Productivity in making air conditioners, refrigeration equipment, and furnaces Essay

Output per employee hour in the manfacture of air conditioning,
refrigeration, and warm-air heating equipment rose at an average annual
rate of 1.3 percent between 1967 and 1982, compared with 2.4 percent a
year for all of manufacturing. Output climbed 3.4 percent a year during
the period, and employee hours, 2.1 percent. (See table 1.) Strong
expansion in the demand for the industry’s residential, commercial,
and industrial products, and rapid diffusion of basic improvements in
metalworking technologies (such as numerical control and computer
numerical control) were among factors underlying the rising productivity

The improvement in the industry’s productivity occurred mostly
in the earlier part of the period reviewed. After 1973, output per
employee hour did not change, as shown by the following tabulation of
average annual rates of change:

The industry’s productivity rate for the 1967-73 period was 50
percent again as high as for manufacturing, but thereafter the trends in
the two rate diverged.

Year-to-year swiings in the industry’s productivity were
comparatively moderate. These swings ranged between a 9-percent
increase in 1972 and a 16-percent decrease in 1972. Year-to-year
increases in productivity outnumbered decreases by 12 to 2 (no change
was recorded for 1973). In the years when productivity dropped, output
dipped less than employee hours. Tnus, in 1975 and 1980, productivity
declined 16 percent and 7 percent while output dipped 34 percent and 16
percent, and employee hours, 22 percent and 10 percent. In 1974,
productivity rose as a 6-percent decline in output was outdistanced by a
9-percent decline in employee hours. Output and demand

The manufacture of air conditioning and refrigeration equipment and
of warm-air furnaces involves the production of heat transfer apparatus
for residential, commercial, and industrial applications, as well as for
hospitals, marine vessels, freight and passenger vehicles, and many
specialized applications. Heat transfer equipment here includes unitary
air conditioners (units that operate on electric circuits of their own);
room air conditioners; commercial regrigeration equipment (including
frozen food display cases); as well as heat pumps and dehumidifiers.
The industry, in addition, manufactures compressors and condensers, not
only for its own final output, but also for home refrigerators
(classified by the Bureau of the Census as a separate industry.)

The industry’s output rose at an average annual rate of 3.4
percent between 1967 and 1982. The rate for the earlier part of the
period ran four times higher than that for all manufacturing, but
dropped below the all-manufacturing rate during 1973-82:

Among reasons underlying the industry’s output growth, and
underpinning it after 1973, have been exports. As a proportion of value
of shipments, exports by the industry nearly doubled between the earlier
and the later period studied here–from 8 percent to 14 percent
(reaching 19 percent in 1982). For manufacturing as a whole, the export
share in the value of shipments increased less markedly–from 6 percent
in 1972 to 10 percent in 1980.

The much slowed expansion in the industry’s output from 1973
forward corresponds to trends in the output of its major product groups,
which in turn parallel the trends in underlying demand from the
industry’ most imiportant markets.

thus, the production of heat transfer equipment other than unitary
or room air conditioners or warm-air furnaces increased at a rate nearly
10 times higher over the 1967-73 period than during the 1973-82 span.
The increase in the rate had resulted largely from strong demand for
motor vehicle air conditioners (which account for more than one-half of
the products in the group). Such demand was associated with an increase
in motor vehicle output of close to 6 percent a year in 1967-73. The
subsequent tapering of output growth mirrored a falling-off in the
annual rate of motor vehicle output by -1.0 percent for 1973-82.

Likewise, output rates of growth of unitary air conditioners and
commercial refrigeration equipment slowed after 1973; for warm air
furnaces, the rate declined. This pattern was linked largely to
developments in construction (which accounts for well over one-third of
the demand for the industry’s products). The average annual rate
of change in the constant-dollar value of new residential housing
construction, for example, declined from around 9 percent for 1967-73 to
2 percent thereafter; that for commercial structures, from 15 percent to
9 percent; and that for hospitals (public and private) turned from a
5-percent annual gain to a 4-percent annual decrease. Only industrial
construction evidenced a contrary trend, with a 10-percent annual
decline in the earlier period giving way to a 3.5-percent annual rise
after 1973.

