Brookings: Experts - Howard Wial

Chicago’s Promise as a Manufacturing Policy Leader

Howard Wial — Tue, 26 Feb 2013 00:00:00 -0500

Editor's Note: In tandem with his newly released paper, "Locating Chicago Manufacturing: The Geography of Production in Metropolitan Chicago", Howard Wial examines Chicago's manufacturing economy, specifically its strengths, weaknesses, and distribution. Wial also discusses Chicago's past and current manufacturing strategies, which lead the nation.

A handful of states and major metropolitan areas have become seedbeds for local and regional public and public-private strategies to strengthen American manufacturing. Initiatives are planned or underway in Massachusetts (at the state level), Baltimore, northeast Ohio, Louisville and Lexington (KY), and Newark (NJ). The public-private National Additive Manufacturing Innovation Institute, run by a regional consortium and based in Youngstown, OH, is the first member of President Obama’s proposed National Network for Manufacturing Innovation.

The national leader of the current generation of manufacturing strategies, though, is metropolitan Chicago. Chicago is home to the Austin Polytechnical Academy (one of the nation’s leading manufacturing-focused public high schools), the Chicago Manufacturing Renaissance Council (a public-private partnership that has been influential in shaping city policy on manufacturing), the advanced manufacturing component of the Plan for Economic Growth and Jobs (an initiative of World Business Chicago, the city’s nonprofit economic development arm), and the University of Illinois’ proposed Illinois Manufacturing Lab (intended to give local manufacturers access to computer simulation, workforce training, and faculty resources to help them become more productive and competitive).

As I note in the Center for Urban Economic Development’s new briefing paper “Locating Chicago Manufacturing: The Geography of Production in Metropolitan Chicago,” Chicago’s leading position in the current generation of regional manufacturing strategies makes eminent sense.

In 2011, metropolitan Chicago had about 411,000 manufacturing jobs, more than any other U.S. metropolitan area except Los Angeles.
Manufacturing is an economic specialization of the Chicago area. About 9.5 percent of the area’s jobs are in manufacturing, compared to 8.5 percent nationwide.
The Chicago area specializes in 11 different major manufacturing industries, ranging from printing to fabricated metals to machinery to pharmaceuticals.
Even though Chicago lost 32 percent of its manufacturing jobs between 2001 and 2010, it is more specialized in manufacturing now than it was a decade ago. The percentage of its jobs that are in manufacturing was 1.11 times the national percentage in 2011, up from 1.08 in 2001.
From early 2010 through the fall of 2012, Chicago manufacturing employment grew by 5 percent, compared with 4 percent nationwide.
In 2011, average annual earnings were 16 percent higher in manufacturing jobs than in all jobs in the metropolitan area.

In its report on Chicago manufacturing, released this morning, the Chicago Metropolitan Agency for Planning underscored the metropolitan area’s advantages as a manufacturing hub.

Yet with all these advantages in manufacturing, why does Chicago need manufacturing strategies at all? One obvious reason is that, as in other parts of the country that have experienced manufacturing job growth since early 2010, that growth is just a drop in the bucket compared to the previous decade’s losses. Other important issues that Chicago manufacturing strategy needs to address include:

Technology. Chicago specializes in pharmaceutical manufacturing and in a range of moderately high technology industries (non-pharmaceutical chemicals, electrical equipment and appliances, machinery, and petroleum and coal products). Yet the region lost jobs in very high technology industries (a category that includes pharmaceuticals) during the last two years, while the nation as a whole gained them. The Chicago area gained jobs in moderately high technology industries, but not as rapidly as the entire United States. The most promising routes forward for Chicago are to strengthen existing industry specializations with new technologies, build new industries out of those specializations, and support high-wage, high-skill production in all industries.
Decentralization. During the last decade, the city of Chicago and Cook County lost manufacturing jobs more rapidly than most outlying counties in the metropolitan area. Yet Cook, the metropolitan area’s central county, still has nearly half of all Chicago-area manufacturing jobs. In manufacturing, as in many other industries, density means higher productivity. Numerous executives and analysts have underscored the importance of the many benefits that flow from the presence of a dense and regional industrial commons. Therefore, Chicago-area manufacturing policy should preserve and promote dense agglomerations of manufacturing jobs and try, if possible, to offset the incentives that led manufacturing to decentralize.

In the 1980s, the city of Chicago pioneered local manufacturing strategy by creating planned manufacturing districts, a zoning tool subsequently copied by other cities seeking to preserve manufacturing jobs. Thirty years later, metropolitan Chicago is once again poised to lead in addressing today’s regional manufacturing challenge: to spur a more productive, more innovative, and growing manufacturing sector as a contributor to a strong metropolitan economy.

Authors

Howard Wial

Locating Chicago Manufacturing: The Geography of Production in Metropolitan Chicago

Howard Wial — Mon, 25 Feb 2013 00:00:00 -0500

Editor's Note: Howard Wial examines Chicago's manufacturing economy, specifically its strengths, weaknesses, and distribution. Wial also discusses Chicago's past and current manufacturing strategies, which lead the nation. This paper was originally published on February 25, 2013 for the Center of Urban Economic Development, University of Illinois at Chicago.

Recent small gains in manufacturing employment nationwide have led to a resurgence of interest in public policies to strengthen America’s manufacturing base. In his 2013 State of The Union Address, for example, President Obama pledged to create three new Manufacturing Innovation Institutes to complement the one that currently exists in Youngstown, Ohio, and urged Congress to fund a network of 15 such institutes. At the metropolitan level, Chicago is a leader in developing creative manufacturing policies and policy proposals. The city’s Austin Polytechnical Academy, founded in 2007 by the Chicago Manufacturing Renaissance Council, is among the nation’s leading public high schools focused on manufacturing and engineering.

The Chicago Manufacturing Renaissance Council itself is a unique public-private partnership that has had considerable influence in shaping city policy on manufacturing and in initiating key reforms in secondary and post secondary education for manufacturing. Making Chicago a leading hub of advanced manufacturing is the first of 10 strategies included in the Plan for Economic Growth and Jobs released last year by World Business Chicago, the city's nonprofit economic development organization. This year the University of Illinois announced plans for a privately funded manufacturing-oriented R&D center to be located in Chicago. The university's proposed Illinois Manufacturing Lab would give local manufacturers access to computer simulation, workforce training, and faculty resources to help them become more innovative and competitive.

The paper's findings include:

The Chicago metropolitan area is one of the nation's major manufacturing centers, and manufacturing has become a more important specialization of the area over the last decade despite large manufacturing job losses.
The Chicago metropolitan area specialized strongly in 11 manufacturing industries, with moderately high technology industries more important in the region than very high technology industries.
Almost half of all manufacturing jobs in the Chicago metropolitan area are in Cook County.
In metropolitan Chicago, manufacturing offers higher wages than other industries.
During the last two years, metropolitan Chicago gained manufacturing jobs more rapidly than the nation as a whole.

Read the paper » (PDF)

Authors

Howard Wial

Publication: Center for Urban Economic Development, University of Illinois at Chicago

Did Manufacturing Job Losses Hold the Midwest Back?

Howard Wial — Mon, 14 May 2012 00:00:00 -0400

There is a strain of thought among some policy experts that manufacturing, especially in the Midwest, is a dead-end for regional economic development. In a series of recent Brookings reports, my co-authors and I have challenged that view. The conventional wisdom won’t die easily, though. The most recent defense of the conventional view comes from Richard Florida, who claims that a heavy reliance on manufacturing has held back economic growth in Midwest metropolitan areas.

