Even amid layoffs, American workers boost productivity Making More with less

THE BALTIMORE SUN

Forget what you've heard about workers in Germany or Japan. If you want to see a productive employee, look at Doug Moxley of Aberdeen -- and millions of blue-collar Americans like him.

Mr. Moxley, 32, who makes insulated panels for walk-in refrigerators, is producing twice as much an hour as he did five years ago.

Similar stories are being told throughout the American workplace. Since the recession ended in March 1991, productivity -- defined as output per number of hours worked -- in the manufacturing sector has risen at an annual rate of 4.5 percent, nearly twice the sector's average yearly growth in the 1980s. In all, productivity rose a meager 1.6 percent last year, the government reported last week.

Such rising productivity is crucial in driving an economic recovery and some economists are optimistic that the increases can continue.

"It kind of comes down to all of us working harder," says Diane Swonk, an economist with First Chicago Corp. and an expert on the Midwestern manufacturing heartland. "Will it ever end? Of course not. In a competitive market, it can't end. You are %J constantly pushing to get better."

But what does this mean for the American worker, whose increased productivity has helped drive an economic expansion that has failed to create nearly the number of jobs of other post-World War II bounce-backs?

Indeed, a surge of 7.8 percent in manufacturing productivity in the last quarter of 1993, for example, coincided with the creation of only 39,000 manufacturing jobs, a fraction of a percentage point in the 17.7 million-strong industrial work force.

The questions now are: How much more productivity can be squeezed out of workers before employers are forced to recruit new employees? And what was learned by managers during the recession that can keep productivity increasing even as profits grow and new employees are hired.

Eventually, increasing productivity should sharpen the U.S. edge the global competition for trade and increase the nation's standard of living. This, in turn, should eventually create more long-awaited job opportunities.

But so far, increased productivity has been gained at a heavy human price: layoffs. Corporate downsizing stripped 600,000 workers from payrolls last year and an additional 108,000 in January alone.

For example, at Doug Moxley's workplace, Duracool, a division of Harford Systems Inc., the payroll is down from 140 employees five years ago to 95 today. That is a decline of almost one-third, while revenue has doubled, from $6 million to $12 million.

The increase in manufacturing productivity alone came as the number of manufacturing jobs shrank by 1 percent. There are 75,000 fewer manufacturing workers than when the recovery began 33 months ago and 3.4 million fewer than the sector's peak of 21.1 million workers in 1979.

"In the telephone industry, the airline industry, wherever you want to look, you see that downsizing of major companies is putting a lot of work and a lot of pressure on the workers still there," said Bill Cunningham, an economist at the AFL-CIO.

"If that's how you are getting more productivity, how long can that last?" he asked.

Not since World War II has the average factory workweek been longer. In December, it was 41.7 hours. The length of the workweek affects production, the total output, rather than productivity, the rate of output. Some economists say the workweek is now so long that there is little room for expansion and that employers will increasingly have to hire.

The manufacturing sector hit its payroll low of 17.7 million in September and added 39,000 jobs within three months, the first consecutive gains in five years. The National Association of Manufacturers estimates that a modest total of 200,000 jobs will be created this year.

A handful of them will be at Duracool on Pulaski Highway in Aberdeen, where 10 part-time employees have the prospect of becoming full-time as the company's performance rises.

For many, the increase in productivity came not just from producing the same amount with fewer people. It also came through more efficient production methods and better management.

"There is no question in my mind that, given the recession we had in 1990-1991, we would have been out of business had we not improved," said Arley J. Mead, Duracool's president. "We would have just bellied-up. It was a needed restructuring. We just got very fat, as a society, as an industry. We had to trim."

The secret to the plant's productivity improvements: better supply delivery; streamlined work practices, many of them workers' ideas for saving time and money; and work-force reductions through attrition, not layoffs.

The most dramatic improvement came in the panel manufacturing shop, where Doug Moxley helped increase output per direct hour of labor from 0.809 of a panel in 1989 to 1.575 panels today, a productivity increase of 94.7 percent.

Said Mr. Moxley: "It's amazing when you come to it. When I talk to people about it at home, when friends come over, they say there's no way it could be done.