Leaving aside the medium-term swings, the industry’s output
has been sustained over the longer run by rapidly growing use of central
and room air conditioning in homes, as well as more gradual increases in
offices and other commercial space, hospitals, and probably in
factories. Increases in the size of homes and other structures
generated the shift in demand from room air conditioners to central
systems and spurred the demand for warm-air furnaces, which function
through the same air circulation system as central air conditioners. In
the middle and late 1960’s, 28 percent of all new homes were
equipped with central air conditioners; that proportion rose to 43
percent between 1970 and 1975, and to 66 percent by 1982. Square
footage per new home, to which the size of heat transfer equipment is
linked, increased 9 percent between the mid-1960’s and the early
1980’s. The proportion of homes wired for room air conditioners
more than doubled between the mid-1960’s and the mid-1970’s,
to 53 percent, but it did not rise much thereafter. Warm-air ducted
heating systems in occupied housing units rose by about one-third
between 1970 and 1975, but by only 7 percent between 1975 and 1980. For
offices, shoppihng centers, and hospitals, pertinent data on air
conditioning and forced warm-air systems are available only fore some
recent years. According to a survey conducted in the early 1970’s,
91 percent of all commercial office buildings had central air
conditioning, and 67 percent had forced-air heating systems. For
shopping centers, the comparable figures were close to 100 percent in
1977; and for hospials and nursing homes, they read 97 percent and 56
percent in 1975. These data suggest that industry output is sustained
not only by the net increase in such structures, but from replacement
and retrofitting with more energy-efficient equipment as well. In 1981,
for example, more than half of total residential expenditures on air
conditioning and heating systems were for replacement.

Furthermore, the introduction of more energy-efficient heat
transfer equipment since about 1975 has also bolstered output. For the
same wattage per hour of electric energy input, higher equipment output
capacities, as measured in British Thermal Units (BTU’s), have been
achieved. Thus, in 1976, the Air Conditioning and Refrigeration
Institute listed 56 percent of new unitary air conditioners as having
energy efficiency ratios of between 6.5 and 7.4, and 18 percent with
ratios of 7.5 to 8.4 (that is, their BTU output averaged that many times
above their power input). By 1981, the proportion of the lower
efficiency units had shrunk to 37 percent, while that of the higher
efficiency equipment had expanded to 35 percent. New air conditioners
with efficiencies below 6.4, which in 1976 had accounted for 20 lpercent
of the industry’s total shipments, had declined to 5 percent by
1981. Employment and hours

Employment in the air conditioning, refrigeration, and warm-air
heating equipment industry numbered 129,000 persons in mid-1984. It
rose 32 percent between 1967 and 1982, or at an average annual rate of
2.2 percent. (Employee hours rose at about the same rate.) Employment
reached a peak of 130,000 persons in 1979, and subsequently retreated.
This decline was attributable to a 21-percent contraction in production
worker jobs between 1979 and 1982, as compared with a 9-percent loss in
nonproduction worker jobs. (Employment levels have improved, but have
evidently remained below the 1979 high.)

Over the longer term, trends in employee hours displayed patterns
of acceleration and retardation similar to those noted for production
and output trends. Employee hours in the industry rose during the first
6 years of the review period at an average annual rate much greater than
for all manufacturing. Subsequently the rate plummeted:

Production workers accounted for 70 percent of toal employment,
which was the same proportion in both 1967 and 1982–nonproduction
workers made up the balance. The number of women workers more than
doubled over the period, raising their proportion of total employment
from 14 percent to 21 percent. Underlying this increase may have been a
shift in the skill composition of the industry’s workers to more
assembly-type jobs. The rise in the industry’s average hourly
earnings also slowed relative to the manufacturing average. In 1967,
the former was 104 percent of the latter, compared with 96 percent in

Overtime ran somewhat below the manufacturing average during the
review period, suggesting that firms in the industry were inclined to
hire new production workers, rather than assign overtime when the
workload exceeded certain limits. Turnover rates nonetheless lagged;
over the 1967-81 span, they averaged 89 percent of the manufacturing
average for accessions, and 91 percent of that for separations. Thus,
it appears that employment stability was somewhat greater in the
industry than in manufacturing generally.