Florida shows that Midwest metropolitan areas where manufacturing made up a large percentage of total employment in 1969 generally had the slowest job and income growth over the next 40 years. If you end the story there, it seems that manufacturing hindered economic development in the region. However, there are several more chapters to that story. Midwest metropolitan areas where manufacturing accounted for a large share of total jobs also had the most severe losses of manufacturing jobs, as the chart here shows for the period 1970-2010.

Metropolitan areas in the Midwest that had the most severe losses of manufacturing jobs also had the slowest gains in non-manufacturing jobs. Their slow growth in non-manufacturing jobs, coupled with their heavy losses of manufacturing jobs (which, of course, accounted for a large share of their total jobs in 1970), meant that the most manufacturing-specialized metropolitan areas were the ones that had the slowest overall job growth.

Heavy losses of manufacturing jobs were associated not only with slow overall job growth but also with slow growth in the high-wage advanced service jobs (jobs in the professional service, financial, and information industries), where much of Florida’s “creative class” works (See chart).

Looked at this way, the data show that manufacturing and non-manufacturing jobs, and manufacturing and advanced service jobs, are complements, not rivals. If anything, manufacturing job losses that held the Midwest back. This shouldn’t be surprising. Manufacturers, more than non-manufacturing industries and even advanced services, are regional export industries that bring in income from outside a metropolitan area. The decline of export industries such as manufacturing holds back growth in local-serving industries, which account for the majority of jobs in all metropolitan areas. In addition, metropolitan areas that lose manufacturing jobs also lose much of their ability to innovate in services as well as in manufacturing; as we showed in a previous Brookings report, manufacturing employs more than a third of all engineers and accounts for about two-thirds of all industry-financed R&D.

Causation can run in the other direction, too: the growth of non-manufacturing jobs in a metropolitan area can promote the retention of manufacturing jobs. Manufacturers, especially of new and high tech products, often need to locate production near R&D facilities and engineering consulting firms. It’s also possible that such metropolitan characteristics as a skilled labor force and good highway access promote the growth of both manufacturing and non-manufacturing jobs.

The bottom line is that the retention and growth of manufacturing employment go hand-in-hand with the growth of non-manufacturing employment, including advanced service employment. Policies to strengthen manufacturing in the Midwest’s metropolitan areas will strengthen the rest of those areas’ economies, and vice versa.

Of course, strengthening manufacturing hasn’t been a policy priority in the United States or its metropolitan areas during the last four decades. If anything, public policy has encouraged the offshoring of manufacturing jobs and the hollowing out of America’s production capabilities. We now have a chance to reverse course. Doing so can only benefit the Midwest’s metropolitan areas.

Authors

Howard Wial

Publication: The Avenue, The New Republic

Image Source: © Aaron Josefczyk / Reuters

Interactive: Locating American Manufacturing

Howard Wial — Wed, 09 May 2012 00:00:00 -0400

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Howard Wial

Locating American Manufacturing: Trends in the Geography of Production

Susan Helper, Timothy Krueger and Howard Wial — Wed, 09 May 2012 00:00:00 -0400

With the slight resurgence of U.S. manufacturing in the recent years—termed a potential “manufacturing moment” by some—it is important to consider not just the future of manufacturing in America but also its geography. Geographic considerations are, in fact, central to whether the slow growth of U.S. manufacturing jobs during the last two years signals a renaissance of American manufacturing or merely a temporary respite from long-term decline.
Watch the Ohio Global Cities Initiative event webcast, where this report was released »

General Electric CEO Jeffrey Immelt recently stated: [T]oday at GE we are outsourcing less and producing more in the U.S. . . . When we are deciding where to manufacture, we ask, ‘Will our people and technology in the U.S. provide us with a competitive advantage?’ Increasingly, the answer is yes.
The people and technology that Immelt sees as crucial to his company’s decisions to increase manufacturing in the United States are place-specific. Those locations—especially metropolitan areas— help create the conditions that give firms such as GE a competitive advantage from manufacturing in the United States.
When firms locate near each other, they gain a number of advantages. The geographic clustering of companies in the same industry or related industries—along with the educational, R&D, business, and labor institutions that support them—promotes high wages and innovation. Such clustering gives manufacturers access to specialized workers, suppliers, and customers and makes it easier for them to share ideas that can improve their performance. Manufacturers can also benefit from their location in a geographic area that has a diverse set of industries, including those not associated solely with manufacturing. In such locations, they can learn from the practices of non-manufacturing industries and gain easier access to such services as engineering, finance, legal services, and management consulting.
These geographic benefits are not simply natural advantages but also advantages created by public policy. The policy approach that aims to create such advantages, often called the high-road approach, encourages firms to utilize highly paid skilled workers to create innovative products and processes. Because manufacturing’s contribution to the nation’s economic well-being is based in part on its high wages and innovative capacity, high-road policies are in the national interest. High-road policies should have an important geographic component if manufacturing differs in important ways in different parts of the nation and if clustering and diversity are important for manufacturers. Geographic high-road policies build on the strengths that come when firms locate near each other.
It is a common belief that manufacturing is basically the same throughout the United States, that it has completely decentralized from its historic central locations, and that this decentralization matters little to the productivity of manufacturing firms. For example, Christina Romer, former chair of President Obama’s Council of Economic Advisers, recently claimed that geographic clustering is not especially important in manufacturing. This report shows that such views are incorrect. American manufacturing is highly differentiated geographically. Different regions of the country, different metropolitan areas, and even different counties within the same metropolitan area differ greatly in their manufacturing industries, technology levels, wages, and plant sizes. Moreover, groups of manufacturing industries cluster systematically in different types of metropolitan areas.
Geographic high-road policies are easier to implement if manufacturers are already moving toward locations that offer the benefits of clustering and diversity and away from those whose competitive advantage is based largely on low wages. Here, this report suggests, the evidence is mixed. The report shows that manufacturing jobs have, for several decades, been moving out of the dense, centrally located metropolitan counties that provide manufacturers with the greatest benefits of diversity. Yet it also shows that the flight of manufacturing jobs to the right-to-work states of the South has at least temporarily halted.
In its totality, this report offers the first comprehensive analysis ever of the metropolitan geography of U.S. manufacturing.
The report begins by situating the present moment of U.S. manufacturing. It continues by reporting a series of often surprising descriptive trends affecting the nature and location of American production. Finally, it concludes by proposing geographic high-road policies for American manufacturing. These policies require a federal platform that is sensitive to the ways in which manufacturing differs geographically. They require state and local decisionmakers to take the lead in adapting the high-road approach to their specific needs. This policy prescription differs from the general business attraction incentives that have dominated state and local economic development policy. These incentives (which cost state and local treasuries $70 billion annually) are problematic because they reduce the revenue available to fund investments in training and technology—investments that are essential to a high-road approach.

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Authors

Susan Helper
Timothy Krueger
Howard Wial

Image Source: Jason Reed / Reuters

Despite Slowdown, Manufacturing Still Important

Howard Wial — Fri, 30 Mar 2012 10:15:00 -0400

The rebound of manufacturing jobs has been one of the bright spots of an otherwise sluggish economic recovery.

The United States had 3.7 percent more manufacturing jobs in February 2012 than in February 2010, representing a more robust rate of growth than that for overall employment, which rose by only 2.7 percent during the same time period. The post-recession rebound of manufacturing employment has been a driver of economic recovery in a number of the nation’s major metropolitan areas, including several manufacturing centers.

