Reshoring Manufacturing Jobs: We’re Still Waiting

Like many people, I’ve been getting pretty excited when I read studies about the potential for reshoring of manufacturing jobs back to the U.S.   Many trends, such as technology changes, changing energy cost structures, and rising labor costs in China and elsewhere are all coming together to make America a more competitive location for manufacturing facilities.  I don’t need to belabor the potential benefits of reshoring—more capital investment and, most importantly, a larger base of high quality jobs for working families.    Unfortunately, preliminary results from a study by researchers at MIT’s Center for Transportation and Logistics suggest that the promised new jobs and investments have yet to materialize.  The researchers, Jim Rice and Francesco Stefanelli, examined fifty recent announcements of large-scale reshoring projects and found that few of these announced projects were ever completed.   In most cases, the announced project has not yet happened.  In a few instances, the deal occurred but few new jobs actually ensued.

It is possible that many of the announced deals will ultimately happen—delays in projects of this type are the norm.   But, the findings do suggest that we should remain somewhat cautious in our hopes for reshoring—even when our hearts push us to do otherwise.    The resurgence of U.S. manufacturing is not going to magically happen on its own.  It’s going to take lots of hard work and a commitment to new investments, workforce training, and on building a more competitive and responsive business environment for manufacturers of all sizes.

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Emerging US Labor Market Challenges?

America’s flexible, responsive, and resilient labor markets have long been among the least well-understood “secrets” of U.S. economic competitiveness.   In contrast to many European or Asian economies, America’s labor markets are quite open.  It is relatively easy and low cost to both hire and fire workers, and this labor market churn helps spur career progressions and ensure that workers are available for new and growing industries.   Unfortunately, some recent reports and data releases suggest that we cannot assume that these labor market strengths will continue indefinitely.   In a paper prepared for the Kansas City Fed’s recent gathering in Jackson Hole, Wyoming, economists Steven Davis and John Haltiwanger describe how U.S. labor markets are becoming much less dynamic.

Workforce turnover rates, which occur via job reallocation (when firms close and workers lose jobs) or cyclical churn (the normal process of hiring and firing workers) have dropped in recent decades.  In 1999, worker turnover per quarter was 33.5 percent; in 2010, the turnover rate was 24.1 percent.  This stiffening of labor markets is having outsized impacts on the young and less well-educated, who find it harder to change jobs, change careers, or obtain better pay and work conditions.

A recent Governing magazine analysis of labor market trends offers further evidence of these trends. The analysis examines how displaced workers are faring in today’s economy.   The story leads with some good news—in January 2014, 61% of displaced workers found new employment—a big jump from recent trends.  However, roughly half of these re-employed workers were forced to take pay cuts.  Fifty-two percent of re-employed workers reported that their new jobs paid the same or more than their previous positions.   These trends vary greatly across industries.  In strong sectors like IT, education and professional services, large shares of workers are able to obtain new jobs with comparable pay.   However, many other sectors face big challenges.  For example, manufacturing workers are especially pressed to obtain new quality jobs.   While 59.3% of workers succeeded in obtaining new employment, only 43% of these reemployed workers found jobs with comparable pay.  Even worse, a large share of re-employed workers (29%) faced pay cuts of more than twenty percent in their new jobs.

What explains these labor market trends?   Some of these changes result from structural changes in the economy, such as an aging workforce, a decline in new business starts (see more here), and the replacement of Mom-and-Pop firms with large corporations like Walmart, CVS, of Best Buy.   Davis and Haltiwanger also point to the spread of occupational licensing rules which block new entrants in sectors like hair styling, food, and other retail services.  (You can access a 2012 Kauffman Foundation study on licensing here).

What can be done to address these problems?   While we can’t (and shouldn’t) seek to increase churn and turnover for its own sake, we can try to remove unneeded barriers (such as some arcane licensing rules) and take other steps to enhance worker flexibility.   The Affordable Care Act should help on this front, as workers can now rely on having health insurance in event of a job or career change.  Enhancing access to training, retraining, and education resources will also help.   Finally, efforts to reinvigorate the American business start-up machine must also continue.

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The Resource Curse in America?