The skill composition of the industry’s work force differs
from that for manufacturing as a whole. (The air conditioning,
refrigeration, and warm-air heating equipment industry represents 68
percent of the employment of the industry group to which it belongs, and
to which the data cited here pertain.) In 1980, craftworkers accounted
for 17 percent of total industry employment, compared with 19 percent
for all manufacturing. Operatives, however, accounted for a
significantly larger proportion–48 percent, compared with 43 percent.
The larger component of operatives stemmed from the proportionately
greater number of assembly workers in the industry (23 percent) than in
all manufacturing (8 percent). The proportion of metalworking
operatives in the industry (16 percent) was more than twice as high as
for manufacturing generally. By contrast, the occupational distribution
of white-collar workers was similar to that for manufacturing.
Professional and technical workers made up 8 percent of the
industry’s workforce (9 percent for manufacturing); clerical
workers, 12 percent (11 percent); and managers and administrators, 5
percent (6 percent). Investment in plant and equipment

Like manufacturing establishments generally, the air conditioning,
refrigeration, and warm-air heating equipment industry installed new
production equipment at a fairly high rate over the 1967-81 period.
(Also like other manufacturing establishmentS, the industry spent a
declining proportion of its total fixed investment outlays on new
plant.) However, unlike other manufacturing establishments, firms in
the industry spent at a much higher rate during the earlier than the
latter part of the review period. For all manufacturing, the reverse
held true:

The industry’s high rate of capital spending in the early part
of the period resulted from pressures on capacity, related to high
output growth rates. With the abatement of output growth after 1973,
fixed investment slowed. The proportion of total fixed investment spent
on equipment is as follows:

The comparatively high proportion of expenditures for equipment is
reflected in the data on the modernization of the industry’s
metalworking machinery, as reported by the American Machinist. (See the
section on technological change.) The rates shown, however, obscure
large year-to-year fluctuations in the industry’s capital spending.
This instability was far more marked for the industry than for
manufacturing generally. For example, in 1975, the industry’s
plant and equipment expenditures plummeted 41 percent (in constant
dollars), and in 1977, they soared 56 percent. Manufacturing recorded a
9-percent drop, and a 21-percent rise for the same 2 years.

Fixed assets per employee in the industry were 79 percent of the
manufacturing average in 1980, compared with 76 percent during 1972 and
1974-76. The rise in the ratio partially reflected the cumulative
effects of earlier equipment installations and new plant construction on
the value of the industry’s fixed assets. More efficient

Air conditioning and refrigeration equipment essentially consists
of a compressor driven by an electric motor, and two coils–the
condenser, in which the refrigerant is compressed to a liquid, and the
evaporator, in which the refrigerant expands into the gaseous state,
enabling it to absorb heat from the space being cooled. The heat is
transferred from the environment with the aid of fins, mounted upon the
evaporator coil. Warm-air furnaces built by the industry are mostly
gas-fueled forced-air devices. They include a combustion chamber and a
motor-driven blower. The sheet metal housing that shields the equipment
is manufactured by the industry, but controls and motors normally are

Advances in the manufacture of air conditioners, refrigeration
equipment, and warm-air furnaces have been linked chiefly to
technological progress in metalworking machinery, welding, methods of
storage and transfer of parts, and assembly. The are also related to
improvements in product design.

