead to comparatively little direct employment.

Selected Policy Issues for Congress

In recent years, Congress has considered a large amount of legislation intended to strengthen the manufacturing sector. Bills introduced in the 114^th Congress take extremely diverse approaches, ranging from establishing tax-exempt manufacturing reinvestment accounts (H.R. 2608, Manufacturing Reinvestment Account Act of 2015) to providing federal grants for installation of energy-efficient manufacturing equipment (H.R. 2296, Job Creation through Energy Efficient Manufacturing Act) to accelerating tariff reductions on inputs used by U.S. manufacturers (S. 998, American Manufacturing Competitiveness Act of 2015) to providing grants to universities that emphasize manufacturing-related curricula (S. 771, H.R. 1441, Manufacturing Universities Act of 2015) to changing the tax code to discourage "offshoring" of manufacturing (S. 162, H.R. 305, Offshoring Prevention Act).

These proposals, and many others, are typically advanced with the stated goal of job creation, and often with the subsidiary goals of improving employment opportunities for less educated workers or reversing employment decline in communities particularly affected by the loss of manufacturing jobs. The available data suggest, however, that these goals may be difficult to achieve. In particular:

• Even large increases in manufacturing activity are likely to translate into only modest gains in manufacturing employment due to firms' preference to use U.S. facilities for highly capital-intensive production. After adjusting for inflation, U.S. manufacturers' fixed assets per full-time-equivalent employee rose 4752% from 2006 to 20132014.³⁰ With the average manufacturing worker making use of nearlymore than $300,000 worth of fixed assets, even large investments are likely to lead to relatively little manufacturing employment, although they may create demand for workers in other sectors, such as construction or information services.
• The decline in energy costs due to the development of shale gas, strongly encouraged by federal policy, is stimulating energy-intensivehaving only modest effects on manufacturing employment in the United States.³¹ The three sectors that jointly account for about 65% of natural gas consumption in manufacturing—chemicals, petroleum refining, and primary metals—are the three most capital-intensive sectors of U.S. manufacturing; refineries and chemical plants produce far more value added per employee than other manufacturing establishments. To the extent that expansion in these industries creates jobs, those are more likely to be in supplier industries than in their own facilities.
• Changes in methods, products, and materials may transform some manufacturing industries over the next few years. Some of these changes have been supported by the federal government. For example, the Revitalize American Manufacturing and Innovation Act of 2014, part of the Consolidated and Further Appropriations Act, 2015 (P.L. 113-235, Division B, Title VII), enacted an Obama Administration proposal to establish a Network for Manufacturing Innovation "to improve the competitiveness of United States manufacturing and to increase the production of goods manufactured predominantly within the United States." The act authorizes up to seven years of federal support for centers of manufacturing innovation seeking to improve manufacturing technology.³²31 Such improvements may lead to greater manufacturing output, but technological advances in manufacturing are likely to further reduce the need for production workers.
• Increases in manufacturing employment are unlikely to result in significant employment opportunities for workers who have not continued their educations beyond high school, as the sorts of tasks performed by manufacturing workers increasingly require higher levels of education and training. Although manufacturers report shortages of certain manufacturing skills, the average hourly wage of production and nonsupervisory employees in manufacturing rose only 1.5% in the year to June 2015, implying weak demand for additional labor in the manufacturing sector. This suggests that government-supported training efforts, while potentially helpful in preparing individuals for specific manufacturing jobs, should not be expected to lead to an increase in total manufacturing employment.
• To the extent that federal policies lead to the establishment of new manufacturing facilities in the United States, those facilities are likely to provide only limited employment opportunities in the locations where they are built. Plants with more than 1,000 workers are much less common than they once were, and nearly three in five manufacturing workers are employed in establishments with fewer than 250 workers. This suggests that there will be relatively few instances in which the siting of a new plant, by itself, will suffice to revitalize a community with a struggling economy.
• Policies that promote construction of new facilities for manufacturing may be less effective ways of preserving or creating jobs than policies aimed at existing facilities, as new establishments are relatively unimportant as drivers of employment in manufacturing.

