A Nice Example of “Onshoring”

September 30th, 2013 at 8:59 am

Here’s something more uplifting than anything you’ve read here lately: it’s an “onshoring” piece–bringing back jobs that were offshored in earlier years–about how some textile jobs are coming back to the US (from the NYT).

The piece hits on a lot of our themes here at OTE:

–The persistent US deficit in traded goods, including textiles, has been the enemy of full employment in this country for over a decade.  This pushes the other way.

–This story includes a crucial fact missing from almost every other story about how employers allegedly are in need of more skilled workers: rising wages.

Wages for cut-and-sew jobs, the core of the apparel industry’s remaining work force, have been rising fast — increasing 13.2 percent on an inflation-adjusted basis from 2007 to 2012, while overall private sector pay rose just 1.4 percent. Companies here in Minnesota are so hungry for workers that they posted five job openings for every student in a new training program in industrial sewing, a full month before the training was even completed.

Employers often go on about how they can’t find the workers they need.  That’s even led some economists to argue that today’s high unemployment is largely structural, the result of a mismatch between employers’ demands and workers’ skill.  But absent increasing wage pressures, there’s no real case for a labor shortage or structural unemployment.  As this piece shows, while it can take a bit of time, workers will respond to positive wage signals by shifting into the expanding sector.

–The onshoring is the result of a confluence of interesting, global developments: the diminished differential in production costs between here and some parts of Asia, including labor and transportation costs; customer demands for American-made products; quality control; and safety issues invoked by recent tragedies in foreign factories.

Of course, this is still a relatively small and new phenomenon and textile production remains a highly competitive business with thin profit margins.  Surely, we could recreate the lousy working conditions that have often characterized the industry.  But the piece suggests that at least at this early stage, strong labor demand is pushing the other way, toward better jobs requiring some training, with decent starting wages and benefits.

It’s a microcosm of the full employment story: it’s hard to imagine either the wage pressure or the impetus for working training absent tight labor markets (in this case, a unique pocket of strong labor demand).

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3 comments in reply to "A Nice Example of “Onshoring”"

  1. Tom in MN says:

    With MN unemployment at 5.3%, we are a lot closer to full employment than the rest of the country. One of the problems with being a “high” tax state: all those extra jobs.

  2. Fred Donaldson says:

    Much of the advantage that China possesses in cost of manufacturing comes from having the newest, most effective machinery and robots. A mistake made here by short-sighted owners has been to rely on old equipment under the orders of financiers not anxious to see beyond the next quarter’s profit. As some American companies adopt newer machinery and robots, the shipping saved offsets the small difference in wages, as we have folks doing the work of 10 to 50 former employees, making labor a smaller and smaller part of manufacturing expense.

    The real thrust to overseas production is corporate savings in U.S. taxes, which is the fault of current and past administrations since the late 70s, but especially in the 90s. This has forced more burden on the middle class, as the rich have gained extraordinary means to avoid federal levies.

  3. Sandy Montalbano says:

    A key to reshoring is educating and training companies to use total cost of ownership instead of price for making sourcing and siting decisions.

    The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases companies will find that, although the production cost is lower offshore, the total cost is higher. TCO Estimator http://www.reshorenow.org/TCO_Estimator.cfm

    Readers can help bring back jobs and increase profitability by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore.

    I also recommend reading “ReMaking America” by the AAM – it has an excellent chapter on Reshoring by Mr. Moser, founder of the Reshoring Initiative.