The production of air conditioners, refrigeration equipment, and
warm-air furnaces basically involves the cutting and forming of metal,
as well as welding, brazing, and soldering of components. Efforts to
improve efficiency usually focus upon these operations, and on plant
layout. Auxiliary operations, such as materials handling, painting,
testing, and packaging have received increased attention in recent

The most recent American Machinist inventory of metal-working
equipment indicates that, in 1983, 30 percent of all metalcutting and
metalforming machine tools used in the industry were at most 10 years
old. In 1968, the proportion was the same for metalcutting tools, but
only 25 percent for metalforming tools. The industry has steadily
improved its metalworking equipment, by and large maintaining the same
proportion of new equipment during 1973-83 as during 1958-68. The
higher end of the age distribution, however, shows an increase in the
proportion of older metalworking equipment in the industry. The share
of metalcutting machine tools 20 years and older rose from 25 percent in
1968 to 32 percent in 1983, and the share of metalforming tools, from 25
percent to 37 percent. However, the relative increase in older machine
tools cannot be readily interpreted as a loss in efficiency, inasmuch as the American Machinist inventory does not take into account the
retrofitting of older machines with up-to-date components and control

The efficiency of the industry’s metalworking equipment has
been significantly enhanced by an 11-fold rise in the number of
numerically controlled (NC) machine tools. In 1983, NC machine tools
accounted for 13 percent and 17 percent of metalcutting and metalforming
tools 9 years old or less. In 1968, when NC machine tools were not yet
widely diffused, the proportions were less than 1 percent. The
percentage increase in the number of NC tools understates the increase
in the output capabilities which the installation of such tools spells.
According to the American Machinist, the number of machine tools in all
metalworking industries declined from 16 per 1,000 population in 1968 to
fewer than 10 in 1983. “This represents in part the greater
productivity of machine tools, in part the simplification of design of
many products, so that less machining is required.” This statement
also applies to the industry reviewed here: the number of machine tools
in the industry’s shops dropped by one-third between 1968 and 1983,
while output (over the 1968-81 period) more than doubled. Thus, the
output capability of metalworking equipment in the industry rose nearly
threefold over the study period, with that rise likely to be largely
attributable to NC-equipped machine tools.

Examples of how improved metalworking technology has helped to
raise output per hour may be drawn from the sheet metal operations in
the industry’s larger shops, and from the fabrication of some of
the major components of its products. In punching sheet metal,
templates were conventionally affixed to the press so as to obtain
required shapes. Templates have been increasingly replaced, however, by
taped instructions fed to the press, which greatly speeds output and
ensures greater precision of the finished shape. Setup time of the press
has been reduced to as litle as one-twentieth of the conventional
operation. In a related operation, the press, after the sheet metal
blank has been placed automatically, is programmed to select 1 of up to
30 built-in punching tools from its turret, and to activate the tool
selected. Bending of metal parts has likewise been increasingly
automated, the bending apparatus being preset to several sequential
settings (so as to graduate the bending process.) Setup time here has
declined to an estimated 10 percent of what it had been prior to
automation. Despite their being automated, these metalworking processes
continue to require close monitoring by trained operators. The operator
may monitor two or more machines at the same time, or may be engaged in
such auxiliary tasks as placing and removing work pieces.

Some of the more advanced shops in the industry feature such
machine tools as high-capacity drills, which may drill all the holes in
an air conditioning compressor vessel in one or two operations. (The
holes are for accomodating bolts.) Older drilling machines, still
widely in use, have much lower capacity and speed. Automatic tool wear
adjustment is normally also a feature of NC machine tools, but at times
this feature is not desired or used. Replacement of a tool bit is then
left to the discretion of the operator assigned to monitor the entire
machining process. In small-lot production, loading and unloading the
work piece may be done manually.

Improved productivity in the fabrication of air conditioning
equipment components during the review period is exemplified by the coil
manufacturing process. The coil (made of copper or aluminum) is the
heart of the heat exchanger. The refrigerant is pumped through it (by
the compressor) to absorb heat from the surrounding space. The coil
originates as tubing on a large roll. In the more advance shops, the
rolled tubing is automatically straightened, cut to length as specified
in, and controlled by, a taped program, and automatically bent to the
shape of a U (or hairpin). This operation has come to be performed by
one person, where 10 years or so ago, four persons were required to
shear the tube manually and insert it into a bending device.

The U-shaped coil is inserted into a nest of aluminum fins. The
fins aid in absorbing heat from the refrigerant. The fabrication of
fins is usually highly mechanized, precut aluminum blanks being punched
to form them, and to accomodate the coils. Numerically controlled punch
presses featuring up to 27 spindles are used in the larger shops.
However, the number of blanks that may be punched at a time is limited
because punching tends to break rather than cut the metal, and breaking
forms rims that cannot be tolerated. Where fins are produced in
quantity, punch presses may not be numerically controlled, because
longer setup times are usually justified by the longer runs.

