Computer Manufacturing

| chert 3 | Personal computer price deflator, 1977-94

4,600 1,600
4,400 + | 1,400
1,200 1,200
1,000 1,000
800 800
600 600
400 400
200 200

1977 1980 1982 1984 1986 1988 1990 1992 1994

Source: Department of Commerce, Economic and Statistics Administration

Consumer Price Index for information processing equipment and all items, 1989-95

Index Index

December 1988=100 December 1988=100

130 } 130

120 . | 120
All items J

110 + “| 110

100 |= Information processing 100

eee equipment

90 | 9

wot soeteee
{

70 |

60

9 Pt |g
1989 1990 1991 1992 1993 1994 1995

= ~

22 Monthly Labor Review August 1996



Employment in computer and office equipment, seasonally adjusted, 1994-96

SOURCE: National Science Foundation.
NOTE: Base is all companies that spend at least $1 million annually on research and development.

Thousands Thousands
370 370
360 > ~} 360
350 -| 350
340 |- | 340
ob 1 1 °

1994 1995, 1996

Company funds spent on research and development as a percent of net sales, 1981-91
Percent Percent
20 20
16 |- 16
Computer equipment
12 eoeneees 12
8 | 8
4p All industries 14
n ! ni L 1 1 1 1 L 1 1
1981 1982 1983 1984 1985, 1986 1987 1988 1989 1990 1991

Monthly Labor Review

August 1996 27



Computer Manufacturing

FERRIED forcont change in employment in computer-related
1984-95

Percent

ers becomes more routine and cheaply
available, jobs are eliminated from com-
puter manufacturing. On the other hand,

Percent ‘ .
industries that support computers have

150 [-

shown a remarkable increase in employ-
ment. Consider radio, television, and com-
puter retail stores (SIC 573), for which em-
ployment has increased 85 percent since
1984, and computer and data processing
services (SIC 737), with an employment
increase of 128 percent. (See chart 6.) In
contrast, computer manufacturing lost 32
percent of its work force during this same
time. This evidence suggests that consum-
ers are demanding increased service and
software to support the computers they
already have—a trend that is expected to
increase.

Sales of computer software were more
than $7.3 billion in 1994; an increase of
16.6 percent in just 1 year."° According to
a poll conducted by Discount Store News,
in terms of growth potential, computer
software placed first out of 29 categories,
while computer hardware placed fifth.”

0 Many companies are finding larger prof-
its through software and support sales,
rather than hardware. For example, Bar-
rister Information Systems Corporation
reorganized by moving away from “low-
margin computer hardware to focus on the
more profitable computer software and

Computer
computer stores

equipment
(manufacturing) (retail)

Radio, television and Computer and data

Processing
(services)

50
service business.””! Barrister’s sales rose
due to higher revenues from hardware
maintenance contracts and services, rather
than sales of the hardware itself. Employ-

three manufacturers of mainframe systems saw decreases in
revenue of 16 to 47 percent.'* To compensate for the lowered
sales, and the increasingly cheap alternative technologies,
many jobs were eliminated. Large numbers of these jobs were
not transferred to PC production because this sector also dis-
covered that they could produce more with fewer employees.
In addition, many computer manufacturers moved some pro-
duction facilities overseas to take advantage of lower labor
costs. This cost-cutting behavior has been mirrored through-
out the industry, partially explaining the large employment
decline since 1984.

Another dramatic change in the market structure of com-
puters that has had an impact on employment is the shift in
importance from computer hardware to computer software
and services. As the technologies of manufacturing comput-

24 Monthly Labor Review August 1996

ment data supports the premise that many
companies are following suit. The shift
away from focusing on computer hardware has caused a de-
crease in computer manufacturing employment, while the
number of jobs related to software has continued to grow.”

