Lean manufacturing: The production employment and wages connection.

• Author: Zimmer, Timothy E.

The manufacturing sector of the economy is increasingly characterized by complexity and rapid change. The inherent volatility of manufacturing is often the source of workforce apprehension, which produces a reluctance to adapt to the changing environment.

To make (or manufacture) things, it costs money--facilities, materials and labor are just three of the many "inputs" necessary--and it makes sense to add as much value to a product as possible. Lean manufacturing has long been one of the ways to add value by improving the processes involved in the making of the product and eliminate waste.

Workplace efficiency initiatives can sometimes be misinterpreted as attempts to disrupt the workplace or undermine the social contract between the employer and employees. Within this context, the workforce can resist the adoption of lean manufacturing or other manufacturing efficiency programs. The lack of direct research to counteract this viewpoint only re-enforces its legitimacy. This article is a step toward understanding the relationship between value-adding (or lean) manufacturing and employment and wages.

This analysis is in the same line as well-established research in the area of efficiency wage hypothesis. Efficiency wage hypothesis (EWH) research examines the potential for wage premiums over market-clearing wages to attract better talent. The goal is to acquire better talent that produces productivity gains and reductions in turnover costs in excess of the increased wages. (1) This analysis differs in that it does not assess the performance impacts of wage premiums of individual companies, but rather uses statewide wage averages. Using statewide averages, we examine the directional link between productivity and market-clearing wages, rather than the premium wages of individual actors within industry.

Figure 1: Comparison of value added per hour Indiana U.S. 325 Chsmicals $796.16 $432.60 324 petoleum and coal products $732.75 $646.75 317 Beverage and tobacco products $375.36 $534.62 334 Computers/electronic products $211.17 $240.47 331 Primary metals $167.37 $137.32 311 Food $162.91 $123.10 339 Micellaneous $162.03 $158.97 336 Transportation equipment $126.99 $157.19 333 Machinery $126.73 $146.77 32? Paper $107.39 $155.49 327 Nonmetallic minerals $98.35 $113.58 332 Fabricated metals $96.74 $91.41 33& Electrical Equipment/Components $92.69 $135.27 326 Plastics and rubber $77.12 $94.51 337 Furniture $75.61 $73.97 323 Printing $73.02 $82.03 3?1 Wood products $56.64 $69.25 314 Textile product mills $43.07 $65.46 Source: U.S. Census Bureau, Annual Survey of Manufactures Note: Table made from bar graph. Our sources include data from the U.S. Census Bureaus Annual Survey of Manufactures (ASM). It includes statewide, industry-level data for the 50 states and the District of Columbia beginning in 1998...