The Midwest's Manufacturing Conundrum

The region's reliance on manufacturing may have hindered its economic revitalization, according to a Chicago Fed study.

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Reuters

America's manufacturing revival is being hailed by a growing chorus of voices. Manufacturing jobs increased at their fastest rate in almost a year, according to data from the Institute for Supply Management (ISM). The Boston Consulting Group is forecasting the creation of between two and three million new manufacturing jobs by 2020, which will contribute an estimated $20 to $55 billion in added economic output per year. (The Bureau of Labor Statistics is less bullish, projecting just 357,000 new manufacturing jobs will be created over the next decade).  

A Brookings Institution report released earlier this week charted the geographic concentration and clustering of manufacturing across the United States, noting that "the Midwest had the fastest manufacturing job gains over the last two years."  

But a recent study by William Testa and Norman Wang of the Chicago Fed, Manufacturing as Midwest Destiny, suggests that the heavy concentration of manufacturing in Midwest metros may well have hindered their economic growth and development over the past several decades. 

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The graph above, from their first report, charts manufacturing’s share of total jobs for the Midwest compared to the U.S. as a whole. Both lines pitch steeply downward. Manufacturing jobs fell from more than one in four U.S. jobs in 1969 to less than one in 10 by 2010. Manufacturing in the Midwest has fallen from 35 percent of jobs in 1969 to just 15 percent today.

 

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The extent of the Midwest’s reliance on manufacturing is brought home in a second graph (above), which shows the share of manufacturing jobs in the 30 largest Midwestern metros. The geographic variation is considerable. Manufacturing jobs make up more than 25 percent of all jobs in Rockford, Illinois, and Green Bay, Wisconsin, more than two and a half times the national average. Columbus, Ohio, and Ann Arbor, Michigan, in contrast, are just under 7 percent, which is less than the national average. Not coincidentally, they are two of the Midwest’s faster growing and more resilient metro economies.

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But the clincher is Testa and Wang’s analysis of the relationship between a metro’s share of manufacturing jobs and its growth in employment and income over the past four decades. As the scatter graph above shows, metros with a higher share of manufacturing employment in 1969 experienced a significantly slower rate of employment growth.

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Income follows the same pattern (above). The higher the share of manufacturing jobs in 1969, the lower the rate of income growth over the past four decades.

In a follow-up effort, Testa conducted a detailed statistical analysis of the effects of manufacturing employment on both job growth and per capita income growth of 83 Midwest Metros, while controlling for the effects of human capital or educational attainment – a factor which has been shown to have a substantial positive affect on growth in a wide body of studies:

We also tested the degree to which MSAs with higher initial concentrations of manufacturing employment were more or less successful in their subsequent economic growth. What we found was that, even after accounting for the influence of educational attainment, a historical manufacturing orientation tended to depress subsequent growth. Moreover, the effects were long-lived. An MSA’s tendency to host manufacturing 20 years prior continued to depress overall economic growth. For example, we correlated MSA manufacturing concentration in 1969 with subsequent growth during 1990 to 2009 and found that the manufacturing legacy was a significant drag on economic growth and development for the much later period.

Their findings are in line with my own research, which finds that metros with higher working class concentrations perform less well on a whole range of measures for income to health to happiness.

Testa and Wang take pains to qualify their findings, pointing out that while the manufacturing share of jobs has a substantial negative impact, their measures of "industry mix" account for just "40 or less percent of the 1969-2010 variation in performance among Midwest MSAs," adding that: “This leaves much more performance to be accounted for. It seems that some places have improved their own economic performance through deliberate development policies such as work force training, tax incentives to business investment, land use reform and re-development, or public infrastructure investments." Testa notes that: “All things considered, the redevelopment achievements of many of our older manufacturing cities are remarkable."

When it comes to the economic growth and development of Midwest metros, the authors conclude "manufacturing is destiny."  Rather than spurring development in Midwest metros, a large manufacturing base appears, at least in retrospect, to have hindered it.

Their findings lend empirical credence to Cities contributor Micheline Maynard's contention that betting on manufacturing’s revival might be a “big economic miscalculation" for Midwest cities: "I'm concerned that this ‘renaissance’ may ultimately do more harm than good to the future of our industrial cities and states," she cautions. "My advice to these industrial cities and states: don’t give in to the temptation to build your future based on your past. Keep focusing on what you can create anew, not recreating what was once there." 

From where I sit, instead of trying to recreate the past, these metros would indeed be far better off leveraging their substantial knowledge, creative, university, and human assets for the future. 

Top image: Reuters/Frank Polich

About the Author

  • Richard Florida is Co-founder and Editor at Large of CityLab.com and Senior Editor at The Atlantic. He is director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU. More
    Florida is author of The Rise of the Creative ClassWho's Your City?, and The Great Reset. He's also the founder of the Creative Class Group, and a list of his current clients can be found here