The latest edition of Brookings’ MetroMonitor, which has tracked the economic performance of the nation’s 100 largest metropolitan areas since the beginning of the Great Recession, shows that 18 of the 20 large metropolitan areas with the strongest economic recoveries had increases in manufacturing employment since their total employment bottomed out. This group includes manufacturing centers like Detroit, Grand Rapids, Ogden, Portland (OR), San Jose, Toledo, Worcester, and Youngstown. Meanwhile, only six of the 20 with the weakest recoveries saw growth in the number of manufacturing jobs during their recovery periods.

Fifty-seven of the nation’s 100 largest metropolitan areas gained manufacturing jobs between the first quarter of 2010 and the last quarter of 2011.The manufacturing centers of Akron, Allentown, Cleveland, Detroit, Grand Rapids, Greensboro, Greenville, Louisville, Milwaukee, Ogden, Portland (OR), Rochester (NY), San Jose, Toledo, Wichita, Worcester, and Youngstown were among those 57. Of these, all but Allentown, Cleveland, Greensboro, and Milwaukee were among the 40 strongest-recovering large metropolitan areas (among the 100 largest metropolitan areas).

In the last half of 2011, however, the manufacturing job recovery slowed, which is typical as an economic recovery progresses.

In the 100 largest metropolitan areas taken together, the rate of manufacturing job growth slowed from 0.7 percent in the second quarter to 0.2 percent in the third quarter to 0.02 percent in the fourth quarter. In the Great Lakes manufacturing centers of Akron, Cleveland, Detroit, Louisville, Milwaukee, Toledo, and Youngstown, the rate of manufacturing job growth was slower during the fourth quarter of 2011 than during any of the three previous quarters. Meanwhile, the number of large metropolitan areas experiencing manufacturing job growth fell from 72 in the second quarter to 54 in the third quarter to 46 in the fourth quarter.

This is in some ways expectable. Since the 1970s the nation has not had more than three consecutive quarters of manufacturing job growth in which the rate of growth accelerated each quarter. However, for metropolitan areas whose economies depend heavily on manufacturing, the latest slowdown represents a new challenge for places used to them.

Authors

Howard Wial

Publication: The Avenue, The New Republic

Image Source: © Aaron Josefczyk / Reuters

Tracking Economic Recession and Recovery in America’s 100 Largest Metropolitan Areas

Siddharth Kulkarni and Howard Wial — Wed, 28 Mar 2012 15:49:00 -0400

Editor’s Note: This report reflects data from the fourth quarter of 2011. Please visit our updated MetroMonitor for the latest quarterly data and analysis.

National economic indicators suggest that the economic recovery, though still very slow, may be picking up speed. The national unemployment rate in February held steady at 8.3 percent. For the third consecutive month the economy gained more than 200,000 jobs in February; the last time the nation saw three straight months of jobs gains of this magnitude was in 2006. During the last quarter of 2011, inflation-adjusted GDP grew at an annual rate of 3 percent, well above its growth rates for the previous three quarters of the year.

Data for the nation’s 100 largest metropolitan areas do not fully reflect the most recent national trends because most metropolitan economic indicators are available only through the fourth quarter of 2011 (ending in December). The metropolitan data through the fourth quarter show widespread but generally very slow growth in both jobs and economic output. These data do not provide a clear indication of whether economic growth is speeding up. Most large metropolitan areas saw accelerating rates of job growth between the third and fourth quarters of the year and most also saw accelerating rates of output growth. However, accelerations in output growth were more common than accelerations in jobs growth, and only 19 large metropolitan areas had accelerations in both the rate of job growth and the rate of output growth. Unemployment rates, although lower than at the end of 2010 in most large metropolitan areas, remained very high. Housing markets showed widespread but slow improvement.

Manufacturing, high technology, and government were important drivers of growth in the nation’s largest metropolitan areas. However, the rate of manufacturing job growth slowed throughout 2011 and a number of large metropolitan areas specializing in high technology saw slowing rates of job and/or output growth in the last quarter of the year. If these trends continue, metropolitan areas specializing in manufacturing and/or high technology may see their economic recoveries slow in the future. In a more positive development for economic recovery, the rate of government job growth accelerated during the last quarter of 2011. As always, metropolitan economic performance varied greatly among the 100 largest metropolitan areas.

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Authors

Siddharth Kulkarni
Howard Wial

Image Source: © Erin Siegal / Reuters

Around the Halls: The Republican Primaries and Super Tuesday

Mon, 05 Mar 2012 10:16:00 -0500

As Super Tuesday’s nomination contests amplify contentious campaign politics, Brookings scholars highlight a range of public policy issues that require critical attention this election year, including Gary Burtless on tax cuts, Bill Frenzel on controlling the deficit, Audrey Singer on U.S. immigration policy, Russ Whitehurst on the importance of education reform and school choice, Howard Wial on the need to boost American manufacturing, and Jonathan Rauch on foreign policy challenges facing the nation.

A Tax Cut that Can Actually Spur Employment
Gary Burtless, Senior Fellow, Economic Studies

A topic on most voters’ minds—and thus politians’—is how to cut unemployment and boost the pace of the recovery. Can policymakers bribe employers to hire additional workers? Many economists, including me, think we can and we should. The crucial question is how to design the bribe so it is as cheap as possible for taxpayers and as effective as possible for the unemployed.

One idea pushed by economists is to establish a temporary tax subsidy for employers who add workers to their payrolls. The reasoning behind this idea is that by cutting the cost of hiring added workers, the government can induce employers to boost the ranks of the employed. Experience with past employment subsidies suggests these tax cuts should be easy to understand, inexpensive to administer, targeted to encourage payroll expansion, and, of course, designed to minimize payments to employers for hiring that would they would have done anyway, without the tax credit.

A simple way to target the tax credit effectively is to focus the subsidies solely on workers who represent net additions to an employer’s payroll. If an employer had 100 workers on its payroll last year, it must have at least 101 this year to obtain any subsidy. For most employers, this requirement is straightforward to enforce because payrolls must be reported to the unemployment insurance system on a regular basis. Employers may be tempted to boost their payrolls by reducing the work hours assigned to each employee. The hiring subsidy can be set up to avoid this kind of gaming. To get a subsidy, employers can be required to maintain quarterly average wages within a fixed percentage of the previous year’s average wage

A major challenge is to design a credit that is both easy for employers to understand and cheap to administer. The simplest way: structure the subsidy as a cut in a tax that employers already must pay—specifically, the employer contribution for Social Security and Medicare. For workers who earn less than $106,800, the employer contribution is 7.65% of the worker’s wage. A simple hiring subsidy would be one that eliminates the employer payroll tax contribution on wages paid to workers who represent net new hires, that is, who increase the employer’s total payroll. (To protect the Social Security and Medicare programs, the payroll tax losses of the Trust Funds should be made up with transfers from general revenues.)

Tight limits on the hiring subsidy to reduce employer abuses tend to make the subsidy more complicated, reduce employers’ participation, and increase the government’s cost of administration. On the other hand, dramatic simplifications can unnecessarily increase the cost of the subsidy without increasing its effect on employment. For example, if we temporarily eliminate the payroll tax on the wages of all new hires, an overwhelming percentage of credit payments will go to subsidizing employment that would have occurred anyway, even in the absence of the credit. Our labor market is dynamic -- millions of new hires and terminations occur every month, whether the economy is lagging or is expanding robustly. It makes no sense to subsidize the new hires of high-turnover employers unless they are increasing the size of their workforce over the course of a year.

