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ECONOMIC ANALYSIS: Focusing on factory jobs misses the big picture

June 11, 2007

There's been something peculiar going on in the business media in Indiana over the last few weeks. We've been beating ourselves up because the state is losing manufacturing jobs. Headlines about the decline are popping up, and state and local development officials are facing the bright light of media scrutiny. The chatter on Internet "talk-back" forums serves up plenty of people to blame-the governor, the unions, the Chinese and even our neighbors who buy imported goods.

But if I could make it happen, I'd call all those development officials into a room and tell them I was changing their assignments. The days of focusing on manufacturing employment in Indiana as a yardstick of success or failure would be over. Instead, I would concentrate on keeping Indiana manufacturing viable and globally competitive.

The change is significant, because the link between competitiveness- and, yes, profitability-and employment levels is tenuous at best. The ideal situation is one where Indiana-based manufacturing facilities grow their market shares and output and employment expand together. The more common situation is where local companies must re-engineer and reconfigure their production processes simply to hang onto the business they have.

And that usually involves some combination of outsourcing, insourcing and automation, which historically results in more empty spaces in employee parking lots.

Is this a bad outcome? I am sure that if I were one of those turning in my employee ID card, I'd say it was. Many of those millions of American families whose lives were turned upside down when modern agriculture took root a century ago would have probably said the same thing.

Yet public policy should be aimed at what can be changed, and not judged by what it cannot. And although the data for a particular city or a particular year might say otherwise, the unpleasant truth is that Indiana cannot grow its manufacturing job base.

That wasn't true 30 years ago. But you have to go at least that far to find any kind of upward trend in Indiana manufacturing employment. Other than the 1990s, when payrolls did manage an impressive succession of growth years, the news of manufacturing job declines has not been news, in Indiana or just about anywhere else.

But if that's all you're watching, you are missing the story. Even as its employment totals shrink, Indiana's economy remains more focused in manufacturing industries than ever before. If you use a different yardstick, that is.

As reported by the Bureau of Economic Analysis, Indiana manufacturing facilities produced more than $66 billion worth of goods in 2005, the most recent data available. After correcting for inflation, that is $17 billion more than we produced in 1997, a 35-percent increase in output. During those same years, state manufacturing employment levels went the other direction-they fell 12 percent, or about 81,000 workers, over the 1997-2005 period. That incredible result is a tribute to the productivity and resourcefulness of Indiana manufacturing companies and their workers.

But it also rams home the inescapable fact about the manufacturing environment as it has been, and is likely to remain for the coming decades. In short, it is a world of stagnant or dwindling head counts. Wonderful opportunities exist in that world to do things that can benefit communities around Indiana, just as important challenges lie ahead in improving our work force and infrastructure to support competitiveness and growth.

But expressing disappointment over the payroll declines that accompany that process is denying reality. And it's time we stopped beating ourselves-and our elected leaders-up over it.



Barkey is a research economist at Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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