Technology. Another factor explaining job losses since the
mid-1980’s is job replacement attributable to new technol-
ogy in computer manufacturing. New manufacturing pro-
cesses are constantly introduced that eliminate jobs. Com-
puter manufacturers are “using their own products at every
stage of the computer manufacturing process.”* For example,
computers were much larger than they are now, and contained
thousands of wires and parts. Nowadays, “integration of com-
ponents onto printed circuit boards, many layers thick, has
often done away with the need to manually connect compo-
nents together.” Consistent with this fact is the ratio of pro-



unique to the computer industry, and is the fuel behind the
billions of dollars in shipments that the industry enjoys. The
low prices also have had an impact on employment. Dectin-
ing profit margins have forced computer manufacturers to
produce more with less resources, possibly resulting in labor
cutbacks.

Employment trends

There are many theories concerning the effect high technol-
ogy has on employment. Some argue that technology reduces
jobs, as machines take over what people used to do, while
others claim that there is no effect. Still others claim that em-
ployment will increase as more highly skilled workers are
needed, and as the definition of an acceptable product is con-
stantly revised upward. It is difficult to quantify exactly what
effect technology has had on the computer industry. Chart 5
shows total computer employment. Between 1960 and 1985,
it would appear that technology had an upward effect on em-
ployment. Large job gains followed major technological
breakthroughs. The United States dominated mainframe and
PC markets worldwide and domestic employment in the com-
puter industry increased significantly. There was especially
rapid growth following the invention of the world’s first PC.
The computer industry enjoyed a growth rate of 85 percent

from 1975 to 1984, while the rest of total nonfarm employ-
ment grew by 23 percent. During this period, growth acceler-
ated after the introduction of personal computers. After reach-
ing an all-time high in 1984, the industry began to shed jobs
rapidly, with employment falling at an average annual rate of
3 percent. The reasons behind this quick downturn are shift-
ing market dynamics brought about by technological change,
streamlined production capabilities, and international com-
petition.

Changing market structures. The market structure changed
in the computer industry as the PC segment developed. To
illustrate this point, consider IBM, which originally concen-
trated primarily on manufacturing mainframe computers for
government and business. As technology advanced, the price
of computing dropped and sales of mainframes decreased.
Many businesses found that lower priced alternatives, such
as fully programmed Pc’s and networked computers, suited
their needs as well as mainframes. To help offset the decline
in mainframe sales, large-scale vendors such as IBM were
faced with “making drastic cuts in operating costs, and accel-
erating their migration to lower cost technology. Most reduced
head count, trimmed [research and development], and formed
technology partnerships with competitors.”"® From 1993
through 1995, IBM laid off 120,000 people.'” In 1993, the top

art 5,

Employment in computers and office equipment, 1957-95

Jobs (thousands) Jobs (thousands)
600 600
500 | 500

iBM
MPC —~
Macintosh
400 400
Apple | and Il
300 300
~ Pentium
. World's first PC
200 |- Microprocessor ~| 200
100 “| 100
0 1 L 1 1 L n n 1 n 0
1958 1962 1966 1970 1974 1978 1982 1986 1990 1994

Monthly Labor Review August 1996 23



Computer Manufacturing

manufacturing plants grow by 41 percent. In
fact, 10 percent of the world’s personal com-
puters are produced there. IBM has built the
world’s largest personal computer manufac-

Billions of
dollars

FEXEIES United states trade balance in electronic computing
equipment, 1989-95

Billions of
dollars

turing plant in Silicon Glen, with about 1.3
million computers produced in 1993.* “The
IBM plant, which employs more than 2,500
people, has reduced the lead time required
to bring a new product to market to between
6and 9 months, while output volume jumped
20 percent last year—double the industry av-
erage.”** Scotland is one of many overseas
locations where U.S. computer manufactur-
ers are building new production facilities.
While this may help keep the industry
healthy, it does not increase domestic em-
ployment. In fact, this expansion abroad oc-
curred at the same time that employment was
declining in the United States, and partially
explains the employment declines seen in re-
cent years.

