Thinking On: Reshoring Jobs from China

Thinking On...

Manufacturing jobs are coming back to the United States due to growing labor costs and strengthening currency in China, but it is unclear if it’s a win for workers.


For decades, manufacturing jobs offered stable well-paid positions to low and medium skill workers who now fall through the cracks. The process of offshoring combined with multiple recessions has resulted in a decline in the number of positions as well as wages. One of the main reasons offshoring in the United States took off in the 90’s was the low cost of labor relative to productivity in developing economies. Companies operating factories in places like China are seeing a see a rise in wages and benefits, cutting into the intended savings. Over the past three years alone, Chinese wages have had an annual increase of around 14 percent. Add in the costs of transportation, setbacks due to miscommunications or cultural differences and the difficulty of doing business remotely the total cost of manufacturing in the United States and China beings to converge.

Meanwhile in the United States, currency exchange rates and labor costs have dropped since the 2008 financial crisis while hydraulic fracturing has driven down fuel and production costs. According to the Washington Post, manufacturing labor costs in China will come very close to U.S. costs reducing the gap from $17 to $7 by 2015.

 

Between 1998 and 2010, the United States lost roughly 5.8 million jobs, but theReshoring Initiative estimates that out of the 568,000 factory jobs that the United States has regained since 2010, around 15 percent of them come from reshoring and the number is still growing. The Boston Consulting Group has predicted that, “By 2020, higher U.S. exports, combined with production work that will likely be “reshored” from China, could create 2.5 million to 5 million U.S. factory and service jobs associated with increased manufacturing.” BCG also found that over half of the large U.S-based manufacturing companies they surveyed are either planning to or are considering reshoring production in the future.

Still manufacturing jobs are not quite the same as they used to be, in an effort to efficiently streamline production the majority of tasks have been automated. Many of the jobs created by reshoring efforts will likely require a slightly more skilled work force able to operate or perform maintenance work on complicated machinery. And some have claimed it has been hard to find workers with the needed skills. The majority of manufacturers however do not have trouble finding employees and the minimum skill requirements, while higher than in the past, are still well within reach for most Americans according to the Economic Policy Institute.

Heron investee Ecologic Brands is a manufacturer of sustainable packaging and founder, Julie Corbett, mentioned their reasons for reshoring in a previous interview: ”

We worked closely with molded pulp toolmakers in Asia, and therefore had to manage the international freight costs, lack of quality control and environmental issues associated with large shipments. Bringing production in-house was the natural next step to refining our technology internally while reducing costs for our customers and improving our quality and environmental footprint.

As the first mover in a new domestic market for molded fiber, Ecologic will hire new workers and, over the next five years, equip them with skills that will likely preserve their long-term employment.

Companies outside of the manufacturing sector have also targeted jobs with the potential to be brought back to the United States, such as software quality assurance testing highlighted by Wired magazine in 2014. After hearing from a Nickelodeon executive about the woes of dealing with low-cost low-quality testing companies offshore, Majora Carter and James Chase, founders of Startup Box, realized an opportunity to bring tech focused economic development to the Bronx. Startup Box has focused on hiring locally to provide income and training for at risk populations in the Hunts Point area where Majora grew up. Meanwhile, down the road Doran Jones, a testing startup, has partnered with the IT training nonprofit Per Scholas to create the Urban Development Center. Similar to Startup Box the center will accept at risk locals and put them through a rigorous training program to prepare them for software testing jobs with Doran Jones.

While some may still be skeptical about the extent reshoring will benefit the American job market, the numbers do indicate that the trend is growing in certain industries. Although it may not be a viable strategy for most companies, reshoring should ultimately benefit some communities in the United States by bringing back jobs lost to developing countries.

Read more reflections from Heron on aspects of our work and the many reasons we do it.

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