When Manufacturing Jobs Disappear: What We Can Learn from North Carolina

While it’s not a competition that any state would want to win, no state was hit harder by the collapse of U.S. manufacturing employment over the past two decades than North Carolina. In 1990, more than one-quarter of the workforce was in manufacturing, nearly twice the national share and higher than such iconic manufacturing states as Michigan and Ohio. By 2010, the number had dropped to just over 11 percent, a loss of more than 400,000 jobs.

Today, the Renewing America initiative released its first Working Paper, "After Manufacturing: Lessons for a New Reality from North Carolina." The author, Roland Stephen, is a senior economist with the Center for Science, Technology and Economic Development at SRI International, and has for many years been a fellow with the Institute for Emerging Issues in North Carolina. He knows the state’s economic history intimately and does not sugar coat the challenges it still faces.

Unemployment in the state, at 10.4 percent in January, remains among the highest in the country. Median income, which approached the national average in the mid-1990s, has fallen back. The regions that were most dependent on textiles and furniture production in the western part of the state have fewer jobs than they did two decades ago.

Despite those discouraging numbers, however, the state has begun to build the foundations for a prosperous economy with a  much smaller manufacturing workforce. In the two decades from 1990 to 2010, North Carolina added 729,000 jobs despite the collapse in manufacturing employment. In comparison, Ohio created just 168,000 jobs in that period and Michigan actually lost 68,000 jobs. Some regions of the state are success stories--Raleigh-Durham  has seen robust growth in education and business services employment, while the mountainous region of Asheville has attracted tourism and health-related industries.

What are the lessons? Every state faces its own challenges, and there is no blueprint. As Stephens writes: “What is required is a toolbox for action that meets the needs of these fragile economies--regions struggling to make the most of their particular mix of assets following the decline of manufacturing employment.” Nonetheless, there are policy choices made by North Carolina that should be relevant to other states that are trying to manage a similar transition.

• Invest in infrastructure. North Carolina has an extensive road system, for example, built largely with funding from its gas tax, which is among the highest in the nation.
• Invest in education.  The state has increased K-12 spending faster than the national average, and was among the first to back testing to raise standards. And North Carolina has one of the country’s most impressive state university and community college systems, with per pupil spending the 3^rd highest in the country.
• Pursue open-ended initiatives and show patience in waiting for payoffs. Rather than trying to attract specific industries, states would be wiser to create a supportive environment for innovation through generic investments with multiple uses. Stephen points out that the Research Triangle was never envisioned as a successful biotech cluster; instead, the idea was to pool talent on the theory that good things would then result.
• Create institutions--regional partnerships, technology centers--that are focused on regional development.

Perhaps the most politically controversial recommendation in the paper is that state governments should back winning initiatives rather than spreading investments across the state.  The reality is that some regions are better positioned to prosper in a post-manufacturing economy. The Raleigh-Durham region has become a hub for internationally competitive businesses like information technology, biotechnology, and software. The Asheville region was able to leverage its natural beauty to expand in sectors like tourism and healthcare aimed at retirees.  But the Hickory region has not been able to attract or build new industries and suffers from chronic unemployment and slow growth.

The paper offers no silver bullets. But it is a practical, realistic set of lessons for states trying to find a strong footing in an economy where the old manufacturing jobs have disappeared and are unlikely to return.