Taking the High Road in Rebuilding Manufacturing

6.12.2012 | As Mark Twain once told an audience, “The reports of my death are much exaggerated.” The same could be said for manufacturing.  Granted, manufacturing has been in a death spiral for 30 years, but that plummet seems to have stopped–and turned back up. And some interesting patterns are shaking out as manufacturing starts to find its way back.

Many of these patterns center on metro areas and their ability to draw talent and ideas. These pools of talent, in turn, contribute to a “high road” approach to manufacturing–which is a very different approach from the last several decades. That’s one of the conclusion of a recent report by Network member Howard Wial and colleagues Susan Helper and Timothy Krueger for the Brookings Institution.

The high-road approach is important to US recovery and long-term prosperity because it develops highly skilled, and highly paid, workers who focus on creating innovative products and processes. This is the reverse of past trends, which saw states desperately luring manufacturing with promises of low wages and a ready (and unskilled) workforce. The former is a sustainable strategy for regions and families. The latter is not.

As the report, “Locating American Manufacturing” notes, metro areas are increasingly home to manufacturing once again–after a decades long exodus. In 2010, metropolitan areas were home to 79.5%  of manufacturing jobs, according to the report.

And certain metros are becoming known for what they’re building or making, whether that be information technology;  trains, planes, automobiles, and ships; low-wage manufacturing; chemicals; machinery, and what the authors call factories near the fields, better known as meat-packing plants or food processing.

Rochester, NY, for example, is known for chemicals, machinery, and some information technology. Elkhart, IN–the most specialized metro area in the US– is known for car parts and furniture.  Dalton, GA, is known for textiles. The list is amazingly diverse–although information technology seems to be a lot of metro areas’ lists, particularly those near major research universities.

There’s a great interactive data set that accompanies this report.

When similar manufacturers cluster together in metro areas, they are at a significant advantage. Besides supply chain advantages of a group of firms producing similar items, or the thick pool of similarly skilled workers clustering in these hubs, there is the more intrinsic value of being close to ideas. It’s easier to learn new ideas in dense markets because of exposure to more people thinking about the same set of problems.  As the report notes,

“Manufacturers gain important advantages from locating in metropolitan areas. These advantages include… the ability to share ideas face-to-face with others who are working on similar business or technological problems, and access to educational, research, consulting, and engineering services that are specialized in the needs of the industry or cluster.

Workers also benefit. Here’s the top 10 best-paying manufacturing hubs (salaries and specialties in parentheses).

1 San Jose-Sunnyvale-Santa Clara, CA  ($144,899, ave. annual earnings)
2 Bridgeport-Stamford-Norwalk, CT   ($95,507) (aerospace, pharma, leather)
3 San Francisco-Oakland-Fremont, CA   ($91,761) (petro, pharma, computers)
4 Austin-Round Rock, TX     ($88,026) (computers, pharma)
5 Oxnard-Thousand Oaks-Ventura, CA   ($87,502) (pharma, computer, machinery)
6 Boston-Cambridge-Quincy, MA-NH   ($82,415) (leather, computer, pharma)
7 San Diego-Carlsbad-San Marcos, CA   ($79,396) (transport equip, computers)
8 Washington-Arlington-Alexandria, DC-VA-MD-WV   ($77,530) (none)
9 Houston-Sugar Land-Baytown, TX   ($75,288) (petro, chemicals, machinery)
10 Palm Bay-Melbourne-Titusville, FL ($75,225) (computer, aerospace)

The importance of metro location to manufacturers is most apparent in the highly technical industries that rely on engineers and scientists and highly skilled workers to make the products the engineers design. As the report notes:

“In 2010, 95.0 percent of all very high-technology jobs were located in metropolitan areas.” Interestingly, “More than a third of all very high-technology jobs (36.5 percent in 2010) are in the West. This is striking because that only 19.3 percent of all manufacturing jobs are in the West. “

As I wrote last week, Enrico Moretti’s new book, “The Geography of Jobs,” talks about this pattern as well. He finds that metro areas with higher rates of college degrees are becoming clusters of higher wages for everyone, with a kind of spillover happening up and down the job ladder. Many of these hubs, he also finds are in the West (as well as some on the East Coast).

The Midwest and South, on the other hand, are not left out, but their high-tech manufacturing is not quite as engineer-intensive.

Given the high skills needed, it is not easy, the authors note, for a metro area to do a turn-about and become a high-tech manufacturing hub overnight. As the authors write,

“Metropolitan leaders cannot simply follow a generic recipe to turn their metropolitan areas into high-technology manufacturing centers. Instead, they must carefully assess the current and potential advantages and drawbacks of their regions for specific high-technology industries and develop strategies that reflect that assessment.

Yet policymakers too often continue a race to the bottom in luring manufacturers.

“Many state and local governments do not follow the geographic high road. All too often they pursue policies that encourage firms to compete on the basis of low wages, using low-skilled workers and leaving innovation to chance. Those policies include tax abatements and other locational subsidies, efforts to compete for geographically mobile businesses (especially manufacturers) by lowering wages, and policies that favor the location of manufacturers in low-density nonmetropolitan areas and outlying metropolitan counties. Such policies promote a low-road manufacturing sector in which state and local governments “race to the bottom” to attract manufacturers and manufacturers have artificial incentives to move away from the locations where the social benefits of clustering are greatest. These geographic low-road policies are based on the assumption that the main thing that makes a location desirable for manufacturers is low wages for production workers.”

The report ends with a set of federal, state, and regional recommendations for policymakers to pursue in order to spur high-road manufacturing plans. Definitely worth a read.

 

 

 

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