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Wednesday, July 16, 2014

Why manufacturers have re-sourced jobs to the United States

Large manufactures have re-sourced jobs to the United States because factors relating to the cost of doing business overseas have changed. Reuters news agency reports companies such as Caterpillar, a tractor and construction equipment manufacturer, have already brought some of their manufacturing back to the states. Additionally, 37 percent of U.S. manufacturers are considering re-shoring jobs due to wage inflation in China per the news agency, and in reference to research from the Boston Consulting Group. The National Center for Policy Analysis also states that on average, insourced jobs pay 16.5% more than domestic jobs.

U.S. insourcing of jobs
Manufacturing jobs lead the insourcing trend
Trends in global labor costs combined with variables including political risk, logistics inflation, and tariffs mean outsourcing jobs is not always a good idea.  For example, according to a study published by Boothroyd Dewhurst, Inc., approximately 10,000 containers a year fall off ships that transport goods around the world. Moreover, as the cost of labor increases in China, countries without as much wage inflation and lower transportation costs become relatively more cost effective relative.

The study from Boston Consulting Group also forecasts the benefits of outsourcing to China will only save manufacturing companies 10 percent by 2015 per MSNBC. This is due to both increasing costs of labor or wage inflation, and levels of worker productivity that are a lower than in the United States However, even if worker productivity does rise, nations other the United States are not precluded from being first in line for the jobs. In other words, just because China is getting more expensive does not mean the United States is necessarily the most cost effective alternative.

In addition to cost and productivity factors, it is important to note manufacturing only comprises 11.2 percent of the U.S. GDP per the National Association of Manufacturers (NAM). Furthermore, if 100 percent of those firms surveyed follow through on their “considerations”, then a 37 percent rise only positively affects about 4.14 percent of U.S. economic output. Additionally, since the U.S. is largely a service based economy, substantial increases in re-shoring of jobs within services industries would have a larger net impact on overall job creation.

The reshoring of manufacturing jobs to the United States is a positive trend, but it is also a small one according to an investigation by National Public Radio. In order for re-sourcing jobs to the United States to increase, it must be a suitable medium to long-term option to be worth while. Moreover, even though re-shoring jobs is not always the best option, organization such as the Reshoring Initiative assist companies accurately assess whether or not it is in a bid to encourage consideration of insourcing jobs.

Image attribution: OII/NCPA; Fair Use

1 comment:

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