Crafting a well-designed employment subsidy may not be easy, but it isn’t impossible. To quote Napoleon, “Impossible is a word only to be found in the dictionary of fools.” Hiring subsidies are a more promising approach to employment expansion than many of the stimulus measures we have tried so far. If voters and lawmakers are worried about adding to the national debt, we should adopt stimulus measures that are as economical as possible while still addressing the central problem of high joblessness. Providing a simple, but temporary, subsidy for additions to company payrolls can boost employers’ willingness to hire.

The Presidential Campaign and the Federal Deficit
Bill Frenzel, Guest Scholar, Economic Studies

It’s already Super Tuesday. There are only 8 months left before the election. It’s been an exciting scramble so far. A plethora of Republican candidates has produced a series of rising and falling favorites. For racing fans, it’s fun. It is less amusing for serious voters.

The Republican candidates have frenetically campaigned through rallies and debates, caucuses and primaries. As expected, they have been obliged to pander to the most avid activists in their party. They have relentlessly focused on abortion, gay rights, immigration, budget-balancing, huge tax cuts, and excoriating the incumbent president.

Meanwhile the uncontested Democratic candidate, the president, happily rakes in more money than all the Republicans combined. He doesn’t say much about his budget, another nearly $1 trillion ocean of red ink, but he does remember clearly that it is his predecessor’s fault. His solution is to “tax the rich”.

None of them are facing up to the one overriding issue—how to get the U.S. deficit and debt ratio under control. They dance around it in classic political style. The president’s increased spending for “investments” will make it worse. So will the Republicans’ big tax cuts.

In an election year, the serious voter should be able to listen to careful discourses on how to reduce the deficit so that the debt can be stabilized at the 60% level over the next decade, how painful that process must be, and how long after that it will take to balance the budget. That’s tough enough, but the answers are complicated by the danger of slowing down our weak economic recovery, the failure of budget negotiations in 2011, and the need to include other moving parts like tax reform.

Since the policy makers seem determined to push all fiscal matters off into a post-election Lame Duck Session, it is devoutly hoped that the general election will be more edifying than the primary, but don’t bet on it. Slogans that mobilize the party bases are the order of the day. There is no reason to believe that they will be replaced by serious debate. So the campaign will still probably be “tax the rich” versus “cap, cut and balance”; or “drill baby, drill” versus “save the planet”; or “save our jobs” versus “the Dream Act”.

The fact that the public prefers dueling bumper strips to a real examination of the issues is a disturbing thought. But politicians always try to make the best use of their resources. They must think that sloganeering and finessing the issues are just what the public wants. That makes the disturbing thought terrifying.

Super Tuesday and Immigration
Audrey Singer, Senior Fellow, Metropolitan Policy Program

The slowing of immigration to the United States has done little to quell the bitter debate around how to secure America’s borders and what to do about the millions of immigrants living in the United States without legal status. The GOP presidential primary debates have placed the issue as a top agenda item, but the public doesn't list it as a major problem.

Recent polls show that fewer Americans rank illegal immigration as a priority in 2012 (39 percent) compared to 2007 (55 percent). The drop is especially notable among Republicans, 69 percent of whom ranked it high in 2007—and second only to terrorism then—and who now rank it 11th among priorities facing the nation. However, polling data also show a nation divided on how to address unauthorized immigrants in the country: just less than half of Americans believe they should be able to stay in the U.S. and apply for citizenship, one quarter support a guest worker program, and one quarter believe they should be required to leave the country.

Just like the rest of Americans, Latinos consider the economy to be the most important issue in 2012, but Latinos rank immigration reform as a higher priority — number three —than other U.S. residents. Latinos are driving population growth in the United States through a combination of immigration and birth rates . Their expanding presence in states like North Carolina, Nevada, and Indiana played a significant role in turning these red states blue in 2008. Candidates’ stances on immigration in battleground states like New Mexico, Colorado, and Florida will matter greatly; these states have large voter-eligible Latino populations.

Connecting with that group of voters is always tricky for Republican candidates. But Obama has run into problems with Latinos for not keeping his campaign promise on reforming immigration policy, including a legalization program during his first term. His administration’s actions—largely stronger enforcement measures— have also hurt. Nevertheless, it seems that the Republican candidates have an even bigger hill to climb to convince Latinos that they will make progress on this front.

Keep Your Eye on Education
Grover J. “Russ” Whitehurst, Director, Brown Center on Education Policy, Senior Fellow, Governance Studies

Education fell between the cracks in the last presidential election, despite two large foundations investing millions in an ad campaign intended to get the candidates to address education reform. With the 2012 campaign likely to be about jobs and with jobs and education inextricably mixed, the Broad and Gates foundations can save their money this time around. The question is not whether the candidates will address education, but whether we will see mostly slogans, or policy proposals that are lists of disconnected initiatives, or coherent positions that make sense in terms of the philosophies of the political parties and their candidates. A good dose of the latter will give the American voting public a meaningful choice and serve as a better guidepost to the actions of the next president than a list of specific programs or feel-good slogans about jobs, education, and the economy.

One of the clear dividing lines between Democrats and Republicans already evident is on the dimension of federalism. The Obama administration has shown its strong preference for developing policies in Washington and imposing them on states through competitions and waivers, e.g., evaluating teachers based on student test scores; closing low performing schools, national standards and assessments. The Republican position is likely to be to devolve substantially more authority to states and school districts. But both parties’ positions are likely to have glaring philosophical inconsistencies. For example, the Obama administration has created a blueprint for reauthorization of No Child Left Behind that promises “broad flexibility” to schools. But at the same time it is pushing for national standards and assessments and statewide teacher evaluation systems that will inevitably decrease flexibility. Likewise, the Republican-dominated House Education and Workforce Committee has introduced legislation to reauthorize No Child Left Behind that calls for returning “responsibility for student success to states and school districts” at the same time that it dictates how states and school districts must evaluate teachers.

While it is likely we will have an election in which the underlying education policy differences are with respect to the balance of power between federal and state government and the details of particular reforms, we might see the emergence of a third perspective, one that has the goal of wresting top-down power from all levels of the school bureaucracy and putting it in the hands of consumers of education. In this third way, the role of federal and state government would be: to afford parents and students the maximum choice among schools by creating barriers to students being forced to attend a particular school based on their neighborhood of residence and by having public funds follow students to their school of choice; to provide valid and useful information on school performance in easily used forms to support school choice; to offer technical assistance and support the development of knowledge and innovative technologies to improve the delivery of education; and to enforce civil rights.

Manufacturing, the U.S. Economy, and the Presidential Election
Howard Wial, Fellow, Metropolitan Policy Program

The recovery and health of our economy is at the forefront of the minds of millions of American voters this election year. As the campaign escalates, voters will be listening for policy prescriptions that can spur economic growth and job creation, now and into the future. And when it comes to addressing America’s long-term growth, voters may want to take a closer look at the importance of ensuring a strong, vibrant manufacturing sector.
There are a range of reasons why manufacturing is indispensible to the U.S. economy – but here are two critical ones. First, manufacturing pays more than other industries—creating better jobs and increasing financial security for more Americans. Losing manufacturing jobs would lower American wages, particularly for workers at the lowest rungs of the economic ladder.

As a new Brookings report outlines, even after taking into account the characteristics of workers and jobs that influence wages (such as education, occupation, union status, geographic location, and demographics), manufacturing workers earn about 8 percent more per week than employees in other industries. Lower-wage workers especially benefit, earning about 11 percent more than their peers in other businesses. As long as manufacturers continue to have greater need for skilled, motivated workers (and they are likely to), they will continue to pay more than other companies.

