Face the facts about factory jobs
I’ve lived in Rustbelt towns in West Virginia, Ohio, and Indiana for more than two decades. One shocking thing I keep hearing is the belief that something will lead to more factory jobs. Whether this fantasy is heard on the national stage or in cities and towns, I remain dumbfounded by the ignorance that otherwise intelligent people have of manufacturing in the United States.
One trick I have to show how misinformed people are about factory employment is to simply ask, “When was the peak of manufacturing output in the United States?” The answers range from 1942 to the 1970s. The correct answer is 2021.
That’s right, the peak year for inflation-adjusted manufacturing output in the US was 2021. That shouldn’t be too shocking to people, but apparently it is. I then ask, “When was the peak in manufacturing employment in the United States?” The answer is 1979, which doesn’t seem to shock too many people.
Here in Indiana, the answers are 2021 and 1973, respectively. So what happened, and why do so many people believe that salvation in the form of factory jobs is just around the corner?
Well, the manufacturing facts are quite simple. As a share of employment, manufacturing has been in steady decline since the end of World War II. However, the share of manufacturing GDP has been virtually constant for 75 years. The main reason for this is simply that we are very good at making things. So we continue to have manufacturing production peaks with fewer and fewer workers.
Of course, we are not alone in this case. Manufacturing employment is down worldwide. Germany’s factory employment peaked in 1970. In Taiwan it peaked in 1988, and as far as you can believe any of their public data, factory employment peaked in China 15 years ago.
Most manufactured goods can be produced anywhere and shipped very cheaply. The cost per ton-mile of moving goods is a fraction of what it was in 1950. One result is that international trade could also contribute to the loss of manufacturing output in some countries. A rule of thumb is that companies have a simple choice: become more productive so they can cut jobs or lose your business to cheaper imports. In any case, some jobs are disappearing.
This normal economic transformation is nothing new and there is nothing to worry about. We went through this in agriculture a century ago and we did very well. One of the reasons we have done well is that farmers who lost their jobs due to the productivity gains of tractors and steam threshers went to work in factories. Today’s displaced factory workers are not faring so well. The main reason is simply that the education and skills these workers possessed did not match the many jobs available nationwide.
The local effect of job losses in the manufacturing sector was significant. Since 1979, the United States has lost approximately 7.5 million manufacturing jobs. We have also created over 60 million other types of jobs. Indiana’s experience was worse. We have lost roughly the same share of factory jobs, from 760,000 in 1973 to 546,000 today. However, we only gained about 700,000 new jobs of other types, a gain of about 40%. During the same period, the United States doubled employment.
There are many causes for Hoosier’s slow job growth and sluggish economy. One factor is the continued search for factory jobs. Policy makers in Hoosier only pay lip service to quality of life and education. Yet when it comes to budgets, Indiana and most of its cities and counties remain obsessed with bringing factory jobs back to the region. It has been, and continues to be, a costly diversion of resources.
In terms of economic development spending and direction, it’s almost entirely manufacturing. By the way, there is some interest in the logistics of moving these factory products, but in terms of politics and spending, Indiana remains focused on manufacturing.
Our workforce development system, which spends $1 billion a year on training, is focused primarily on filling factory jobs. This seems odd because wages for new factory workers have been steadily declining here in Indiana for more than two decades. And, as I write this letter, the most advertised manufacturing profession in Indiana pays just $17.00 on average.
Much of our K-12 education system relies heavily on manufacturing. Among the list of community and technical training identified by the State, there are 51 for manufacturing, 46 for health and 35 for transport. As a reminder, we have yet to recoup the factory jobs lost during the COVID-19 pandemic, and Indiana will almost certainly have fewer manufacturing workers in 2030 than today. We’re going to need a lot more health care workers, so based on this simple analysis, we’re very unbalanced.
Across Indiana, counties and cities continue to build speculative industrial sites. These “spec” buildings dot the Indiana landscape, holding hundreds of millions of public dollars hostage that could be spent elsewhere. These facilities are designed solely to attract the manufacturing sector, while other growing and job-creating sectors are left to their own devices to find space.
Nowhere are these preferred practices more apparent than in our tax system. On paper, Indiana levies a 3.0% property tax on business investment and a 4.9% corporate tax rate. This would imply a fairly rigid tax rate for the manufacturing sector, which is rich in capital goods and land. In reality, subsidies or tax allowances for manufacturing are so high that non-taxable state industry bears a lesser burden.
According to federal data, the average Indiana business pays a total tax burden of 7.2% of its output, while Indiana manufacturing businesses pay less than 2.3%. To put this into context, almost no Hoosier household pays a smaller share of its income in taxes than the manufacturing industry. The average factory job in Indiana is subsidized to the tune of $10,850 a year. That’s more than the state pays to educate a schoolboy.
No one can doubt the importance of manufacturing, or that it will always be an important and important part of the national and state economy. But manufacturing will never again be a source of net job growth in Indiana. Since the turn of the century, Indiana has created 300,000 non-industrial jobs while losing 127,000 industrial jobs. It is simply time that we treat this economic sector like any other and focus our attention on educating the future, not the past.
Michael J. Hicks is director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics at Ball State University’s Miller College of Business. Send feedback to [email protected]