A growing portion of computer parts and
peripherals are imported from foreign-
owned firms, As these foreign companies
adopt leading edge technologies, their prod-
ucts become increasingly in demand. Asian-
origin parts and peripherals “represented
more than 80 percent of total imports” in
1994.4 While some of these imports may
be attributed to U.S. firms operating in Asia,
a large share are from Asian-owned firms. !

1 L ! i 1

L -20

In fact, most computers assembled and sold 20 1989
in the United States contain disk drives from
Singapore, monitors from South Korea, and
motherboards from Taiwan. The composi-
tion of these computers reflects the continu-
ing globalization of the computer manufac-

Source: Bureau of the Census.
Note: 1995 figures are estimates by the Department of Commerce.

1990 1991 1992 1993 1994 1995,

turing industry.

Recent trends

The good news for employment in computer manufacturing
is that technology also can increase the need for certain types
of workers. An example is IBM’s new breed of mainframe.
IBM has recently responded to customers’ desire for more af-
fordable large-scale computing power by introducing a main-
frame geared toward their needs. It has more of the features
that businesses have been demanding, at lower prices. In ad-
dition, the company has increased its focus on software to
sustain their product, as well as the technical support that cus-
tomers have demanded. Responding to these new market
trends, the company has halted employment cuts in many of
its departments, and increased the need for workers in oth-

26 Monthly Labor Review August 1996

ers.*5 In fact, this restructuring is mirrored by employment
estimates of computer manufacturing. (See chart 9.) Much of
the newer technological processes require a higher degree of
knowledge; employees possessing such credentials, especially
in computer manufacturing, will be in high demand. Skilled
professionals, “engineers—anyone who carries around a lot
of technical knowledge and expertise—can probably choose
among multiple job offers these days.” So while technology
may cause some jobs to be lost, the development of new prod-
ucts can reverse the trend, if only temporarily.

Research and development

The computer industry spends billions of its own dollars each
year on research and development, and billions more come



Computer Manufact

Jacqueline Warnke

Jacqueline Warnke

is an economist In the
Division of Monthly
Industry Employment
Statistics, Bureau

of Labor Statistics.

Computer manufacturing:
change and competition

A historical study of the computer industry reveals

that computer manufacturers add workers to their payrolls
then shed them when the products they manufacture undergo
technological change, increased demand,

and international competition;

what is the impact on workers in the industry?

echnological breakthroughs in the com-
| puter industry have been dramatic, For
example, musical birthday cards have
more computing power than existed anywhere in
the world, prior to 1950." In addition, computing
power that once cost millions of dollars can now
be had for hundreds. Gordon Moore, chairman
of Intel, has stated: “If the auto industry had
moved at the same speed as our industry, your
car today would cruise comfortably at a million
miles an hour and probably get a half a million
miles per gallon of gasoline. But it would be
cheaper to throw your Rolls Royce away than to
park it downtown for an evening,”?

The effects of technology on the cost and
speed of computers have been as dramatic as its
effects on employment in the computer industry.
After the introduction of the world’s first personal
computer in 1975, the industry enjoyed many
years of phenomenal employment growth. Be-
tween 1960 and 1984, employment in the manu-
facturing of computers and computer equipment
rose by 259 percent,> compared with a 74-per-
cent increase in total nonfarm payroll employ-
ment. However, from 1984 to 1995, the computer
manufacturing industry began to change, losing
32 percent of its work force. This is one of the
swiftest declines in all manufacturing industries
during this period. (See chart 1.) This article dis-
cusses some of the reasons behind this decline,
which include a shift in focus from computer

18 Monthly Labor Review August 1996

hardware to software, changing industry dynam-
ics, international competition, and emerging tech-
nologies.