Second, manufacturing is responsible for increasing American innovation, the force that powers long-term improvements in our standard of living. Manufacturers engage in more research and development and produce more new products and services than non-manufacturing firms. Each year, production workers, engineers and managers relentlessly apply knowledge and skill to solve technical problems and make production more efficient. The innovation spillovers that manufacturers produce flow throughout the U.S. economy, and improve standards of living for all of us.

That’s not to say reinvigorating our manufacturing base is a silver bullet for economic recovery. But if we want more rapid growth and a more equal distribution of income, we can't be indifferent to whether the United States has a healthy manufacturing sector. Public policy can and should strengthen American manufacturing – and whoever wins this November will play crucial role in determining whether it declines or flourishes in the decades to come.

Foreign Policy, President Obama, and the Republican Primaries
Jonathan Rauch, Guest Scholar, Governance Studies

Presidential reelection campaigns are usually referendums on the incumbent and the economy, and this year is no exception. Foreign policy is on the back burner. Still, it has not completely fallen off the stove. This year, voters will have the opportunity to choose a president whose foreign policy stands firmly in the Republican realist tradition of presidents Eisenhower, Nixon, and George H.W. Bush. I mean, of course, President Obama.

Beyond the predominance of the economy, there are a couple of reasons foreign policy is getting so little attention in this primary season. One is that Republicans don't perceive Obama as very vulnerable on the issue (though a crisis over Iran and the Persian Gulf could change that). Another is that the leading Republican contenders, Mitt Romney and Rick Santorum, don't disagree much. Both take aggressive postures toward Iran, oppose withdrawal from Afghanistan, support Israel unconditionally, and criticize Obama as too apologetic. Both, in other words, sound less like realists in the George H.W. Bush mold than like the hawkish neocons who came to dominate the party under the elder Bush's son.

By contrast, without fanfare, Obama has moved himself and his party to the realist center, the space Republicans used to own. For example:

He has dialed back his predecessor's "freedom agenda" in order to stabilize relations with Russia and China. In particular, the "Russian reset," though unheralded (actually, partly because it is unheralded), is one of the great successes of Obama's first term. As a result, he has given himself more maneuvering room elsewhere.
He has reduced U.S. engagement in Iraq and Afghanistan while avoiding a Vietnam-style collapse, recalibrating commitments that unsustainably overshot U.S. domestic support. The result may be to extend, not curtail, U.S. influence in both places.
He has sought to balance support for Israel against other regional goals. Here his execution has been clumsy, if not naive, but the approach tears a page straight out of the Eisenhower, Nixon, and George H.W. Bush playbook.
In dealing with Iran, Libya, and other crisis theaters, he has tried to maximize offshore balancing, an approach which allows other countries to do much of the work (as they did in Libya, for example). To that end, he has been far more sensitive to overseas public opinion and to real-world limits of American power than have been the neocons.
Nonetheless, he has not been shy about deploying American power, notably in his Afghanistan "surge," his mini-invasion of Pakistan to kill Osama bin Laden, and his aggressive use of drones for targeted killing (a policy the U.S. once decried). As is typical of realists, he regards U.S. power as a precious and inherently scarce resource: one to be used, yes, but always marshalled with care, never just splashed around.

I could go on, but you get the point. Obama's capture for himself and his party of what had been Republicans' core competence amounts to a quiet coup. It seizes the center, marginalizes the right, takes away Republicans' best issue (Democrats' alleged weakness), and, not least important, puts U.S. foreign policy where it tends to produce the best results.

On Super Tuesday, you won't hear much about any of that. Which, when you think about it, is the point.

Authors

Image Source: © Joe Skipper / Reuters

Why Does Manufacturing Matter? Which Manufacturing Matters?

Susan Helper, Timothy Krueger and Howard Wial — Wed, 22 Feb 2012 14:59:00 -0500

Editor's Note: On February 22, the Metropolitan Policy Program hosted a forum exploring the type of manufacturing the nation is most likely to retain and build, as well as a policy framework for strengthening high-wage, export-intensive production in America. You can follow the discussion on Twitter using the hashtag #usmfg.

Manufacturing matters to the United States because it provides high-wage jobs, commercial innovation (the nation’s largest source), a key to trade deficit reduction, and a disproportionately large contribution to environmental sustainability. The manufacturing industries and firms that make the greatest contribution to these four objectives are also those that have the greatest potential to maintain or expand employment in the United States. Computers and electronics, chemicals (including pharmaceuticals), transportation equipment (including aerospace and motor vehicles and parts), and machinery are especially important.

Productivity and wages vary greatly within as well as between industries. In any industry, manufacturers that are not already at the top have room to improve their performance by adopting “high-road” production, in which skilled workers make innovative products that provide value for consumers and profits for owners.

American manufacturing will not realize its potential automatically. While U.S. manufacturing performs well compared to the rest of the U.S. economy, it performs poorly compared to manufacturing in other high-wage countries. American manufacturing needs strengthening in four key areas:

Research and development
Lifelong training of workers at all levels
Improved access to finance
An increased role for workers and communities in creating and sharing in the gains from innovative manufacturing

These problems can be solved with the help of public policies that do the following:

Promote high-road production
Include a mix of policies that operate at the level of the entire economy, individual industries, and individual manufacturers
Encourage workers, employers, unions, and government to share responsibility for improving the nation’s manufacturing base and to share in the gains from such improvements

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Authors

Susan Helper
Timothy Krueger
Howard Wial

Image Source: Â© John Gress / Reuters

Why—and Which—Manufacturing Matters: Innovation and Production in the United States

Wed, 22 Feb 2012 09:30:00 -0500

Event Information

February 22, 2012
9:30 AM - 12:30 PM EST

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

Despite massive job losses in the last decade, U.S. manufacturing remains critical to the nation’s economic future and requires a new era of policy attention. Thus, it is essential that the U.S. reach consensus on the importance of manufacturing and then move aggressively to maintain the nation’s facility for novel product innovation while upgrading the capacity for continuous incremental and process improvements.

On February 22, the Metropolitan Policy Program at Brookings hosted a forum exploring the type of manufacturing the nation is most likely to retain and build, as well as a policy framework for strengthening high-wage, export-intensive production in America. Brookings and CONNECT Innovation Institute scholars will present new arguments from complementary research studies assessing production activities and innovation. A panel of CONNECT researchers—including experts from the private sector and academia—presented their policy recommendations, focusing on the experiences of specific industries for supporting both radical and incremental innovation in U.S. manufacturing. Following the panel, Irwin Jacobs, co-founder of Qualcomm, Inc. and a member of CONNECT Innovation Institute, offered a keynote address.

After each panel, speakers took audience questions. Participants joined the discussion on Twitter using the hashtag #usmfg.

Video

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20120222_manufacturing

Participants

Panelists

Peter Cowhey

Dean, School of International Relations and Pacific Studies, University of California, San Diego
Chairman, CONNECT Innovation Institute

Susan Helper

Carlton Professor of Economics
Case Western Reserve University

Moderator: Robert Atkinson

Founder and President
Information Technology and Innovation Foundation

Dan Breznitz

Associate Professor, The College of Management and the Sam Nunn School of International Affairs
Georgia Institute of Technology

Erica R.H. Fuchs

Assistant Professor, Department of Engineering and Public Policy
Carnegie Mellon University

Elisabeth Reynolds

Executive Director, Industrial Performance Center
Massachusetts Institute of Technology

Josh Whitford

Associate Professor of Sociology
Columbia University

Irwin Jacobs

Co-founder and Former Chairman, Qualcomm
Member, CONNECT Innovation Institute

Manufacturing Job Loss Is Not Inevitable

Howard Wial — Wed, 22 Feb 2012 00:00:00 -0500

Despite small gains during the last two years, the trend in U.S. manufacturing jobs for the last 30 years has been downward, leading some to argue that long-term manufacturing job loss is inevitable. But our research shows otherwise.