"It used to be every man for himself. Now, there's a lot more teamwork. We can't speed the machines up at all. We have to do it ourselves. There is a lot more time for work and a lot more helping each other out."

Reggie McCoy, 39, supervisor of Duracool's door production, which has risen 67 percent over the five-year period, said, "You don't work any harder physically, but you get more output because you are working more efficiently."

The workers have been rewarded with average 5 percent-a-year pay increases, to a current basic rate $8.25 an hour. And they share in a bonus geared to their increased productivity. The bonus has averaged $1,440 a worker for each of the past five years. For suggestions that work, the company awards either cash or a percentage of the plant's annual savings.

The company president, Mr. Mead, said: "Some of the suggestions are so simple, but you never, ever would have thought of them. The people who are working on the floor know their jobs better than anybody else."

Duracool's "total quality" reforms have been repeated in plants across the nation, as companies seek to produce more at lower costs, frequently with fewer workers.

The trend is ensuring that American workers outproduce their counterparts in Japan and Germany. While the Japanese and Germans have been catching up since World War II, they remain firmly in second and third positions, and they are probably losing ground, with their economies in recession.

A recent analysis by Gordon Smith, chief economist of the National Association of Manufacturers, found that although the Japanese have taken the lead in some industries, such as basic metals and chemicals, their overall productivity remains only 83 percent of the U.S. level.

German productivity was even lower -- 79 percent of the U.S. level.

"From what we know of the cyclical [recession] in Germany and Japan, it seems likely that the U.S. is raising its productivity much more rapidly than either of those two countries," Mr. Smith said.

The McKinsey Global Institute, a Washington research group, found that in 1990, a full-time American worker produced $49,600 worth of goods and services a year, compared with $44,200 produced by a German worker, $38,200 by a Japanese and $37,100 by a Briton.

"The American worker is working differently, and he is working more effectively, more efficiently," said Bill Lewis, director of the institute.

"Something has crept into the U.S. manufacturing culture: The pressure on profitability forces American manufacturers to get into a permanent culture of lean, efficient operation," he added, tracing the development to the 1980-1982 recession but adding that it has been reinforced by economic hard times.

While weathering those hard times, David Koch, chairman of Graco Inc., a fluid pump, valve and regulator manufacturer in Golden Valley, Minn., increased his sales per employee by 37.6 percent -- from $115,797 to $159,353 -- between 1987 and 1992. At the same time, his payroll decreased slightly to 2,010 workers from 2,070.

"It's not over yet," said Mr. Koch, whose company does nearly half its business abroad. "The next factor, I think, that is going to happen is the move toward free trade. We think it's going to be good, and it's going to make people effective, but these countries are going to try to compete, and we are going to have to compete with them."

With productivity improving, the dollar exchange rate generally favorable, and global trade restrictions liberalized, U.S. companies appear poised to exploit the economic recoveries, which are expected to strengthen in Europe this year and in Japan later.

At the same time, however, as the economies of those two countries recover, their productivity rates are likely to shoot up as well.

"The U.S. is now definitely the best place to manufacture industrial products," said Roland S. Boreham Jr., chief executive of Baldor Electric Co. in Fort Smith, Ark., who has seen his revenue double to $350 million in seven years as his management has been reduced by a third and his work force has remained around 3,000.

"The American worker is probably the most important factor," Mr. Boreham said. "They are a lot more productive. They are no longer the most expensive. We are now the happy medium between the $2-an-hour people that don't know what they are doing and the $20-an-hour people who aren't worth that much."

At Oakley Millworks, which produces doors, windows and trim for new houses in Frankfurt, Ill., Glen Johnson has seen sales rise 30 percent in four years, while his work force has remained at 27 employees. As a percentage of sales, his production-line labor costs have dropped to 6 percent from 9 percent.

"We never went through a downturn where we grew before, or where we remained as profitable as we did this time," he said. "It all goes back to productivity. The American worker is intelligent, very capable, very creative. Mostly, he has been restricted because management has tried to tell him how to do everything and has not listened."

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