Early computers

Technological innovations that began as early ‘as
the 1600’s—such as the first mechanical calcu-
lating device—have ushered our society into
what is now called “the information age.”* The
concept of the computer can be credited to En-
glish mathematician Charles Babbage. In 1823,
he designed what became the theoretical model
for modern computers. His design included de-
vices for entering and storing data, performing
calculations, and displaying the results. It was not
until 1945 that Presper Eckert and John W.
Mauchly invented the first computer—the ENIAC
(Electrical Numerical Integrator and Computer).
This huge machine measured 30 feet by 50 feet,
weighed 30 tons, and contained 18,000 vacuum
tubes, 6,000 switches, 1,500 relays, and hundreds
of plug wires. It added 5,000 10-digit numbers in
one second, a rate 1,000 times faster than any
other calculator in existence.’ Although it was
designed to calculate ballistic trajectories, it was
used to decide whether or not it was possible to
build a hydrogen bomb. It took 6 weeks to com-
pute half a million punch cards to come up with
the answer, and the answer was correct! Inven-
tions such as the transistor in 1947 and the mi-



p. 120. %James Aley, “Where the jobs are,” Fortune, Sept. 18, 1995, p. 53.

* bid, p. 123, 37 This and the following data on research and development funds are

Tid. from Research and Development in Industry: 1991 Bulletin NSF 94-325
*Thid. (Washington, pc, National Science Foundation Jan. 1992). Base is all com-
TM Ibid. panies that spend $1 million annually on research and development.

* “North American Companies Explain Why Scotland is an Excellent 5 “R&D: »
Manufacturing Location,” Pr Newswire, Nov. 1, 1994. % Gary H. Anthes and Mitch Bev, “R&D: Measure of success
2 Ibid, Computerworld, Nov. 14, 1994, p. 32.

TM* U.S. Global Trade Outlook, p. 124. ® Bureau of Labor Statistics, Office of Employment Projections.

3 Tra Sager and Amy Cortese, “At IBM, the great shrink-down may be
over,” Business Week, Sept. 25, 1995, p. 58.

“Fax-on-demand” available

Users of data from the Bureau of Labor Statistics can request a fax of news re-
leases, historical data, and technical information 24 hours a day, 7 days a week from
FAXSTAT, the Bureau’s new fax-on-demand system.

FAXSTAT users can receive news releases of major economic indicators (see sched-
ule on back cover of this issue) beginning at 8:45 a.m. on the morning the data are
released. The number to obtain data from the national office is:

(202) 606-6325

Use a touch-tone telephone and follow the voice instructions for entering docu-
ment codes and your fax telephone number, The FAXSTAT catalog, containing a list of
available documents and codes, can be obtained by entering code 1000. You may
request up to four documents with each call. Faxes are sent immediately following
the request. If your fax line is busy, the system attempts to send the requested mate-
rial four times before disconnecting.

FAXSTAT numbers for BLS regions are listed on cover 2.

Monthly Labor Review August 1996 29



Computer Manufacturing

from the Federal Government. Computer companies ac-
counted for 13 percent of all funds spent on research and de-
velopment in 1991.3’ In a comparison of companies with re-
search and development activities, the computer industry
spent more on research and development as a percentage (16.1
percent) of net sales than any other industry. (See chart 10.)
This is up from 9.7 percent in 1981, the year 1BM introduced
the Pc. The Federal Government spent 4 percent of Federal
research and development funds on contracts with computer
companies in 1991. The amount of Federal funds spent on
computer research and development has increased by 52 per-
cent from 1981 through 1991, but in real dollars, it has re-
mained virtually unchanged.

Computer industry experts agree that the impact of research
and development on employment, with all the billions of dol-
Jars spent, is unclear, While there usually are a relatively small
number of jobs funded in the short term, “[Research and de-
velopment] spending often accompanies respectable gains in
sales, market share, and market value a few years down the
road.”** As new and cheaper ways to manufacture existing or
better products are developed, production workers might find
their jobs mechanized or streamlined. However, as demand.
grows for the cheaper product, more employees may be
needed to fill increased orders.

