VOICES FROM THE INDUSTRY: Hard-hit manufacturing has great potential

June 15, 2009

One would have to live far off the grid to not have heard that manufacturing is on the ropes, especially in manufacturing-intensive states such as Indiana.

The Hoosier State still ranks near the top in factories' share of total jobs (just behind Wisconsin) and in the share of states' economic output generated by manufacturing (behind Oregon, but well ahead of third-place Wisconsin). But our once-lofty manufacturing sector has been pressed hard by the major restructuring the economy is undergoing, and it won't look the same when the dust settles.

A few figures can help put the situation in context. From the start of 2001 through last September (the latest month for detailed sector data on payroll employment), Indiana's factory payrolls shrank by more than 117,000 jobs (19 percent), and the pace has accelerated in recent months.

It's no secret that our automotive industry has been especially battered in recent months. Employment in auto assembly plants, vehicle parts producers and related factories was doing reasonably well until fuel prices started to climb over the past couple of years.

The big fuel price increases of last year, however, gave the industry a major shock, worsened substantially by the crash of the overall economy that followed.

Over the past year, Indiana transportation equipment jobs have shrunk by nearly a quarter, and related industries such as fabricated metal manufacturing are shrinking rapidly, too.

Transportation-related manufacturers are not alone in being squeezed. Since 2001, more than half of Indiana's jobs in electrical equipment and appliance manufacturers have disappeared, the result of productivity gains (fewer workers are needed to produce the same output) and moving production operations out of the state (typically to other countries). Wood product manufacturing is down by about a quarter; jobs in primary metal production (sheet steel, pipe and wire) have shrunk by more than a quarter; and plastics-and-rubber producers' payrolls are one-third smaller.

Tough competition from overseas is a big factor in these sectors.

While shrinkage has been common throughout much of the manufacturing industry, some sectors have fared better than others. For instance, food manufacturing jobs grew 10 percent since 2001, as did jobs in "miscellaneous manufacturing"--making goods ranging from dolls and jewelry to dental implants and medical instruments.

And Indiana's life sciences firms are responsible for nearly one of every four jobs created in Indiana since 2001. Moreover, life sciences' share of total manufacturing output during this period has climbed from 11 percent to 20 percent, now surpassing that of the auto sector.

Indeed, Indiana is a star player in the highly competitive life sciences industry. Only two states have more output from pharmaceutical-and-medicine manufacturing, and Indiana ranks second in share of medical equipment output. In addition, our state has the third-highest exports of life sciences products.

Indiana's impressive gains in life sciences manufacturing, however, are not enough to offset losses we've experienced in more traditional manufacturing industries.

This highlights an important point. Manufacturing will continue to play a major role in the nation's economy, but that role will be different. It will be many years before Americans buy as many vehicles as they did three years ago, and the auto industry will be very different from what we're used to, with fewer workers, lower wages and less-generous benefits packages. The impact of these changes will ripple throughout the Midwestern economy.

Production jobs will continue shifting from the kind in which workers with a high-school education could count on a well-paid career and a comfortable standard of living to jobs in an ever-changing workplace requiring workers who can learn new skills and offer new insights to keep their companies competitive.

Few American factories will be able to compete on price in a global marketplace against firms in very-low-wage parts of the world. Instead, the manufacturers that succeed will offer innovative products, production processes and customer service, and their factory workers must help them continue to innovate to survive.

Manufacturing in the future will be a smaller part of the economy than we're used to, but it can still be a leader in generating wealth.

Indiana should take lessons from its past, and rekindle the Hoosier entrepreneurial spirit that excited America's automobile industry over a century ago. Hoosier entrepreneurs create jobs and wealth right here in our state, wealth that's often reinvested in Indiana firms and communities.

In a world of declining manufacturing wages, home-grown producers can offer a refreshing opportunity to grow our economy again.


Conover is director of the Indiana Business Research Center in the Kelley School of Business at Indiana University. Views expressed here are the writer's.

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