There are two common versions of the “inevitability” argument. One holds that U.S. manufacturing wages are too high to be internationally competitive. The other maintains that manufacturing job losses are the result of productivity growth. Both arguments are false. The United States did not have to lose all of the 6 million manufacturing jobs that disappeared between the beginning of 2001 and the end of 2009. Nor does it have to continue to bleed manufacturing jobs.

High wages cannot be the culprit; because wages in U.S. manufacturing are not especially high by international standards. As of 2009, 12 European countries plus Australia had higher average manufacturing wages than the United States. Norway topped the list with an average manufacturing wage of $53.89 per hour, 60 percent above the U.S. average of $33.53.

Moreover, the United States lost manufacturing jobs at a faster rate since 2000 than several countries that paid manufacturing workers more. Among the 10 countries for which the Bureau of Labor Statistics tracks manufacturing employment, Australia, France, Germany, Italy, the Netherlands, and Sweden both had higher manufacturing wages and lost smaller shares of their manufacturing employment than the United States between 2000 and 2010.

Nor is technology to blame. Factories have become more mechanized, so fewer workers are needed to produce the same amount of manufactured goods. If that were the end of the story, then technology-driven productivity growth would indeed reduce manufacturing employment. But it’s not the whole story. When productivity grows, manufactured goods become less expensive and the market for them expands. The expanding market creates a demand for more workers, and that extra demand usually outweighs the labor-saving impact of mechanization. The result is more manufacturing jobs, not fewer, when productivity increases in manufacturing.

The huge manufacturing job losses that occurred in the first decade of this century are very difficult to attribute to productivity gains. Between 2000 and 2007 (when the Great Recession began), manufacturing productivity grew at an average annual rate of 3.9 percent—nearly the same as the 4.1 percent average annual rate during the 1990s. If productivity growth were driving manufacturing job losses, then the job losses of 2000-2007 should have been similar to those of the 1990s. That was not the case, though. The nation lost an average of only 0.2 percent of its manufacturing jobs per year during the 1990s, compared to 3.0 percent per year between 2000 and 2007.

If neither productivity growth nor uncompetitively high wages cost us manufacturing jobs, what did?

One likely reason is there was insufficient productivity growth in U.S. manufacturing. If U.S. manufacturing productivity had grown more rapidly, American manufactured goods would have been more competitive with those of other countries. As a result, the U.S. would have lost fewer manufacturing jobs.

Another likely culprit was incentives for manufacturers to offshore work to low-wage countries, which accelerated after China joined the World Trade Organization in 2001. After China’s accession to the WTO, the U.S. trade deficit with China (which is due mainly to the offshoring of manufacturing) grew at an accelerating rate. The manipulated currencies and artificially low wages of China and some other low-wage countries made those countries attractive locations for manufacturers seeking low labor costs.

Neither massive offshoring nor insufficient productivity growth was inevitable, and neither should be treated as inevitable in the future. Both were the result of public policy choices. The United States could have reduced the incentives for manufacturers to offshore jobs by taking a harder line against China’s currency manipulation and wage suppression. It could have improved productivity growth at home by increasing rather than cutting funding the Manufacturing Extension Partnership program, which helps small and medium-sized manufacturers improve performance.

Chinese wages are growing faster than productivity and manufacturers are beginning to reconsider whether the costs of offshoring outweigh the benefits they receive from it. Funding for the Manufacturing Extension Partnership program has increased, and other federal and state efforts to strengthen manufacturers’ performance are taking shape. These trends are the basis for a more robust federal manufacturing policy. If we build that, the United States can stem and even reverse its losses of manufacturing jobs.

Authors

Howard Wial

Publication: The Avenue, The New Republic

Image Source: © Brian Snyder / Reuters

Urban and Regional Policy and Its Effects : Volume 4

Nancy Pindus, Margaret Weir, Howard Wial and Hal Wolman, eds. — Mon, 13 Feb 2012 00:00:00 -0500

Brookings Institution Press 2012 320pp.

The mission of the Urban and Regional Policy and Its Effects series is to inform policymakers, practitioners, and scholars about the effectiveness of select policy approaches, reforms, and experiments in addressing the key social and economic problems facing today’s cities, suburbs, and metropolitan areas.

Volume four of the series introduces and examines thoroughly the concept of regional resilience, explaining how resilience can be promoted—or impeded—by regional characteristics and public policies.

The authors illuminate how the walls that now segment metropolitan regions across political jurisdictions and across institutions—and the gaps that separate federal laws from regional realities—have to be bridged in order for regions to cultivate resilience.

Contributors include:

Patricia Atkins, George Washington University;

Pamela Blumenthal, U.S. Department of Housing and Urban Development;

Sarah Ficenec, George Washington University;

Alec Friedhoff, Brookings Institution;

Kathryn Foster, University at Buffalo, SUNY;

Juliet Gainsborough, Bentley University;

Edward Hill, Cleveland State University;

Kate Lowe, Cornell University;

John Mollenkopf, Graduate Center, City University of New York;

Mai Nguyen, University of North Carolina, Chapel Hill;

Manuel Pastor, University of Southern California;

Rolf Pendall, Urban Institute;

Nancy Pindus, Urban Institute;

Sarah Reckhow, Michigan State University;

Travis St. Clair, George Washington University;

Todd Swanstrom, University of Missouri, St. Louis;

Margaret Weir, University of California, Berkeley;

Howard Wial, Brookings Institution;

Harold Wolman, George Washington University.

ABOUT THE EDITORS

Nancy Pindus

Nancy Pindus is a senior fellow in the Metropolitan Housing and Communities Policy Center at the Urban Institute.

Margaret Weir

Margaret Weir is a professor of sociology and political science at the University
of California, Berkeley.

Howard Wial

Hal Wolman

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Ordering Information:

{9ABF977A-E4A6-41C8-B030-0FD655E07DBF}, 978-0-8157-2284-7, $32.95 Order
{B98DCBB0-3580-4D55-ABD4-AB91E00585E6}, 978-0-8157-2285-4, $32.95 Order

Manufacturing is Special: Why America Needs Its Makers

Howard Wial — Thu, 09 Feb 2012 00:00:00 -0500

There's a common refrain among mainstream economists that, when it comes to America's long-term growth, it doesn't matter whether the country has a strong manufacturing base. Nor, they say, does having a healthy industrial structure create greater income equality. If we want growth and fairness, the thinking goes, we shouldn't focus on specific industries. We should pursue broad policies, such as investment in education and progressive income taxation.

Earlier this week, former Council of Economic Advisers Chair Christina Romer argued that there was nothing special about manufacturing that would justify public policies aimed at supporting it.

But manufacturing is special. It's more innovative and pays better wages than the rest of the U.S. economy. Those facts aren't accidents of history. There are reasons behind them that are likely to persist for the foreseeable future. If we want more rapid economic growth and a more equal distribution of income, we can't be indifferent to whether the United States has a healthy manufacturing sector.