Footnotes

Employment outlook

As one of the most important industries of the information
age, computers have had an enormous impact on society. The
number of jobs directly supplied to the economy is not great,
but what those workers produce provides tremendous techno-
logical possibilities and opportunities throughout the
economy. The Bureau of Labor Statistics projects that em-
ployment in computer equipment manufacturing will drop by
25 percent between 1994-2005.” Many large companies that
manufacture computer equipment already have shifted their
focus to produce the support needed to maintain the computer
equipment and the software to maximize its utility. Techno-
logical innovations have enabled computer manufacturers to
deliver more for less. The future of computer manufacturing
is positive in that the ever growing need for information tech-
nology will demand better, faster computers. It is negative,
however, for computer manufacturing employees because in
order to stay competitive and keep up with market demands,
manufacturers must produce more with fewer workers. As
we enter the second millennium, computers are likely to have
a growing impact on our every day lives, and the companies
that manufacture them are expected to provide a declining
number of jobs in the U.S. economy. oO

' John Huey, “Waking up to the new economy,” Fortune, une 27, 1994,

7 Engil Juliussen and Karen Petska-Juliussen, Computer Industry Alma-
nac; 1994-1995, (Austin, Tx, The Reference Press, Inc., 1994) p. 2.

> Employment data used in this article are from the Bureau of Labor Sta-
tistics Current Employment Statistics (CEs) program, a monthly survey of
the number of employees on nonfarm payrolls, their earnings, and the hours
they worked. This data is presented in the Bureau’s publication Employment
and Earnings.

“Tom Masloski, “Accounting methods altered in mid-19th century,” Crains

Chicago Business, June 23, 1986, p. T6.

5 Todd Olsen, “From dots and dashes to digital; telecommunications tech-

nology,” Scholastic Update, Sept. 2, 1994, p. 16.

__ * The Standard Industrial Classification (sic) is the statistical classifica-
tion standard underlying all Federal establishment-based data. For more in-
formation, see Standard Industrial Classification Manual, 1987 (Washing-
ton, Dc, Office of Management and Budget).

7 US. Department of Commerce, Bureau of the Census, 1994 Annual
Survey of Manufacturers.

"Ibid.

° Randall L. Tobias, “Telecommunications in the 1990's,” Business Hori-
zons, January 1990, p. 81.

"US, Department of Commerce, Bureau of the Census.

" The following section on major computer types was obtained from
Juliussen and others, Computer Industry Almanac, p. 317.

"Tom Adams, “Processing Power,” Pc Graphics & Video, May 1995, p.
24.

"3 Adams, pc Graphics & Video.
TM For more information on the semiconductor industry, see Francisco A.

28 Monthly Labor Review August 1996

Moris, “Semiconductors: the building blocks of the information revolution,”
pp. 6-17 in this issue.

TM Bureau of Labor Statistics, Consumer Price Index. The “All Items in-
dex” was recalculated on basis of 1988=100 for purposes of comparison.

° Jeff Moad, “Mainframe vendors hard hit,” Datamation, June 15, 1994,
p.49.

” Martin Walker, “Dumbsizers take the shirt off your back,” The Ob-
server, May 19, 1996, p. 6.

TM Moad, Datamation.

° Electronic Market Data Book (Electronic Industries Association, 1995),
p.62.

2 “Electronics set to explode in mass market; consumer electronics sales,”
Discount Store News, Oct. 2, 1995, p. 21.

2 David Robinson, “Barrister ekes out a $4,000 profit,” The Buffalo News,
Aug. 4, 1995, p. 7b.

2 For more information about computer software, see Laura A. Freeman,
“Job creation and the emerging home computer market,” pp. 46-56 in this
issue; and for computer services, see William Goodman, “The software and
engineering industries: threatened by technological change?” pp. 37-45 in
this issue.

® Alan Cane, “Survey of Computers in Manufacturing” Financial Times,
Sept. 24, 1992.

TM Did.

> Tid.