It is important to note that increased manufacturing activity may lead to job creation in economic sectors other than manufacturing. For example, the professional services, information, and finance industries provide about 8% of all inputs into manufacturing, and the transportation and warehousing industry furnishes about 5%, so expansion of manufacturing is likely to stimulate employment in those sectors.³³32 To the extent that increased domestic production of manufactured goods supplants imports, however, any increases in ancillary employment related to domestic manufacturing may be counterbalanced by reduced employment related to the transportation and processing of imported goods, leaving the net employment effect uncertain.

Footnotes

15. Census Bureau, Longitudinal Business Database, http://www.census.gov/ces/dataproducts/bds/data_firm.html.

Jordan Blum, "BAST to delay $1.4 billion plant expansion," Houston Chronicle, June 7, 2016; http://fuelfix.com/blog/2016/04/13/houston-chemical-companies-buys-half-of-new-methanol-plant/.

1.	Manufacturing output, as discussed in this section, is derived from the Federal Reserve Board Industrial Production Indexes for manufacturing and for various manufacturing industries, seasonally adjusted, http://www.federalreserve.gov/releases/g17/Current/default.htm. Employment figures in this section are from the Bureau of Labor Statistics Current Employment Statistics database, http://www.bls.gov/ces/, and are seasonally adjusted.
2.	On the impact of China on manufacturing employment, see Justin R. Pierce and Peter K. Schott, "The Surprisingly Swift Decline of U.S. Manufacturing Employment, working paper 13-59, Center for Economic Studies, U.S. Census Bureau, December 2013," American Economic Review, forthcoming, and David H. Autor, David Dorn, and Gordon H. Hanson, "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, vol. 103 (2013), pp. 2121-2168. On U.S.-China trade more generally, see CRS Report RL33536, China-U.S. Trade Issues, by [author name scrubbed].
3.	In 1980, an average of 398,829 employees produced 83.9 million tons of steel; see American Iron and Steel Institute, Annual Statistical Report 1980 (Washington, DC, 1981), pp. 8, 21. U.S. steel shipments in 20142015 were 98.286.5 million tons, according to the Institute; see http://www.steel.org/Steel_org/Document%20Types/News/2015/December%20Shipments.aspx?siteLocation=c481cc99-d816-4613-805c-b90af33cc162document-types/news/2016/decembershipments.aspx. BLS gives average industry employment in 2014 as 91,4002015 as 87,000.
4.	On the changing sources of value in U.S. manufacturing, CRS Report R41712, "Hollowing Out" in U.S. Manufacturing: Analysis and Issues for Congress, by [author name scrubbed].
5.	Bureau of Labor Statistics, Current Population Survey for 2014 and previous years, Table 17. For the most recent data, see http://www.bls.gov/cps/cpsaat17.pdf.
6.	Data from Bureau of Labor Statistics Occupational Employment Statistics database, http://data.bls.gov/oes/.
7.	Ibid.
8.	Bureau of Labor Statistics, "Textile, Textile Product, and Apparel Manufacturing," Career Guide to Industries, 2010-11 edition, http://www.bls.gov/oco/cg/cgs015.htm.
9.	Susan Helper, Morris M. Kleiner, and Yingchun Wang, Analyzing Compensation Methods in Manufacturing: Piece Rates, Time Rates, or Gain-Sharing?, working paper 16540, National Bureau of Economic Research, November 2010.
10.	Unpublished data from Bureau of Labor Statistics, Current Population Survey, "Employed Persons by Intermediate Industry, education, sex, race, and Hispanic or Latino ethnicity (25 years and over)," 20142015 and prior years. It is unclear whether the higher demand for workers with academic associate degrees reflects higher skill levels among those workers or is a result of individuals with greater ability enrolling in the academic rather than occupational programs at community colleges.
119.	David Langdon and Rebecca Lehrman, "The Benefits of Manufacturing Jobs," U.S. Department of Commerce, Economics and Statistics Administration, Issue Brief #01-12, May 2012, p. 1.
1210.	U.S. Bureau of Labor Statistics, Current Population Survey, Table 18b, http://www.bls.gov/cps/cpsaat18b.htm.
1311.	U.S. Bureau of Labor Statistics, Current Employment Statistics, http://www.bls.gov/ces/.
