Productivity in aircraft manufacturing

Monthly Labor Review, June, 1993 by Alexander Kronemer, J. Edwin Henneberger

Owing in part to a strong performance in 1991, productivity rose an average of 3.2 percent during the 1972-91 period; however, the average rate of growth in the industry during the 1980's was substantially lower

Lately, the news has not been good for aircraft manufacturers. Because of the financial turmoil in the airline industry, production rates for new civilian aircraft have fallen in the face of decreases in new orders and cancellations and postponements of orders already on the books. The military sector is heading toward a potentially historic downturn that may significantly depress demand in the long run. Plants are closing, some companies are leaving the aircraft business altogether, and others have gone bankrupt. Tens of thousands of employees have lost their jobs, and many thousands more are at risk. [1] Even in international trade, the usually good news is somewhat moderated. Published analyses have been pointing out that, while U.S. aircraft manufacturers maintain a very strong trade balance, the percent of the U.S. market share of free world production has slipped steadily since the mid-1980's, due to the entrance of Airbus and other foreign competitors into the market. [2] Now, a new BLS study shows that the industry's productivity performance has also been mixed. [3] As measured by output divided by employee hours, productivity increased 3.2 percent per year over the 19-year period from 1972 to 1991. The performance is clouded, however, by the fact that the long-term rate was made up of two very different periods, 1973-79, when productivity rose 3.8 percent annually, and 1979-90, when it rose, on average, just 0.3 percent annually. (These periods were selected because the years 1973, 1979, and 1990 were all peak years of business cycles, as determined by the National Bureau of Economic Research.) The following are compound average annual rates of change for the aircraft industry from 1972 to 1991:

  Employee
                Productivity  Output  hours
1972-91  .....   3.2           4.4      1.2
1973-79  .....   3.8           6.1      2.2
1979-90  .....   3             1.4      1.2
1990-91  .....  16.8           9.1     -6.6

Analysis indicates that the lower rate of productivity posted in the latter period was due largely to an unexpected downswing in demand in the early 1980's, interacting with the quasi-fixed nature of labor in aircraft manufacturing, meaning that labor is not easy to downsize in the short term without incurring significant risk. [4] Looking ahead, the certainty of declining demand in the near term has removed much of that risk, so that productivity rates are expected to rise, despite the possibility that output levels may not. Indeed, in the last year for which data are available, 1991, aircraft manufacturing productivity posted a 16.8-percent jump, which exceeded the productivity performance of any published BLS industry for that year.

The aircraft productivity measure was derived by dividing an industry output index series by a corresponding BLS-based employee hours index series. The output series was developed from value-of-shipments data reported by the Bureau of the Census. Price changes were removed from the shipments data using price indexes that specifically reflect the price movements of the industry's products over time. [5] Once the annual deflated values or constant-dollar estimates for the industry's product classes were obtained, each was indexed (referenced to a base year) and then multiplied by employee hour weights to derive the overall industry constant-dollar value-of-shipments index series. Finally, the shipments series was adjusted to reflect the net changes in inventories, in order to arrive at a final industry output series. [6]

The reason that aircraft labor appears to be a quasi-fixed factor of production when, normally, labor in manufacturing industries is thought of as a variable factor is embedded in the industry's production processes. One of the ironies about the aircraft industry is that while it makes a high-tech product, it does not rely heavily on high technology for aircraft assembly. As will be explained, this characteristic is unavoidable, given the nature of aircraft manufacturing, which creates several disincentives to the acquisition of labor-saving technology. In addition to the general absence of such technology, the industry combines the quantitative needs of a large manufacturing operation, namely, a massive labor force for production, with the qualitative requirements of a small handcraft shop, which depends on the skill and experience of its workers. The percent of the industry's workers involved in craft and technical jobs is significantly higher than for manufacturing in general, and maintaining enough qualified employees in these positions is one of the industry's chief challenges.

When an aircraft manufacturer hires new workers--sometimes many thousands--it must devote time and money to training them on the numerous complexities involved in building an aircraft and, in the case of the military sector, to obtaining security clearances for some of them. This can amount to a considerable investment. Thus, when a downturn in business occurs, companies tend to be reluctant to reduce their work force immediately. The result is that employment in the industry takes on the characteristics of a quasi-fixed factor in the short run. That is, labor cannot easily be scaled down in the near term without considerable risk, just as is true with such commonly recognized "fixed factors" as machinery or plant capacity. Therefore, downward adjustments in the number of employees and employee hours tend to come slowly, making the natural swings in employee hours lag in the downward direction.