International development experts often talk of the “resource curse,” where resource-rich countries suffer economically even in the face of massive pools of resources, such as oil, minerals or other commodities.  Examples include economies such as Nigeria or the Congo, where massive resource bases have not been effectively used to spur economic growth.   A new study from University of Oregon researchers Grant Jacobson and Dominic Parker suggests that the resource curse might also apply in the U.S. context as well.

The researchers assessed the long-term economic health of towns that gained from the oil booms of the 1970s and 1980s.  All of the 391 assessed counties were based in the Rocky Mountain West, with large concentrations in Colorado, Montana, Utah and Wyoming.   The experience of these communities suggests a clear-cut boom and bust cycle.  A major bust set in after the oil boom petered out in the mid-1980s, and no signs of recovery have returned ever since.  Despite a quick boost of local wealth during the boom, these regions now continue to face lower average wages, higher unemployment, and major economic challenges decades after the boom subsided.

This experience should offer important lessons to communities in North Dakota, Pennsylvania, and elsewhere where the shale energy boom is underway.  The researchers suggest that these long-term results stem from a lack of economic diversification in these resource-dependent economies.   While the paper does not contain detailed policy recommendations, its findings suggest that boom areas must pay special attention to supporting economic diversification by using new resources to invest in building other locally-based economic engines and sources of wealth creation.

NOTE:  For more information on economic diversification, I highly recommend a recent Appalachian Regional Commission study (developed with support from EntreWorks Consulting and other partners):

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The Rural Entrepreneurship Challenge: APPLY NOW!!!

I’ve blogged in the past about the Rural Entrepreneurship Initiative, a program sponsored by the American Farm Bureau Federation and Georgetown University (with consulting support from EntreWorks) that is designed to raise a spotlight on the many world-class entrepreneurs now building and running companies in rural America.   The program is up and running and two exciting opportunities are on the way.

1)      REI Webinar Series:  We are hosting a series of monthly seminars on key topics of interest to entrepreneurs.  Our next webinar is August 26 at 3:00 PM Eastern time.  The topic is “Finding Business Information,” and addresses how businesses can do a better job of finding and using market intelligence.  We’ll be joined by Jessica Nelson of the National Center for Economic Gardening and Steve Radley of Network Kansas.  All of the webinars are free, but do require advance registration.  You can register here.

2)      The Rural Entrepreneurship Challenge:   The first national business competition for rural entrepreneurs, the Challenge is an exciting opportunity for rural entrepreneurs to spread the word about their exciting new ventures.  Winners receive cash prizes and other support—as well as lots of great publicity.   The application deadline is September 15, 2014.  So, if you are a greta rural entrepreneur, please apply and/or spread the word!

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New Global Entrepreneurship Data

Two helpful new global entrepreneurship assessments have been released in recent weeks and are definitely worth a look.  The Global Entrepreneurship and Development Index 2014 ranks the quality and scale of the entrepreneurial process in 120 countries.  (Note:  the report is available free, but does require an email registration).   The index ranks countries on their capacities and performance in terms of supporting business formation, expansion, and growth.  Despite much recent evidence about declining U.S. business dynamism, the 2014 GEDI Index ranks the U.S. as the world’s top performer, followed by (in order):   Australia, Sweden, Denmark, Switzerland, Taiwan, Finland, Netherlands, the U.K. and Singapore.  All of these nations tend to score highly on measures of both entrepreneurial aspirations (do residents have interest in entrepreneurship?) and institutional and business support mechanisms.

Meanwhile, the Paris-based Organization for Economic Cooperation and Development (OECD) has released its annual assessment of entrepreneurial performance in key developed economies, with a special focus on Europe.  Entrepreneurship at a Glance, 2014 finds that start-up rates diverge greatly across OECD countries.  Most nations have failed to return to pre-economic crisis start-up rates, and entrepreneurial performance was especially weak in Denmark and Spain. Meanwhile, Australia, the U.K. and Sweden (all highly ranked in the GEDI index too) are showing strong start-up performance.    Most new businesses remain quite small, but a small portion of high-growth firms are having a big economic impact.  For example, in France, 15,000 high growth firms (about 2-4% of all firms) employ more than 1 million people.  Across OECD countries, the researchers find that overall barriers to entrepreneurship are declining and that the number of opportunity entrepreneurs (those who start-up to capture a business opportunity as opposed to out of necessity) is growing.

