Employment in high-tech defense industries in a post cold war era

Monthly Labor Review, August, 1996 by Ron L. Hetrick

Defense high-technology manufacturing industries attempt to redefine their markets, and join partnerships, as employment and technological innovation suffer from decreasing defense budgets

Defense spending cuts in the United States are largely attributable to the end of the cold war era and the disintegration of the Soviet Union. Private sector defense contractors reacted to those cuts by dismissing large numbers of workers and expanding sales into civilian markets. Industries that had relied heavily on defense spending for both research funds and sales have been forced to reevaluate and redefine their roles in the global economy.

This article explores recent employment trends in high-tech defense industries and implications that current efforts might have for jobs in the future.

What is high-tech defense?

There are four manufacturing industries most often referred to as "high-tech defense."(1) The first two, aircraft and parts and guided missiles and space vehicles, are collectively known as the aerospace industry, which designs and constructs both the bodies and complex integrated electronics and guidance systems in aircraft, missiles and rockets.(2) Next is the ordnance and accessories industry which designs and assembles many of our "smart" bombs and weaponry bodies. Finally, there is search and navigation equipment manufacturing in which radar, sonar, infrared homing, and many other tracking and locating systems are designed and built. High-tech defense industries have been defined by (1) the number of technology workers employed as a proportion of total employment and/or (2) the ratio of research and development expenditures to sales.(3) As a group, these four industries had nearly 20 percent of their employment in high-tech occupations in 1993, as compared with 8 percent in all manufacturing industries.(4) Also, while research and development spending as a percentage of sales averages a little more than 4 percent for all of manufacturing, these defense high-tech industries average 11.2 percent.(5)

All four of the high-tech defense industries manufactured at least 50 percent of their output for defense purchases in 1987, the peak year for U.S. Department of Defense expenditures. However, all four, especially aircraft have private sector demand that is critical to their employment as well. As time has passed, all four industries have experienced large declines in the proportion of their products that go to defense purchases.(6) The decline in defense spending along with the private sector recession in 1990-91 have been the dominant factors in the employment losses experienced since 1987.

Recent history of industry employment

The Inter-Continental Ballistic Missile contract in the 1950s caused the defense manufacturing industries to turn their attention toward cutting edge technologies more broadly than, before.(7) Subsequent Department of Defense demands for space-based warfare systems, via missiles and radar, continued from die Trident Missile to the most expensive program ever, the Strategic Defense Initiative (SDI, Or Star Wars) in the mid-1980s.(8) Defense spending on major physical capital and research and development increased 90 percent in constant dollars from 1980 to 1987 as the push for the cutting edge reached its peak.(9)

Expansion of the Strategic Defense Initiative was followed by a post cold war era contraction in defense spending. By 1994, spending was at a level 36 percent below that of 1987. Total shipments from the four industries to defense and civilian markets dwindled in the mid-1990s, while the economy as a whole expanded.

Exports for high-tech defense industries, which are highly dominated by the aerospace industry, have likewise seen a trend inversely related to the business cycle in recent years. Military aerospace exports had its most recent peak in 1991, the heart of the last recession. This rise is mostly attributable to Saudi Arabia, which increased its military orders to more than 10 times its 1989 level during Operation Desert Shield/Storm.(10)

The United States, as explained later in the article, has increasingly depended on exports to keep defense production lines open. Recent contract victories for the United States have come at the expense of European Economic Community joint ventures. For example, two recent contracts for fighter helicopters came up for bid in Great Britain and the Netherlands. The U. S.-made Apache won over the Eurocopter Tiger in both contracts, because of the proven track record and cost-benefit factors of the Apache. Due to each country's pressure to support its own defense industry, U. S. defense manufacturer's products must be far superior to other countries' "home-grown" alternatives before other countries will purchase U.S. goods. As the products of the European Economic Community mature, their replacements will create greater competition in the European arms markets.

The trend in defense spending in the 1980s has been reflected by employment trends in the four high-tech defense industries. (See Table 1.) In terms of numbers of jobs, the aerospace industry led the decline as aircraft and guided missiles together shed more than 300,000 workers between 1986 and 1995. The other two high-tech industries combined lost more than 200,000 jobs after the spending peak in 1986. This was the result of mergers and of smaller companies getting out of the defense business. The most rapid rates of decline were in guided missiles and in search and navigation equipment, which both cut nearly half of their work force since 1986.