1412.	Ibid.
	13.	For data, see http://www.bls.gov/ncs.
14.	According to BLS data, 78% of those in production occupations worked either in manufacturing or for employment services in 2015; for data, see http://www.bls.gov/oes. Most of those working for employment services were likely employed in manufacturing establishments as temporary workers.
An establishment is defined as "a single physical location where business is conducted or where services or industrial operations are performed." In the manufacturing sector, an establishment is analogous to a factory, and the terms are used interchangeably in this section.
16.	Census Bureau, 2012 County Business Patterns, http://censtats.census.gov/cgi-bin/cbpnaic/cbpcomp.plGeography Area Series: County Business Patterns by Employment Size Class, Table CB1400A13. The number of manufacturing establishments with more than 1,000 employees was 1,504 in 1998, and has declined steadily sinceuntil 2013. Due to definitional changes, data for 1998 and subsequent years are not compatible with those for earlier years.
17.	Census Bureau, County Business Patterns, http://www.census.gov/econ/cbp/.
18.	For a survey of the evidence on vertical specialization, see Gary Herrigel, Manufacturing Possibilities: Creative Action and Industrial Recomposition in the United States, Germany, and Japan (New York: Oxford University Press, 2010), ch. 4-6. The literature on the implications of vertical specialization for international trade flows, which stems from the observation that trade in manufactured goods has grown far more rapidly than global output of manufactured goods, is now quite large, but economists have paid much less attention to the implications of vertical specialization for the structure of the manufacturing sector.
19.	"Gross" job gains and losses refer to the number of positions created and eliminated, respectively; the net change in employment can be calculated by subtracting gross job losses from gross job gains. For technical details on this database, see http://www.bls.gov/news.release/cewbd.tn.htm.
20.	See http://www.bls.gov/web/cewbd/table1_5.txt and http://www.bls.gov/web/cewbd/table1_6.txt.
21.	For information about this database, see http://www.ces.census.gov/index.php/ces/researchdata?detail_key=10.
22.	John Haltiwanger, Ron Jarmin, and Javier Miranda, Historically Large Decline in Job Creation from Startup and Existing Firms in the 2008-09 Recession, March 2011, http://www.ces.census.gov/docs/bds/plugin-BDS%20March%202011%20single_0322_FINAL.pdf.
23.	Census Bureau, Longitudinal Business Database, http://www.census.gov/ces/dataproducts/bds/data_firm.html.
24.	Lucia Foster, John Haltiwanger, and Chad Syverson, The Slow Growth of New Plants: Learning About Demand?, working paper 12-06, Census Bureau Center for Economic Studies, March, 2012, ftp://ftp2.census.gov/ces/wp/2012/CES-WP-12-06.pdf.	24.
25.	For background, see CRS Report R43148, An Overview of Unconventional Oil and Natural Gas: Resources and Federal Actions, by [author name scrubbed] and [author name scrubbed].
26.	Bureau of Economic Analysis, fixed assets accounts tables, Table 3.7ESI.
27.	Robert Breisford, "Rising demand, low-cost feed spur ethylene capacity growth," Oil & Gas Journal, July 7, 2014.
28.	Penny Font, "The $50 billion boom," Greater Baton Rouge Business Report, June 10, 2013, http://businessreport.com/6112013/print-issue/The_50_billion_boom. "ACC Highlights Economic Benefits, Key Policies at Hudson Institute Forum," April 6, 2016, https://www.americanchemistry.com/Content.aspx?id=9243.	28.
29.	Computed from Bureau of Economic Analysis, fixed assets accounts tables, Table 3.1ESI, and National Income and Product Account data, full-time equivalent employees by industry, Table 6.5D.
30.	The increase in fixed assets per employee is calculated from Bureau of Economic Analysis (BEA) fixed assets accounts table 3.1ES and National Income and Product Accounts table 6.5D, http://www.bea.gov.
31.	See CRS Report R42814, Natural Gas in the U.S. Economy: Opportunities for Growth, by [author name scrubbed] and [author name scrubbed].
32.	128 Stat. 2222.
3332.	Estimates taken from Bureau of Economic Analysis, "Use of Commodities by Industries before Redefinitions," 2013, http://www.bea.gov/iTable/index_industry.cfm.