Loading and unloading of the punch presses has usually been
mechanized in the larger plants, so that the fins emerge stacked as
nests. The coils are then inserted manually. Manual insertion is still
preferred because it prevents “binding.” The operator can
readily control the pressure he exerts in inserting the individual
coils, which is not (as yet) the case for mechanical insertion where
undue pressure may damage (“bind”) the coil. The coils are
then brazed together or soldered to form a continous loop. Brazing or
soldering is still performed by means of hand-operated devices to ensure
leakproof joints and the continuity of the loop, so as not to
“blind-alley” them).

The fabrication of reciprocating compressors provides other
examples of the reduction in unit labor requirements which the industry
seeks. Compressors, driven by electric motors (manufactured outside the
industry), function to increase the density of the refrigerant to the
liquid state. Basically, the reciprocating compressor consists of a
piston sitting on a rod connected to the motor; and a cyclinder, against
the head of which the piston moves, compressing the refrigerant. Where
compressor components are produced in quantity, multistation machinery
arranged in circular (or “dial”) form has come to be used.
Yet, loading and unloading of the workpiece, and transferring it between
groups of dial machinery, is still widely done manually. Some
establishments began to install automatic transfer lines toward the end
of the review period, affording automatic positioning of the workpiece,
as well as automation of most other metalworking operations (such as
milling, drilling, reaming, and so forth). Transfer lines require
usually one-half or less of the labor per unit of the more conventional
equipment; so-called “uptime,” that is the time during which
the machinery is fully operation, is estimated to be 20 percent higher.
However, for the installation o such machinery to be economical, volume
of compressors with 4-1/2 to 6 tons of ice equivalent must run well in
excess of 250,000 units annually, and of compressors with 2 to 4-1/2
tons of ice equivalent must exceed 500,000 annually.

Changes in product design have, in some instances been combined
with technological advances. Thus, a cylindrically shaped air
conditioning machine has been developed that permits several hundred
feet of continual coil (or tubing) to be wrapped around a mandrel in one
mechanical process. This increases the heat transfer area, hence the
efficiency of the machine. It also minimizes the jointing of coil ends
(as described earlier), and thus, the leakage of refrigerant. Fins
consist of many hundreds of tiny aluminum pieces glued to the
tubing’s surface. Unit labor requirements in mounting such tubing
are estimated at 20 to 30 percent of those for the manual insertion of
U-shaped coils into nests of fins and the fabrication of such fins.

Product design and technological advance have also been combined in
the case of a thermostatic valve body for automotive air conditioning.
After the valve body was redesigned, it could be fabricated by means of
a 43-spindle metalworking machine which combines automatic indexing,
milling, drilling, counterboring, tapping, and other operations.
Material costs were reduced, assembly facilitated, and quality improved.
The machine replaced as many as 11 standard machines run by 30 workers.

A fundamental design change in air conditioning equipment and
warm-air furnaces during the review period made them more
energy-efficient (see the section on output). The relevant design
changes usually involved finer tolerances, hence greater precision
machining, especially of compressor components. Precision machining in
turn has been facilitated by–and has spurred the adoption of–NC
metalworking machinery. Functional testing, furthermore, has been
upgraded by such electronic devices as automatic calibration stations,
which can be programmed for many settings at a time, and which require
little attendance. Assembly appears also to have been improved by the
better “fit-up” of the more precisely machine components.
Industry structure

Industry concentration increased over the period reviewed; in 1977,
the 8 largest companies accounted for 51 percent of the industry’s
value of shipments, compared with an estimated 45 percent in 1967. The
20 largest companies accounted for 67 percent of the value of shipments
in 1977, as against 62 percent in 1967. Moreover, the concentration
ratio for 1967 was higher than for 1963. These increases suggest
underlying growth over time in economies of scale, a factor that usually
engenders productivity improvement.