% U.S. Industrial Outlook (U.S. Department of Commerce, International
Trade Administration, January 1994)

® US, Global Trade Outlook: 1995-2000: Toward The 21st Century (US.
Department of Commerce, International Trade Administration, March 1995),



duction workers to all workers in computer equipment manu-
facturing. (See chart 7.) This ratio declined sharply between
1960 and 1990, as routine assembly jobs were mechanized.
Currently, only about 35 percent of computer manufacturing
workers are directly involved in production, as compared with
65 percent in 1960. In all manufacturing industries, about 70
percent of workers are directly involved in production.

As a further indication of the impact of technology on
employment in computer manufacturing, the labor cost of “a
small computer—personal computer or workstation—is now
typically less than 5 percent of the overall manufacturing
cost.”?5 The computer industry is the fifth largest spender on
automation in the United States, and is the first in automation
investment per production worker.”

International competition. Some of the employment decline
in the computer industry is attributable to international com-
petition. Once the world leader in computer equipment manu-
facturing, the United States has maintained a trade deficit in
this product since 1992. (See chart 8.) This decline is due to
imports increasing at a more rapid rate than exports. Between
1989 and 1993, exports grew by 5.8 percent, while imports
grew by 15.6 percent.”

Computer parts and peripherals are particularly sensitive
to demand for exports; the U.S. Department of Commerce

estimates that more than half of the labor force in this indus-
try is engaged in jobs related to exports. Sales to foreign
countries are vital to the entire computer industry’s growth,
and should they weaken, so too may employment. In fact,
“foreign operations now account for more than half of the
total revenues of many leading U.S. suppliers, and some re-
port foreign sales amounting to 70 percent of their total busi-
ness or more.”? The only major computer market that the
United States does not dominate is Japan, where local com-
panies control 70 percent of the market.” In other foreign
markets, governments “continue to pursue restrictive trade
and investment policies that adversely affect U.S. exports by
limiting imports” and by supporting domestic computer in-
dustries through “ ‘buy national’ procurement policies, low-
interest financing, and export subsidies.”*! Thus, the health
of the U.S. computer industry is particularly vulnerable to
worldwide competition and economic cycles experienced by
our major trading partners.

The share of computer equipment purchased in the United
States that is imported has risen from 42 percent in 1989 to an
estimated 65 percent in 1995. Part of these imports are from
U.S. computer companies that have opted to move produc-
tion facilities overseas to take advantage of the lower labor
rates, as well as expand into local markets. Scotland’s Silicon
Glen has seen employment at American-owned computer

FEEEIEA Ratio of production workers to all employees In computer equipment manufacturing 1960-95
Ratio Ratio
07 07
06 06
05 05
04 04
03 {03
02 | 02
04 04
0 , ; 0
1960 1970 1980 1990
——————

Monthly Labor Review August 1996 25



Microcomputers, the most dynamic of the three computer
types, are the lowest priced and smallest units. They include
personal computers (PC’s), workstations, and laptops. They
are used for individual information needs, business tasks, and
entertainment. This segment has undergone extraordinary
growth, posting a 7,000-percent increase in the number of
units shipped between 1975 and 1980. By 1995, this segment
is estimated to make up 97 percent of the total computer mar-
ket, in terms of units shipped, and 46 percent of the value of
shipments.

What sets PC’s apart from the other computer types is their
affordability, which allows average consumers and small busi-
nesses to own them. Rapid advancements in processing speed,
coupled with declining prices, have made PC’s even more at-
tractive. As chart 3 indicates, the price of PC’s has dropped by
more than forty fold since 1977, according to the computer
price deflator computed by the Department of Commerce.
This is one of the primary reasons that so many households
have bought Pc’s for personal use. In the business sector, the
movement away from expensive single computers to small
interconnected Pc’s has been responsible for their popularity.

While the electronic computers industry segment (SIC
3571) is the most important category in computer manufac-
turing, storage devices, terminals, and other parts (SIC’s 3572-
9) also are significant. (See table 1.) These segments together
employed 43 percent of workers in computer equipment
manufacturing in 1994 and had nearly as large a share of the
value of shipments.