Why Manufacturing is Different

Let's start with innovation, which is the force that powers long-term improvements in our standard of living. Here, manufacturing strongly outperforms the rest of the U.S. economy. Manufacturers are responsible for more than two thirds of all company-performed domestic research and development spending, even though they only generate about 11 percent of America's GDP. More than a third of all U.S. engineers work in manufacturing. And about 22 percent of all manufacturers introduced a new product or service between 2006 and 2008, compared to 8 percent of non-manufacturing firms.

Why is manufacturing more innovative compared to other businesses? The sector has long benefited from the relentless application of technical knowledge and skill. Every year, production workers, engineers, and managers find better ways to solve the technical problems of production. As a result, production becomes more efficient and, from time to time, the production process gets reorganized.

That recipe for innovation doesn't work as well in the rest of the economy. In the service sector, only a few production processes, such as filling orders for fast-food meals or scheduling hospital patients, rely heavily on solving technical problems, often through the use of better information technology. But when it comes to most services, the "product" isn't as clearly predefined as in manufacturing, so it's hard to make it more efficiently. What counts as good service -- be it a clean hotel room or a healthy patient -- is often a matter of opinion, and the process of production is frequently inseparable from the service itself. Take the restaurant business. It's pretty hard to make waiters serve meals faster.

Because so much less is known about how to innovate in the services sector, an economy that loses its manufacturing base ends up sacrificing much of its ability to innovate at all. The consequence is slower growth in living standards.

Manufacturing also pays more than other industries. A forthcoming Brookings report by Susan Helper and myself shows that even after taking into account the characteristics of workers and jobs that influence wages (such as education, occupation, union status, geographic location, and demographics), manufacturing workers earn about 8 percent more per week than employees in other industries. Lower-wage workers especially benefit, earning about 11 percent more than their peers in other businesses, while high-wage workers earn just 4 percent more.

Although manufacturing's wage advantage may have shrunk after decades of offshoring and union decline, there are reasons why it still exists and will likely continue. Because manufacturing is more capital-intensive than the rest of the economy, downtime is more costly than in other industries. Manufacturers pay a premium to attract and retain workers who are skilled and motivated to keep the machines running. Factories are also typically larger than other business establishments, so it is more difficult for managers to control the production process in manufacturing. That means production workers have to take greater responsibility than in other industries, and manufacturers pay more to find the employees who can handle it.

On average, manufacturers are likely to continue to have greater need for skilled, motivated production workers than other companies. As long as they do, they will continue to pay more than other companies. And as long as that happens, the loss of manufacturing jobs will depress American wages, especially for workers at the lowest rungs of the economic ladder.

Manufacturing Jobs Are Worth Making

Manufacturing matters for innovation and income distribution, but it's not the only thing that matters. Industry-neutral policies as well as industry-specific ones are appropriate and necessary. Moreover, there are some parts of the non-manufacturing economy, such as computer software, that have some of the same advantages (though not the size) of manufacturing. Likewise, not all manufacturing firms or industries are equally innovative or high-paying. Public policy should be sensitive to these differences.

While America's manufacturing sector no longer lords over our economy as in the past, it's still a crucial force. It is more innovative and pays higher wages than other industries. Because that's likely to be the case for the foreseeable future, public policy should support a healthy manufacturing sector.

Authors

Howard Wial

Publication: The Atlantic

The Outsized Benefits of U.S. Manufacturing

Jonathan Rothwell and Howard Wial — Mon, 06 Feb 2012 14:25:00 -0500

In a New York Times op-ed, Christina Romer, the former chair of President Obama’s Council of Economic Advisors, argues—contra her former boss—that there is no compelling justification for policies aimed at supporting U.S. manufacturing. She lays out and rejects a few theoretical justifications for supporting manufacturing, including the idea that there are large positive externalities—large social benefits relative to what private companies can capture—tied to the sector. Her arguments are unconvincing. Most important, there are large social benefits associated with innovation and manufacturing plays an outsized role in creating them. In so doing, manufacturing makes a disproportionate contribution to economic growth.

Romer ignores the strong evidence that company research and development (R&D) is worth much than the companies capture. For example, Charles Jones and John Williams estimate that R&D spending would have to quadruple to be high enough to meet the nation’s needs. Some economists have estimated that R&D’s rate of return to the nation as a whole (not just to the companies that pay for it) is as high as 30 percent. There are also positive externalities associated with less formal innovations such as improvements in production processes. Like the results of R&D, these innovations can be copied or adapted by competitors.

As one of us has written for a forthcoming Brookings report, all of these inventive activities and innovative accomplishments would be vastly diminished without the manufacturing sector. Although it makes up only about 11 percent of GDP, manufacturing accounts for 68 percent of all domestic R&D spending by companies in the United States. While only about 9 percent of all U.S. jobs are in manufacturing, 35 percent of all engineers work in manufacturing. National Science Foundation data show that only 8 percent of all non-manufacturing companies introduced a new product or service between 2006 and 2008, while 22 percent of manufacturing companies did so. The same percentages apply to the share of companies that added a new production or business process. Finally, corporate tax data from the IRS reveal that 60 percent of income from royalties from intellectual property goes to manufacturing firms.

The innovation spillovers that manufacturers produce flow throughout the U.S. economy, not just to other manufacturers. The gains are especially large at the regional scale because—contrary to Romer’s misinterpretation of the literature—companies perform better when they are located near many other firms than when they are more geographically isolated. When a manufacturing establishment relocates offshore, the related companies in the region suffer disproportionately.

Even aside from geographic linkages, manufacturing firms are tightly linked to innovation in the U.S. service sector. For example, high-technology services such as Internet services, telecommunications, computer systems design, and scientific research depend on R&D in manufacturing. When a manufacturer moves production offshore, the skilled researchers and engineers it used to employ in this country are no longer available to high technology service providers. As the regional benefits of that knowledge creation emerge and grow in the foreign location, a larger share of inter-related service activities (including management, administration, marketing, logistics, legal, and information technology) also relocate offshore to be closer to the center of production.

Romer mentions tax breaks, trade restrictions, and direct government investment in specific industries as examples of wrongheaded policies aimed to support manufacturing. In fact, though, there are a wide variety of sensible policies that the federal government could adopt to counteract the market failures associated with innovation—market failures that result in large part from manufacturing’s outsized contribution to innovation. Desirable policies include improving the training of workers without four-year degrees, strengthening R&D tax credits, and expanding assistance to small and medium-sized manufacturers to help them improve their economic performance.

Meanwhile, at the regional and state level, there are also many useful interventions available to policymakers. Regional leaders can attempt to leverage their specific strengths in the sector and shore up their weaknesses by observing various capacities with respect to invention and research capacity, workforce skills, access to finance, and infrastructure needs. Improvements along these lines can benefit manufacturers and avoid wasteful corporate giveaways to business. Given manufacturing’s special contribution to regional and national economies, such interventions would likely be well worth the investment.

Authors

Publication: The Avenue, The New Republic

Wall Street, Main Street, and Wages After the Bailouts

Howard Wial — Thu, 15 Dec 2011 14:13:00 -0500

America’s financial sector is in the news almost every day, its role in the economy and relationship to government subjects of public debate. “Banks got bailed out, we got sold out!” is a common protest chant in the Occupy Wall Street movement, while Federal Reserve chairman Ben Bernanke defends the Fed’s assistance to banks during the financial crisis in 2008. Meanwhile, the nation as a whole remains stuck in a recovery that feels like a continuation of the Great Recession. Is Wall Street benefiting at the expense of Main Street?

