The Case for Making It in the USA

Higher wages in China and smarter factories in the U.S. may boost American manufacturing

Workers at GE Aviation's plant in Piedmont, S.C. Imke Lass for Bloomberg Businessweek

By Peter Coy

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Do factory workers have a future in the U.S.? David Laws thinks so. The muscular, tattooed South Carolinian has a prized job with General Electric's (GE) Greenville Airfoils Facility in Piedmont, S.C. One of his tasks is to use a computer-controlled machine tool to burn tiny cooling holes electrically in 3-inch-long turbine blades for aircraft jet engines. The 300 holes in each blade, most of them thinner than a human hair, are engineered to spread a coat of cool air over the spinning blades so they aren't melted by 3,000F exhaust gases.

The pay is good—$31 an hour—but what Laws really likes is the sense of empowerment at the non-union plant. Hourly team members like Laws are responsible for choosing new colleagues. Before deciding who gets hired, they interview job candidates and observe them in a game that involves cooperatively building a toy helicopter from LEGO blocks. Teams can adjust the line operation as they see fit to remove bottlenecks and maximize productivity. Recently, two teams came up with different ways to speed up the washing of turbine blades. The plant leader, rather than picking one way as the winner, approved buying equipment for each team to wash the blades its own way.

"At other jobs I've had, it was just a paycheck. Here, you actually feel like you have a say-so. Out of all the places I've worked, I'd say this is by far the best one," says Laws, 34, who is married with four children.

Manufacturing still contributes 11.7 percent of U.S. gross domestic product. Yet when footloose corporations can choose to locate factories wherever in the world they want, the only hope for American factory workers to save their jobs is to be so skilled and productive that they can justify the pay multiple they earn vs. their counterparts in South Korea or China or Mexico. (Roughly half of GE's manufacturing jobs, as well as overall revenues, are outside the U.S.) For Americans, earning premium wages will require focusing on sophisticated products that can't be made in lower-wage nations—and outsmarting foreign rivals with the kind of ingenuity and teamwork that are on display at the South Carolina airfoil plant.

A study scheduled to be released on May 5 by Boston Consulting Group argues that the U.S. is headed for a "manufacturing renaissance" over the next five years. The mainland's pay advantage over the U.S. is eroding because Chinese wages are rising about 17 percent a year and the yuan is gaining in value, according to BCG. And an "increasingly flexible" U.S. workforce is willing to accept non-union wages and benefits, and state and local governments are raising incentives to attract factories, the firm says.

BCG calculates that once wages are adjusted for superior U.S. productivity, China's average wage was 31 percent of the U.S. average in 2010 and will reach 44 percent in 2015. The gap is narrower when one compares wages in China's Yangtze River Delta region, which includes Shanghai, with those in Mississippi, one of the cheapest places for manufacturing in the U.S. The Chinese coastal region's wages were 48 percent of Mississippi's in 2010 and will reach an estimated 69 percent in 2015. And wages aren't everything: China suffers from distance from the U.S. market, communications difficulties, and weaker intellectual property protection. "It's no longer going to be a no-brainer" to shift manufacturing from the U.S. to China, says Hal Sirkin, a senior partner of the consulting firm and lead author of the paper. Mexico will also benefit as China's wage advantage declines, BCG predicts. It cautions that China "will continue to be a major global player," tilting toward serving its domestic market as well as Western Europe.