I’ve been living in Rustbelt towns in West Virginia, Ohio and Indiana for more than two decades. One shocking thing I continue to hear is the belief that something will cause an increase in factory jobs. Whether this fantasy is heard on the national stage or in cities and towns, I remain stunned by the ignorance that otherwise intelligent people have about manufacturing in the United States.
One trick I have to show how misinformed folks are about factory employment is simply to ask, “When was peak manufacturing production in the USA?” The answers range from 1942 to the 1970s. The correct answer is 2021.
That’s right, the inflation-adjusted peak year of manufacturing production in the USA was 2021. That shouldn’t be too shocking to folks, but apparently it is. I then ask, “When was peak manufacturing employment in the USA?” The answer there is 1979, which seems not to shock too many people.
Here in Indiana, the answers are 2021 and 1973, respectively. So what’s been going on, and why do so many folks believe that salvation in the form of factory jobs are right around the corner?
Well, the facts about manufacturing are pretty simple. As a share of employment, manufacturing has been in a steady decline since the end of World War II. However, the share of manufacturing GDP has been almost constant for 75 years. The primary reason for that is simply that we are very good at making things. So, we continue to get manufacturing production peaks with fewer and fewer workers.
Of course, we aren’t alone in this fact. Manufacturing employment is down worldwide. Peak factory employment in Germany occurred in 1970. In Taiwan, it peaked in 1988, and insofar as you can believe any of their public data, factory jobs peaked in China 15 years ago.
Most manufactured goods can be produced anywhere and shipped very cheaply. The cost per ton-mile of transporting goods is a fraction of what it was in 1950. One result of this is that international trade could also contribute to the loss of manufacturing production in some nations. One rule of thumb is that businesses have a simple choice: become more productive so you can cut jobs, or lose your business due to less expensive imports. Either way, some jobs disappear.
This normal economic transformation is nothing new, and nothing to be afraid about. We went through it in farming a century ago, and did just fine. One reason we did well is that farmers who lost jobs due to the productivity gains of tractors and steam threshers went to work in factories. Today’s displaced factory workers don’t fare as well. The prime reason is simply that the education and skills these workers possessed didn’t match the many available jobs nationwide.
The local effect of manufacturing job losses has been significant. Since 1979, the U.S. has lost about 7.5 million factory jobs. We’ve also created more than 60 million other types of jobs. Indiana’s experience was worse. We lost about the same share of factory jobs, dropping from 760,000 in 1973 to 546,000 today. However, we gained only about 700,000 new jobs of other types, a gain of roughly 40%. Over the same time, the U.S. doubled employment.
There are many causes of the slow job growth and somnolent Hoosier economy. One factor is the continued pursuit of factory jobs. Hoosier policymakers pay lip service to quality of life and educational attainment. Still, when it comes down to budgets, Indiana and most of its cities and counties remain fixated on returning factory jobs to the region. That has been, and continues to be, a costly diversion of resources.
In terms of economic development spending and focus, it is nearly all about manufacturing. As an aside, there is some interest in logistics to move those factory goods, but in both policy and spending, Indiana remains focused on manufacturing.
Our workforce development system, which spends a billion dollars each year on training, is primarily focused on filling factory jobs. This seems odd because wages for new factory workers have been in steady decline here in Indiana for more than two decades. And, as I write this letter, the most heavily advertised manufacturing occupation in Indiana pays just $17.00 on average.
Much of our K-12 educational system leans heavily towards manufacturing. Among the list of community and technical courses listed by the state, there are 51 for manufacturing, 46 for health and 35 for transportation. As a reminder, we haven’t yet recovered the factory jobs lost during the COVID-19 pandemic, and Indiana will almost certainly have fewer manufacturing workers in 2030 than we have today. We’ll need a lot more healthcare workers, so from this simple analysis, we are badly off balance.
Across Indiana, counties and cities continue to build speculative industrial sites. These “spec” buildings dot Indiana’s landscape, holding hostage hundreds of millions of public dollars that could be spent elsewhere. These facilities are designed only to appeal to manufacturing, while other sectors that are expanding and creating jobs are left to their own devices to find space.
Nowhere are these favored 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. That would imply a pretty stiff tax rate for manufacturing, which is rich in capital equipment and land. In reality, tax subsidies or abatements for manufacturing are so high that the no taxpaying industry in the state bears a lower burden.
According to federal data, the average business in Indiana pays a total tax burden of 7.2% of their production, while Indiana’s manufacturing firms pay less than 2.3%. To put this in context, almost no Hoosier household pays a smaller share of their earnings in taxes than does the manufacturing industry. The average factory job in Indiana is subsidized to the tune of $10,850 per year. That’s more than the state pays to educate a school child.
No one can doubt the importance of manufacturing, or that it will always be an important and large 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-factory jobs while losing 127,000 factory jobs. It is simply time that we treat this economic sector like any other, and focus our attention on the education of the future, not the past.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University. His column appears in Indiana newspapers.