Manufacturing jobs reach state, national lows

story by Roby Brock and Michael Tilley
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Arkansas has witnessed a disturbing decline in manufacturing employment for decades, but the latest state jobless report depicts a new milestone.

According to U.S. Labor Department statistics, the number of Arkansas manufacturing jobs in August 2011 stood at a 156,500. That’s a level not seen since May 1968 when Arkansas manufacturing jobs totaled 156,600.

Manufacturing is Arkansas’ third largest employment sector behind Trade, Transportation and Utilities and Government categories. Those two categories employed 236,700 and 207,700 respectively in August 2011.

Greg Kaza, economist and executive director of the Arkansas Policy Foundation, said manufacturing jobs typically rebound after a recession. However, in the previous two recessions of 2001-2002 and 2008-2009, more manufacturing jobs have not materialized.

"Historically, manufacturing has expanded when we’re in a recovery. Since the last recession, that hasn’t happened," Kaza said. "It’s unusual that we continue to see these manufacturing jobs continue to fall."

Arkansas’ manufacturing workforce peaked in 1995 around 250,000 jobs, Kaza said, referencing labor statistics.

"There are more than a 150,000 Arkansas workers, their families and dependents who are counting on the state’s leaders to fight for these jobs," Kaza added. "If that doesn’t happen, this number will turn lower."

There are a number of factors that have impacted the manufacturing jobs decline. Kaza cites tax and trade policies, as well as productivity improvements throughout the decades as a reason for the downturn.

NATIONAL FIGURES
To be sure, Arkansas’ manufacturing hit is part of a national trend in which the number of manufacturing jobs as of August 2011 (11.757 million) was fewer than that of August 1941 (12.382 million).

However, the 11.757 million manufacturing jobs as of August is a 1.78% increase over August 2010, and ended 10 consecutive years of manufacturing job declines reported in August.

The loss of a manufacturing job has a greater impact than the loss of a non-manufacturing job. According to info from the National Association of Manufacturers (NAM), the average U.S. manufacturing worker during 2009 earned $74,447 annually, including pay and benefits. The average non-manufacturing worker earned $63,122 annually.

NAM research also shows that manufacturing supports an estimated 18.6 million jobs in the U.S., or about one in six private sector jobs.

PRODUCTIVITY IMPACT
Economists say part of the issue with declining manufacturing jobs is a function of increased productivity. Economist Jeff Collins, author of The Compass Report and former head of the Center for Business and Economic Research at the University of Arkansas, said during The Compass Conference in February that businesses are making investments in the equipment and software that increases productivity without increasing employees.

“They’re making investments in productivity because they don’t want to hire all these people back … when we come out of the recession in a real way,” Collins explained.

To push back against the manufacturing losses, Collins said economic development leaders must focus on recruiting the creative people who are “the innovators who develop new products,” new business services and new ideas.

The U.S. Bureau of Labor Statistics reported that manufacturing productivity in the U.S. fell 1.5% during the second quarter of 2011. However, output rose 1.2% and the number of hours worked increased 2.7%.

But in the past 15 years, the manufacturing sector has seen consistent and often large productivity gains.
2010 annual: 6.1%
2009 annual: 0.5%
2005 annual: 5%
2000 annual: 7.1%
1995 annual: 3.7%

Also, the index of output of all persons per hour was 111.3 in 2010, up from 51 in 1987 (2005=100). The index for per unit labor costs also increased from 96.8 in 1987 to 104.8 in 2010.

MANUFACTURING SUPPORT
A NAM report issued in January 2011 promotes the strength and importance of U.S. manufacturing and lays out a list of actions the federal government should take to strengthen the sector.

The first part of the report included the following points about manufacturing.
• The United States is the world’s largest manufacturing economy, producing 21% of global manufactured products. China is second at 15% and Japan is third at 12%.
• U.S. manufacturing produces $1.6 trillion of value each year, or 11.2% of U.S. GDP.
• U.S. manufacturers are the most productive workers in the world — twice as productive as workers in the next 10 leading manufacturing economies.
• U.S. manufacturers perform two-thirds of all R&D in the nation, driving more innovation than any other sector.
• Taken alone, U.S. manufacturing would be the 9th largest economy in the world.

The NAM report also asserts that other countries, especially in Europe and Asia, promote tax, regulatory and trade policy that spurs innovation and investment in the manufacturing sector.

“In contrast, the United States often approaches manufacturing policy in a haphazard way. A lagging sector might get a temporary fix to the tax code, and federal grants might boost one industry or another. Acting with what is assumed to be the best of intentions to support manufacturing, lawmakers propose measures that actually add costs and regulatory burdens,” Jay Timmons, the NAM president and CEO, noted in the report.

The NAM report included numerous proposed federal policy changes to improve the sector. Those included:
• Reduce the corporate tax rate to 25% or lower, promote fair rules for taxation of active foreign income of U.S.-based businesses, institute permanent lower tax rates for individuals and small businesses;
• Oppose new federal regulations that dictate rigid work rules, wages and benefits, reject regulations that introduce conflict into employer-employee relations;
• Balance costs and benefits of regulation, preventing the imposition of regulatory burdens, defend the policymaking role of Congress by opposing its circum- vention through regulatory rulemaking;
• Assist exporting by small and medium-sized manufacturing through expanded export promotion programs as well as export credit assistance for both small and large firms; and,
• Strengthen and make permanent the R&D tax credit. Manufacturers in the United States need the certainty and incentives provided by a permanent and robust research and development tax credit.