Technology’s impact on cost

Increased sales in the computer industry have stemmed from
the public’s demand for affordably priced computers that are
faster and more powerful so that users can retrieve and send
data, play games, and run programs. Businesses have found
that computers can save them money by automating many
tasks and allowing owners to analyze and retain many crucial
records. One of the most important advances is the speed at
which computers are capable of processing data. This, paired
with the rapid decline in the cost of obtaining this speed, is the
reason more than 30 million U.S. households own personal
computers. In 1975, the mainframe was capable of computing
10 million instructions per second at a cost of 10 million dol-
lars. Today, the leading microprocessors can compute 66 mil-
lion instructions per second at a cost of only $2,000 to $3,000."
That means the cost of computing one million instructions
has dropped from $1 million in 1975, to about $45 in 1994,
(See table 3.) This incredible decrease in cost and increase in
computing power can be credited to extraordinary advances
in the manufacture of microprocessors which contain more
than a thousand more transistors than was possible in 1971."*

The brisk increase in computing power is expected to con-

Distribution of market share by type of computer,
1979 and 1995
fin percent]
Units Value
1975 1995 1975 1995
18 1 76 2
61 2 23 25
24 7 4 48
Nore: 1995 data are estimates.
Source: Based on data from tha Gomputer industry Almanac.
icidkdeal Price and speed of computers, selected years,
1975-95
Price per
Millon
Year Device | Instructions | Price | nanny
per second per second
(BM Mainframe 10 {$10,000,000 $1,000,000
Cray 1 160 20,000,000] "125,000
EC VAX 1 200,000} 200,000
(BM PC 0.25 3,000 12,000
Sun2 1 10,000 10,000
Intel Pentium 66 3,000 45
Source: PC Graphics & Video, May 1995,

tinue for years to come, according to “Moore’s law.” Gordon
Moore, co-inventor of the microprocessor, declared that raw
computing power doubles every 18 months. At this pace, all
the computing power that exists today in some of the costliest
supercomputers may power children’s toys in the future.

The extraordinary speed of today’s computers is not the
only important development. The rapid decrease in cost,
spurred on by a fiercely competitive market also is critical.
Lower prices of computers occur when new technology is
introduced at lower prices, which pushes the prices of exist-
ing technology even lower. As each new technological break-
through makes its way into the market, the previous “best
product” becomes very affordable. One company enjoyed an
edge in the market when they introduced the next generation
in microprocessors. It was not long until competitors caught
up and introduced similar microprocessors at lower prices.
‘To stay competitive, manufacturers must quickly slash prices
and start planning their next better, faster product. This con-
stant pressure has led the computer industry to reduce Prices
while continuing to improve their products.

AS a result of the price slashing, the ci'> for information
processing equipment (primarily computers) has fallen con-
siderably, compared with the cP! for all goods, which has risen
steadily over time. (See chart 4.) This behavior is somewhat

Monthly Labor Review August 1996 21



Computer Manufacturing

crt 2 Percent change in units and value of shipments for selected computer types, 1992 to 1993

Percent Percent
80 80
fm Units 1D Value of shipments
6 |} ~| 60
40 40
20 20
oO 0
-20 + -20
40 40
Large scale Medium scale Personal computer Portable
‘Source:: 1993 Annual Survey of Manufactures, U.S. Department of Commerce, Bureau of the Census, MA35R - Computers: Office
and Accounting Machines.

the changes in the direction of electronic processing which
are taking place in the electronic computer market segment
(SIC 3571). The Computer and Business Equipment Manu-
facturers Association divides computer types into mainframes,
minicomputers and microcomputers."!

Mainframes were the first commercial computers, and are
the largest, most powerful computers available. This category

lion. The lines have blurred in recent years between mini-
computers and mainframes, and hybrids such as mini-
supercomputers exist. Minicomputers boasted a share of the
total computer market of 61 percent in 1975, but have dropped
to 2 percent in 1995. In terms of value of shipments, mini-
computers commanded a 23-percent share in 1975, which has
remained little changed 20 years later.

includes supercomputers and mas-
sively parallel computers (a new type

Distribution of employment and shipments in computer manufacturing

of computer that consists of hundreds segments, 1988 and 1994

of microprocessors, and whose perfor- 1988 1994

mance can exceed supercomputers).

