Labor productivity is central to economic growth, and the manufacturing sector is a catalyst for progress, directly contributing $2.65 trillion to the U.S. economy. Overall, U.S. labor productivity has been rising attractively. In 2023, the U.S. enjoyed productivity growth of 2.7%, outpacing the 1.5% annual average witnessed since 2004. However, for U.S. manufacturing, productivity has been flat and declining since 2010. (See Figure)

Since U.S. manufacturing has to compete on a global scale, how can we get productivity growing again?

Investment in Capital Assets Drives Productivity

A lack of investment in improving how we make things is a major reason for productivity stagnation. Increasing capital per hour worked has been a main driver of productivity across the globe, accounting for, in most places, 70%–80% of overall productivity growth.

Slowing investment growth in capital assets like machines, equipment, technology, and facilities accounted for 90% of the drop in the rate of U.S. manufacturing productivity growth. Lower investment drove lower growth of capital per hour.

R&D Intensity and Productivity Gains

R&D intensity is a key indicator of how much a company is investing in innovation and technological development. U.S. manufacturing R&D intensity has increased since 2010, but it’s not translating into overall productivity gains as one would expect.
The productivity differences between adopters of advanced technologies and non-adopters are considerable, indicating that new technology is an essential contributor to productivity. Since advanced technologies are much likelier to be employed by larger firms, broad adoption has been slow. Robot adoption can account for 16%–30% of productivity differences of large versus. small firms within a given industry.

Simply put, U.S.  manufacturers have not invested heavily enough in new technologies and machinery, both of which are crucial for boosting productivity.

Offshoring and Productivity Gains

Over the last few decades, companies made the decision to offshore to take advantage of low wages, less regulation, and increased price competitiveness, often ignoring many hidden costs. They concentrated on short-term gains for shareholders instead of investing in capital equipment, innovation, and workforce training––all drivers of productivity. Reshoring increases investment in these areas.

Innovation Culture and Workforce Development 

Recruiting and maintaining a skilled workforce is critical to productivity gains. The need for a more highly-skilled workforce in advanced manufacturing could be a productivity-limiting factor. 

Investment in training enables the implementation of new technologies, which can enhance productivity and reduce downtime. New technology could add 0.5–1.0 percentage points to annual productivity growth.

If we do everything else to boost global competitiveness––tariffs, lowering the dollar, providing incentives––but you can’t find anybody to work in the factory, it’s all purposeless. 

I propose the SBA linking loan guarantees to workforce development, such as offering $250,000 in financing for each apprentice hired. It’s the kind of thing that could knock off two birds with one stone: financing for tough credit cases and filling the skills gap.

Policy Incentives

Federal policy plays a vital role in increasing manufacturing investment, capacity, process innovation, and productivity. It is important for U.S. policymakers to maintain policies like the immediate expensing of capital equipment to encourage manufacturers to invest in automation. 

Automation makes U.S. manufacturing more cost competitive, enabling more reshoring and creating a virtuous cycle. Unfortunately, this policy is being phased out, which could slow modernization efforts.

Streamline Processes

Using lean manufacturing practices can streamline processes, improve efficiency, and minimize waste. Introducing data analytics to monitor processes, identify inefficiencies, and ensure machinery is operating at top efficiency can lead to more informed decision-making.

The biggest hurdle is to assess current manufacturing processes and identify the inefficiencies that are causing stagnation in productivity. Determine what methods would improve efficiency and output in your company.

Total Cost of Ownership (TCO) is the best metric to use for comparative analysis. 

The Reshoring Initiative’s TCO Estimator is a free online tool that helps companies account for all relevant factors to compare the true total cost of domestic and offshore sourcing and siting. Using this information, companies can better evaluate sourcing, identify alternatives, and even make a case when selling against offshore competitors.

We need a good game plan to win a tough game. It is imperative that the country levels the manufacturing cost playing field. Reshoring represents a critical opportunity for U.S. manufacturers, but success depends on a combination of strategic policy interventions and industry-led initiatives. 

We need structural changes, including improved workforce training, more apprenticeships, a lower corporate tax rate, currency adjustment, and either tariffs or a VAT (value added tax).

These actions would create a competitive environment for U.S. manufacturers to get manufacturing productivity growing again. The Reshoring Initiative is available to help government policymakers establish a more effective, lower-cost industrial policy to bring millions more jobs back.

Are You Thinking About Reshoring?

For help, contact me at 847-867-1144 or email me at harry.moser@reshorenow.org. Have you reshored a metal component or product? Apply here for the National Metalworking Reshoring Award today.

Participate in the Survey 

Please visit https://www.surveymonkey.com/r/Reshore05 to participate in an important survey that will show where we are on the manufacturing reshoring curve and inform the new administration about what matters most to you.