Employment, too, was concentrated in the larger establishments. In
1977, 50 percent of the industry’s employees worked in 31 (or 4
percent) of the 860 establishments classified in the industry. At the
lower end of the employment size stratification, just over 10 percent of
all employees in the industry worked in 75 percent of all
establishments. It is noteworthy that the size distribution of capital
expenditures closely followed the size distribution of employment–such
that, for example, nearly one-half of all such expenditures were made by
only 4 percent of all establishments in the industry (that is, those
with 1,000 or more employees.) In line with the increase in
concentration ratios, the larger establishments raised their share of
the industry’s total employment over time. Outlook

Equipment. Continued productivity improvement is indicated for the
industry. As the American Machinist inventory of metalworking equipment
in the industry suggests, diffusion of NC machine tools is far from
complete. If past trends in diffusion persist, productivity gains are
likely to be generated. Moreover, the larger, more advanced shops plan
to install flexible manufacturing (FM) systems, which will make
small-lot production of larger air conditioning, refrigeration, and
heating equipment more efficient. One establishment, which is installing
a FM system to produce reciprocal compressors, expects direct labor
requirements to be reduced by more than 80 percent, as compared with
conventional production methods. Another establishment, which produces
large evaporators in lots of less than 100, also plans to fabricate them
by FM methods. Such evaporators require up to 5,000 different metal
shapes. In combination with NC machine tools, plant management expects
FM to save up to 50 percent in unit labor requirements, cut lead time by
nearly one-half, and cope with declining lot size and more exacting
tolerances more efficiently. Management also foresees significant
savings in materials and inventory costs.

The cutting of steel, a large-scale operation in the bigger shops,
should also become progressively more automated. The cutting and
punching of steel is often still done by an operator using templates and
judging by sight how to minimize waste in laying them out. Templates an
d operator judgment have begun to be replaced by computer-instructed
cutting machines, where the computer calculates the most economical
distribution of cuts. Templates and operator judgment have begun to be
replaced by computer-instructed cutting machines, where the computer
calculates the most economical distribution of cuts. The computer
memory also records odd pieces of steel that might be used in future
work. With template labor and layout estimation by an operator
eliminated, five times as much steel may be processed in the same period
as previously. Also, material savings of up to 60 percent are expected.

In welding operations, robots are increasingly being used, but for
complex surfaces, skilled welders who may be subject to certification
are still necessary. The use of a certified welder is frequently
required by a code authority, such as the American Society of Mechanical
Engineers, or by a customer, such as the U.S. Navy. Plant managers
generally expect more versatile robots, which sense the complexities of
the surfaces to be joined, to become available. But the laborsaving potential of such robots hinges upon the extent to which code
requirements are modified.

The efficiency of auxiliary operations in the industry is also
likely to improve. Thus, while many plants feature partially automated
storage of parts and components, work stations are still usually
supplied by means of manually operated carts or small trucks. (Heavier
and bulkier parts may be moved by overhead crane, activated by radio
control.) Some plants in the industry which produce in quantity expect
to install fully automated storage and delivery systems that convey
parts to work stations upon command. Management in one such plant
expects labor savings of 50 to 75 percent, compared with the partially
automated system, as well as the near elimination of damage from
multiple handling.

Employment. The occupational composition of the industry’s
employment is not expected to change very much during the 1980’s,
except for growth in the proportions of engineers, engineering and
science technicians, and computer specialists. Employment in these
occupational categories has been projected by the Bureau of Labor
Statistics to rise 27 percent between 1980 and 1990, compared with a
15-percent increase for employment in the industry as a whole. The
proportion of craftworkers and operatives has been projected to remain

The projections signify increased reliance upon engineers and
technicians in designing and monitoring more efficient production
processes. The projections do not, however, indicate an accelerating
trend toward either “deskilling” craftworkers or displacing
operatives. In 1990, craftworkers will constitute an estimated 16
percent of total industry employment, and operatives, 48 percent–the
same as in 1980. The proportion of professional, technical, and related
workers in the industry is estimated to rise from 8 percent to just
under 9 percent.

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