The December edition of Brookings’ MetroMonitor takes a metropolitan perspective on this question. For each of the 100 largest metropolitan areas, it compares the growth of the average wage in three prominent financial industries—credit intermediation (a category that consists mainly of banking), securities and commodities (including, among others, stockbrokers, investment banks, and some hedge funds), and funds and trusts (including some hedge funds as well as other investment funds)—with wage growth in the overall economy since the beginning of the national recession (in the last quarter of 2007) and since the beginning of the national economic recovery (in the second quarter of 2009). Although the average wage includes all workers, the wages of the highest-paid workers—those who have been most in the public spotlight—heavily influence the average.

There is no single answer to the question whether the financial sector wage gains exceeded those in the economy as a whole. The answer varies by industry, time period, and above all, by metro area. What’s true of New York isn’t necessarily true of Des Moines (the large metro area with the biggest concentration of credit intermediation jobs), Bridgeport (the large metro with the biggest concentration of jobs in securities and commodities), or Hartford (the large metro with the biggest concentration of jobs in funds and trusts).

In most large metro areas, though, the average wage rose more rapidly in each financial industry than in the economy as a whole since the economic recovery began. In New York, for example, the average wage in each of the three financial industries rose more rapidly than the overall average wage between the second quarter of 2009 and the last quarter of 2010: 6.3 percent inflation-adjusted wage growth in credit intermediation, 17.4 percent in securities and commodities, and 23.6 percent in funds and trusts, compared to just 0.2 percent in the entire metro economy. In Des Moines, the average wage in credit intermediation increased by an inflation-adjusted 5.2 percent, while the overall average wage increased by only 2.6 percent. Bridgeport’s average wage in securities and commodities rose by 18.4 percent during this period but its overall average wage rose by 4.2 percent. In contrast, Hartford’s average wage in funds and trusts fell by 2.9 percent, while its overall average wage fell by 0.4 percent.

The story is more complicated if you consider the period from the last quarter of 2007 (the beginning of the recession) through the last quarter of 2010. In most large metro areas, wage growth in credit intermediation and securities and commodities fell short of overall wage growth, but the opposite was true for funds and trusts. In Des Moines, the average wage in credit intermediation fell by 1.9 percent during this period, while the overall average wage rose by 1.9 percent. Bridgeport’s average wage in securities and commodities fell by 8.8 percent, compared to a 0.8 percent drop in the overall metro economy. Hartford was, once again, an exception to the general pattern, at least for funds and trusts, where its concentration of jobs exceeds that of any other large metro area. The average funds and trusts wage in Hartford fell by 24.7 percent since the start of the recession, while the overall average wage fell by 4.6 percent. New York was a mixed case, with a 3.0 percent wage drop in credit intermediation, a 10.8 percent drop in securities and commodities, and a 9.1 percent gain in funds and trusts, compared to a 4.1 percent decline overall.

In most metro areas, then, people working in the funds and trusts industry have received bigger wage increases than workers as a whole both since the beginning of the recession and since the beginning of the recovery. In most metros, those employed in credit intermediation and securities and commodities got bigger raises than workers overall since the start of the recovery but got smaller raises than their counterparts in other industries since the start of the recession. This means that workers in credit intermediation and securities and commodities had smaller wage gains than other workers during the recession itself, but had bigger wage gains than other workers during the recovery.

Perhaps surprisingly, the 2008 bank bailouts didn’t seem to prop up wages in banking, at least not immediately. But since the start of the recovery in 2009, bank employees have had bigger wage gains than other workers in most large metro areas. Maybe that’s one reason why the relative well-being of Wall Street and Main Street has received more public attention in recent months than it did when the bailouts occurred.

Authors

Howard Wial

Publication: The Avenue, The New Republic

Where the Top Income Earners in the United States Live

Howard Wial — Mon, 31 Oct 2011 00:00:00 -0400

Occupy Wall Street and its companion movements throughout the world have focused attention on the top 1 percent of the income distribution, which raises the question—where do those 1 percent live?

Internal Revenue Service data shows that the top 1 percent are largely executives, managers or financial professionals, while smaller numbers are doctors or lawyers. But because the IRS data suppresses the locations of many of the very highest-income households, it isn’t actually possible to say where the top 1 percent live.

However, it is possible to figure out the locations of households with incomes of $200,000 and up (approximately the top 3 percent in 2008, the latest year for which IRS geographic data is available. Nationally the income cutoff for the top 1 percent was $380,354 in 2008).

These very high-income households are disproportionately metropolitan. While about 85 percent of all income tax filers have metropolitan addresses, about 93 percent of the very rich live in metropolitan areas. The top 3 percent are highly concentrated in a relatively small number of large metropolitan areas.

Only twenty metropolitan areas — New York, Los Angeles, Chicago, Washington, San Francisco, Boston, Houston, Philadelphia, Dallas, Miami, Atlanta, San Jose, Seattle, Minneapolis, San Diego, Detroit, Phoenix, Baltimore, Bridgeport (Fairfield County, Connecticut, is the center of the hedge fund industry and home to many corporate headquarters), and Denver — have at least 1 percent of all the nation’s very high-income households. Collectively those areas account for 56 percent of the highest-income households but for only 37 percent of all households.

Read the full article at theatlanticcities.com »

Authors

Howard Wial

Publication: The Atlantic Cities

The Geography of Our Falling-Wage Recovery

Howard Wial — Fri, 16 Sep 2011 14:49:00 -0400

Over the summer there was some concern in the media about falling wages during the current barely perceptible economic recovery. Nationwide, Bureau of Labor Statistics data show that inflation-adjusted average hourly wages have been trending downward since late 2010. Similar wage declines occurred, starting at various times in 2009 or 2010, in most major industries. Because wages don’t usually fall even during the most severe recessions, this is (bad) news.

In the latest edition of Brookings’ MetroMonitor, I looked at where these wage declines were occurring. Using inflation-adjusted average annualized earnings per job (a measure of wages that’s available for metropolitan areas), I found that wages were lower in the first quarter of this year than in the last quarter of 2007 (when the national recession began) in 51 of the 100 largest metropolitan areas. This may not sound like a geographically widespread enough phenomenon to account for nationwide wage losses, but the fact that wages generally fell in the very largest metropolitan areas helps account for the nationwide drop in wages. Wage losses were also common in most of the Great Lakes region. The steepest wage losses occurred in Little Rock (11.1 percent wage loss), Las Vegas (8.7 percent), and Hartford (5.2 percent).

Meanwhile, wages rose in most of the large metropolitan areas of California and the Intermountain West and in government and military centers throughout the nation. The sharpest wage increases were in the housing-bust metro areas of Bakersfield (6.8 percent gain), Modesto (4.5 percent), and Palm Bay (3.7 percent).

Another way to look at this issue is to examine what has happened to wages as a share of each metropolitan area’s economic output (gross metropolitan product or GMP). (GMP—the total value of all the goods and services produced in a metropolitan area—can also be thought of as the sum of the payments to the owners of all the inputs that are used in production in a metropolitan area. Thus, the major components of GMP include wages, profits, and taxes on production minus subsidies.) Since the end of 2007, the wage share of GMP fell in all but two of the 100 largest metropolitan areas: El Paso and Wichita. Hartford, Little Rock, and Greensboro had the largest declines in the wage share.

Piled on top of painfully slow job growth and a national unemployment rate that remained stuck at 9.1 percent for the second month in a row, falling wages are yet another drag on an economic recovery that’s already close to stalling out.

Authors

Howard Wial

Publication: The Avenue, The New Republic