Productivity sells ‘Austin bargain’ to employers

Manufacturing output grows four times faster than overall economy.

Dan Zehr

Somewhere along the road through the Silicon Hills, Austin became a manufacturing powerhouse.

While high-tech startups, state government, live music and the University of Texas’ flagship campus grab most of the headlines, manufacturers have become an increasingly vital cog in the local economy — the largest cog, in fact.

Local manufacturing output has skyrocketed over the past decade, growing more than four times faster than the metro-area economy as a whole, according to a recent analysis compiled by Brian Kelsey, founder of Civic Analytics, a local economic development firm.

Manufacturing now accounts for roughly 20 percent of Austin’s gross metro product (the total goods and services produced in the area) up from just 9 percent in 2001. The sector is now the single-largest component of the local economy, surpassing the public sector.

Despite those soaring production levels, employment at area factories has plummeted over the same period. Manufacturers have cut 38 percent of their payrolls since 2001, a net loss of more than 30,000 jobs, according to Texas Workforce Commission data.

The combination of manufacturing’s rising output and falling employment has helped generate a significant rise in Austin’s overall productivity, which historically lagged the nationwide metro-area average. In the past five years, productivity has soared — a fact that has helped create a sort of “Austin bargain” for manufacturers.

It goes something like this: Austin’s productivity, or output per worker, has increased almost twice as fast as the metro average since 2001. Over the same time, local paychecks (average earnings per worker) dropped back from a tech-boom peak and are again below the national metro average.

Simply put, Kelsey said, “Companies in Austin get

access to a skilled and productive workforce at a bargain compared to other metro areas.”

It sounds like a raw deal for Austin, and in the near term it very well might be. The combination of rising productivity and stagnant wages “is another way of saying that workers are getting a smaller piece of the pie,” said Ed Sills, spokesman for the Texas AFL-CIO.

Yet over the long term, rising productivity tends to produce greater wealth. And with a growing number of companies looking to add or expand production in the United States, the “Austin bargain” could become a vital draw for manufacturers and the vital middle-wage jobs they provide.

Filling in the middle

The increasing scarcity of middle-wage work has become a major concern among economic experts. The job market has become increasingly bifurcated, with growth in higher- and lower-skill positions but a hollowing out of the middle — typically, jobs that pay around the U.S. household median of $50,000 a year. People without postsecondary education have fewer options for career ascension and a middle-class life.

Traditionally, the manufacturing sector filled that gap, but the domestic workforce has been decimated by technology, automation and the offshoring of jobs to cheaper labor overseas. From 2000 to 2010, the United States lost about 407,000 jobs in computer and electronics manufacturing alone, according to a McKinsey and Co. study that was cited in a recent report by The Economist.

In recent years, though, the migration of jobs has started to slow and, to some extent, reverse itself. As labor costs have increased in China and other developing countries, a growing number of companies have moved factories closer to home.

The return of overseas operations to U.S. soil could generate 2 million to 3 million manufacturing jobs by 2020, according to the Boston Consulting Group, as cited in The Economist’s report. That pales in comparison with the millions of jobs that went overseas just in the past decade, but between those “reshoring” efforts and ongoing expansion at home, U.S. manufacturing appears to have regained a semblance of balance.

In Austin, the number of manufacturing jobs has increased more than 4 percent in each of the past two years — a drop in the bucket compared with the jobs lost, but certainly better than more losses. And given its skilled, productive workforce and relatively low wage levels — the Austin bargain — Central Texas could find itself in good position to build on the recent growth.

To date, Austin has drawn more interest for domestic expansion projects than manufacturing that’s coming back from overseas, said Adriana Cruz, vice president of global corporate recruitment. For example, she said, U.S. Farathane, which produces highly engineered plastic products for automakers, opted to put its new factory here.

Austin provided a central location between the General Motors plants U.S. Farathane supplies in Arlington and Monterrey, she said, but it also provides the workforce the company sought.

“The most desirable location in the world isn’t going to help you if you don’t have good people to hire who can do the work and be productive,” Cruz said. “That’s the strength we have.”

transformed Manufacturing

Maintaining a flexible and skilled workforce will be increasingly crucial as the nature of factory work continues to change. To compete in a global marketplace, domestic manufacturers have to continuously raise productivity levels. And that has heightened the requirements for today’s factory worker.

“The skills required by the workers are so much greater,” said Tony Ben-nett, president of the Texas Association of Manufacturers. “Every year, they can make a widget much more quickly. They can do it sometimes with (fewer) people and more highly skilled people.”

Austin already offers a prime example of the increasingly technical nature of manufacturing. The area’s largest manufacturers — those making computer and electronic products — operate at the leading edge of manufacturing’s state-of-the-art.

These companies currently employ more than 24,000 Austin workers, according to workforce commission data. In 2010, they exported about $4.7 billion of goods, more than half of all the area’s exports that year, according to data from the U.S. Department of Commerce.

Samsung Austin Semiconductor contributes a significant share of those exported goods, of course. Outside its domestic factories in South Korea, Samsung runs all its chip production through Austin. It has already invested roughly $11 billion here — one of the largest foreign direct investments in the country — and it expects to bump that up to more than $15 billion as it retrofits half of its main Austin fab.

There’s a reason Sam-sung has invested so heavily here, Kelsey said. As with any manufacturer, the cost of labor matters, he said, but the skilled workforce is what really makes the Austin bargain work.

In the past five years, local productivity rates have gone from lagging the national average to outpacing it.

More important, Kelsey said, that has continued even as manufacturing employment levels have stabilized.

So, sure, Central Texas might have far fewer factory workers today than it did a decade ago. But each of those workers can produce a lot more than ever before — and that sort of productivity could help fuel the Austin manufacturing powerhouse for years to come.

Dan Zehr covers economics and finance for the American-Statesman. Contact him at or 445-3797.