ECONOMIC DEVELOPMENT QUARTERLY / November 2001
Understanding and meeting the workforce needs of local businesses and residents require dif- ferent information, skills, and policy tools from those used in decision making about conventional “bricks-and-mortar” economic development. Moreover, much of the workforce-related informa- tion economic development practitioners receive comes from representatives of large companies (that participate in Private Industry Councils, for example) or from the popular business literature, which speaks primarily to Fortune 500 companies rather than the typical small manufacturer. The lack of knowledge about small and medium-sized manufacturers with older production systems is unfortunate because these companies continue to be the backbone of many local economies.
This article reviews the growing literature on the changing employment practices of small and medium-sized manufacturers. Specifically, we examine the literature in three areas: (a) hiring practices, (b) employment security and retention, and (c) career ladders. Observers disagree about the extent to which restructuring has taken place, the nature of workplace change, and the impact of this change. The policy arena is just as contentious; a variety of strategies—from investment tax credits to training programs—have been proposed to provide employment opportunities in manufacturing, particularly for low-income populations. By synthesizing the research to date and evaluating the key debates in this area, this literature review will assist economic development researchers and practitioners in making the leap into workforce issues.
Manufacturing accounts for just under 20% of the nation’s employment and remains a strategi- cally important component of many regional economies (Census of Manufacturers, 1996). The majority of manufacturers are small and medium-sized businesses (fewer than 500 employees) and privately held. The National Tooling and Machining Association, for example, estimates that its typical member establishment has about 29 employees and $3 million in sales (Ackerman, 1997). The greatest concentration of manufacturers can be found in the printing, industrial machinery, fabricated metals, and food products industries.
Manufacturing production systems have been in the throes of great change. From the 1950s through the 1970s, oligopolistic market structures sheltered large corporations from product com- petition while wage increases tied to rising productivity allowed unions to gain a share of the profits for their members (Appelbaum & Berg, 1996). Workers engaged in mass production expected some measure of job security, advancement opportunities, and steady raises from their employers (Harrison, 1994). In exchange, employers could expect loyalty and the development of firm-spe- cific skills as employees advanced along established career ladders. In mass production systems, workers developed skills by repeating the narrowly defined and often routine tasks set forth in union job classifications.
Starting in the 1970s, financial deregulation, overvalued dollars, technological advances in information exchange, and foreign competition drastically altered the environment in which large American manufacturers operated. Foreign corporations challenged American dominance in steel, automobiles, consumer durables, and other product markets that had been the foundation of the U.S. economy. In this increasingly unstable environment, domestic manufacturers faced declining profitability and were forced to restructure. To lower fixed costs, large companies shifted job tasks previously performed in-house to external contractors (Harrison & Bluestone, 1988). Firms shed excess capacity and outsourced tasks that did not qualify as core competencies, creating new opportunities and challenges for the small suppliers from which they obtained parts and intermedi- ate products.
Because of the increasing frequency of outsourcing, most small and medium-sized manufactur- ers are now suppliers to larger firms as opposed to original equipment manufacturers (Harrison, 1994). Large customers demand that their suppliers reduce prices, speed up delivery times, and hold additional inventory—all while insisting that quality standards remain high (Luria, 1996; McCormick, 1996). In effect, these large customers exert market pressure on their predominantly small suppliers to bear the brunt of upturns and downturns in product demand, and as a result, pro- duction schedules for small firms are highly unstable. In his study of 1,000 establishments with