As table 2 shows, in 1975 this coe sic Industry Employment |Shiements| Employment _[Stipments

ment of computer manufacturing made IPercent |Number| Percent | Percent | Number| Percent

up 15 percent of the total units shipped

and 76 percent of the value of ship- | %7 100 |459,1001 100 | 100 } 381,000] 100

ments. Estimates for 1995 show that 3571 cote 65 |297,000 49 57 | 200,400 60

mainframes will make up only 1 per- | 55727 | Comput stornge covioes) | 2,900) 39 -| 27 | 95500| 32

cent of units shipped with the value of || 3575,8,9 | computer terminals, ‘ ,

the shipments at 29 percent. machines nets 15 | 63,400] 12 | 16 | 55100 8
Minicomputers are smaller than __— - -

mainframes, and are traditionally used Nore: Distribution based on the value of shipments. n.e.c. = not elsewhere classified.

for business, scientific, and engineer- Source: Employment data are from the Current Employment Statistics Program, Bureau of Labor

ing tasks. These computers usually | Statistics. Shipments data are trom the Bureau of the Census.

range in cost from $10,000 to $1 mil-

20 Monthly Labor Review August 1996



Indexes of employment in computer and office equipment manufacturing and total manutacturing,
1960-95

index Index
1960=100 1960=100
400 400
300 -| 300
200 “| 200
Total manufacturing
400 woveneessee -| 400
o ku i n 1 1 1 Hl i}
1960 1965, 1870 1975 1980 1985 1990 1995

croprocessor in 1971 led to the creation of the world’s first
personal computer in 1975 by Ed Roberts. Not far behind,
the Apple and the IBM versions of the personal computer were
introduced. From this time forward, the computer has evolved
rapidly, with new technologies not only reducing size and
cost, but also increasing memory and processing power tre-
mendously.

Computer manufacturing

The developments in computer technology prior to 1957 led
the Office of Management and Budget to create “computer
manufacturing” as an industry classification—sic 357.6 This
industry is defined as those establishments primarily engaged
in the manufacturing of electronic computers, peripherals, and
storage devices. In 1994, the industry employed 354,000
people and made up 1.9 percent of all manufacturing employ-
ment in 1994. This compares with 4.9 percent employed in
motor vehicles and equipment, 2.6 percent in aircraft and
parts, and 3.7 percent in textile mill products. Albeit a rela-
tively small section of the economy, this industry had ship-
ments valued at $77 billion in 1993 or 2.5 percent of all manu-
facturing shipments.’ The history of the computer is unique,
and an understanding of it may clarify recent trends in this
industry.

Computer equipment manufacturing is divided into sev-
eral major categories: electronic computers, peripherals, stor-
age devices, computer terminals, and other office equipment.
The largest in both employment and production is electronic
computers, with about 57 percent of employment in 1994 and
60 percent of shipments.® (See table 1.) The dollar value of
shipments in the computer industry increased by 29 percent
in 1994, following several years of much smaller growth.

The value of shipments, however, can be misleading when
analyzing the health of the industry. A moderate increase in
the dollar value of shipments hides the fact that there has been
a substantial increase in the number of units shipped. This has
occurred because the price of computers has plummeted so
rapidly. During the past 20 years, the cost of one particular
characteristic of computers, namely processing speed, has
dropped approximately 1 million fold, while the number of
units produced has skyrocketed.? As an example, from 1992
to 1993, the number of personal computer units produced rose
by 45 percent, but the value of shipments increased by only 3
percent. (See chart 2.)

Electronic computer manufacturing. Computers can range
from supercomputers, costing up to $35 million," to personal
computers and laptops, costing less than $500. It is more use-
ful to look at the types of computers separately to understand

Monthly Labor Review August 1996 19