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Will manufacturing recover?
One reason why Indiana has been especially hard hit by job losses is the nationwide decline in manufacturing during the past several years. According to the Congressional Budget Office, the United States eliminated nearly 20 percent of its manufacturing workforce between 2000-03—a downturn reflected in Indiana 's manufacturing-based economy.
“It's important to remember that Indiana is the No. 1 manufacturing state in the country,” says agricultural economist Kevin McNamara, a specialist in manufacturing and regional economic development. “Our share of manufacturing employment relative to other sectors of the economy is larger than anywhere e lse in the United States,” he says. “This means that when manufacturing gets hit, we get hit. And it's not just manufacturing, but the entire state budget and any company that depends on manufacturing employees earning a living.”
Since 1999, Indiana has lost some 100,000 manufacturing jobs, more than 16 percent of the state's total manufacturing employment. With an average annual manufacturing wage of $45,000, the losses amount to $4.5 billion in lost income for Indiana workers. “This translates into between $70-90 million in lost state income taxes and another $70 million lost in sales taxes, because displaced workers tend to decrease their spending,” McNamara says.
But the outlook for Indiana is not entirely pessimistic. “There certainly are firms that have done well in this economy and firms that have made changes that have helped them adjust to difficult times,” he says.
Advanced manufacturing, which uses technology to make manufacturing more efficient, has been identified as one of the economic sectors with the greatest potential for growth in the state. While most experts agree that manufacturing will rebound, it will not return to prerecession employment levels. Advances in manufacturing processing can make companies more profitable, but new methods that boost productivity and efficiency tend to mean fewer people on the assembly line or in a production team.
Transitioning economy
A byproduct of economic growth is that some workers will be displaced and will need to look for employment in other sectors. “This can be a painful transition for many people, especially those who lost high-paying manufacturing jobs,” McNamara says. “Many of these displaced workers find new employment in the service industry, which tends to be lower paying and might not offer the same kinds of benefits. This change can be especially hard for those folks who are older.”
While this uncertainty creates a difficult period of adjustment for many people, economists look at these kinds of transitions as positive for the economy, explains Dave McKinnis, director of Purdue's Technical Assistance Program and associate vice provost for engagement. “One theory of economics is that changes in one sector free up people to do other things that contribute to society. This certainly has happened in the agricultural sector over the last 100 years, and now it's happening in manufacturing.”
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