Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The Transformation of Manufacturing across Federal Reserve Districts: Success for the Great Plains?

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The Transformation of Manufacturing across Federal Reserve Districts: Success for the Great Plains?

Article excerpt

Despite experiencing solid gains in the last two years, U.S. manufacturing employment is down by about one-third since 1990, as globalization and productivity-enhancing technologies have reduced domestic demand for factory workers. The decline in factory jobs has been uneven across the country. Factory jobs have declined most dramatically in the eastern United States, but by less in the Great Plains region. Among Federal Reserve Districts, factory employment in the Dallas, Kansas City, and Minneapolis Districts has outperformed all other Districts in each of the last three business cycles. As policymakers increasingly look to manufacturing as a source of high-paying jobs, understanding the sector's evolution is important.

Using Federal Reserve Districts to define regional boundaries, this article examines why factory employment has consistently held up better in Federal Reserve Districts in the Great Plains (Dallas, Kansas City, and Minneapolis) than in Districts in other regions. The article also examines whether regions with large factory job losses have had worse overall economic outcomes. It finds that since 2000, nearly half of the better factory jobs performance in the Great Plains has been due simply to a more favorable mix of manufacturing industries than other regions. This contrasts with the 1990s, when factors other than industry mix accounted for nearly all of the region's faster manufacturing job growth. The article also finds that the pay of factory jobs has diverged somewhat across the country, tempering the benefits of better job growth in some regions. Moreover, while some regions with sizable factory job losses have maintained solid per capita earnings growth, others have not.

Section I of the article describes how the location of U.S. manufacturing jobs has changed since 1990. Section II analyzes the role of industry mix and other factors in the relative performance of manufacturing employment across Federal Reserve Districts. Section III discusses how the pay of manufacturing jobs has evolved across the United States and whether the Great Plains has benefited from maintaining more factory jobs.

I. HOW HAS THE LOCATION OF U.S. MANUFACTURING JOBS CHANGED?

Overall, U.S. manufacturing employment has declined sharply since 1990, but the Great Plains Fed Districts have consistently outperformed others throughout the period. Variation in job growth across specific manufacturing industries has also transformed the defining factory sectors of many Fed Districts.

Growth and decline in factory jobs by Fed District since 1990

A number of subnational areas could be analyzed to obtain a sense of recent geographic variation in regional manufacturing employment. But the 12 Federal Reserve Districts provide two key advantages. First, the number of Districts provides a more manageable number of areas for analysis than states or metro areas. Aggregating to multistate regions also helps avoid focusing on data disclosure issues for some smaller states.1 Second, five Fed Districts conduct monthly surveys of manufacturers that are widely followed in the press.2 Understanding longer-term trends in each Fed District could help both national and regional followers of Fed surveys.3

In 1990, manufacturing accounted for nearly one of six jobs in the United States, and for at least one of nine jobs in each Federal Reserve District. But by 2011, U.S. factories employed only about one of 11 workers nationally. The size of the manufacturing sector varies somewhat across Fed Districts. In three Districts, manufacturing still accounts for at least 12 percent of employment, while in one Fed District-New York-factories now employ less than 6 percent of all workers (Map).4

The 34-percent decline in U.S. factory jobs from 1990 to 2011 was not evenly spread across the country. The largest manufacturing job losses have occurred in the six eastern-most Federal Reserve Districts (Chart 1). The New York Fed District lost more than half of its factory jobs during that period, while the Boston and Richmond Fed Districts lost nearly half. …

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