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Strong Rural America.Com: Resources for Rural Entrepreneurs

This week, the American Farm Bureau Federation, unveiled its new Rural Entrepreneurship Initiative (REI) website:  The REI is a joint initiative of the American Farm Bureau Federation (AFBF) and the Global Social Enterprise Initiative and Startup Hoyas at Georgetown University’s McDonough School of Business. The Rural Entrepreneurship Initiative is directly tied to AFBF’s mission of building strong and prosperous agricultural communities.  The Center for Rural Entrepreneurship and EntreWorks Consulting are also supporting this effort.

The website is part of larger campaign to promote rural entrepreneurship and to provide a host of tools and support resources for rural entrepreneurs.   These plans include the Rural Entrepreneurship Challenge, a nationwide business competition for rural entrepreneurs, and a series of webinars on key topics of interest to rural business owners.   Scheduled webinar topics include:

• Introducing AFBF’s Rural Entrepreneurship Initiative on Tuesday, July 29 at 3:00 p.m. Eastern
• Finding and Using Business Information on Tuesday, Aug. 26 at 3:00 p.m. Eastern
• Telling Your Business Story on Tuesday, Sept. 23 at 3:00 p.m. Eastern
• Finding Money To Grow on Tuesday, Oct. 28 at 3:00 p.m. Eastern
• Finding and Keeping Talent on Tuesday, Dec. 2 at 3:00 p.m. Eastern

You can learn more and register for webinars here.   You can also track the REI’s progress at the Rural Community Building blog.

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A Plug for Factory Man

I’m in the midst of reading Factory Man, by Beth Macy—an excellent book that I would recommend to anyone with an interest in economic development or in what happened to the American Dream.   Factory Man profiles John Bassett III and his struggles to keep his company, Bassett Furniture, afloat in the midst of major pressures from globalization and technical change.   Bassett Furniture originally hails from the company town of Bassett, VA and operates its facilities in the border regions of Virginia and North Carolina.  This area faces major economic challenges and has been hard hit by the loss of manufacturing jobs in the textile and furniture industries.   Assessing these impacts can make for depressing reading, but the overall story of Factory Man is one of hope.   As the book’s subtitle, “How One Furniture Make Battled Offshoring, Stayed Local, and Helped Save an American Town,” Bassett has been able to survive and maintain its local operations in Martinsville, VA, Newton, NC, and elsewhere.  This story should offer inspiration to those of us who are hoping that the long-promised reshoring of American manufacturing is underway.   It is an excellent take on what’s required to make it as a manufacturer today, and how a company’s success (or mere survival) has important ripple effects across a community.


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Small is Beautiful: Innovation Lessons from Smaller Countries

In September 2014, Scots will be voting to determine whether Scotland should remain part of the United Kingdom or embrace independence.  The vote will be closely fought, with voting preferences shaped by years of cultural, economic, and family ties.   Innovation policy won’t be a top factor in the vote, but, if Scotland opts for independence, it will need to embrace new innovation policies quite quickly.  That’s why a new NESTA report, When Small is Beautiful:  Lessons from Highly-Innovative Small Countries, is so timely.

The study examines the innovation policy experiences of Finland, Estonia, Singapore, Israel, and Spain’s Basque region.  All of these nations perform quite well on various global rankings of innovation and competitiveness, and have generally enjoyed extended periods of economic prosperity.  Can Scotland—or other small nations–follow in their footsteps?

These five national experiences offer many useful lessons.  Economies must remain open to the world, and innovation needs to pervade all aspects of government policy.    Effective and well-funded innovation institutions, like Finland’s TEKES or Innobasque, also help.   A strong sense of national mission, potent assets for both Israel and Singapore, also helps spur support for big and audacious innovation investments.  Finally, these nations also excel in downstream innovation.  Lacking the huge R&D budgets of the U.S. and other nations, their innovation policies look at how to turn new ideas into commercial products and services.   They tend to be more about applied research than research for its own sake.   The report offers these tips as guidelines for Scotland, but they would be well applied by many other national, state, or local governments seeking to improve innovation policy outcomes.

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Placemaking: What do People Really Think?

In my travels around the country and in my own community of Arlington, I see a great disconnect between us so-called experts and the general public when it comes to issues of placemaking and economic development.   Planners and economic developers have generally accepted that greater density, transit-oriented development, smart growth and the like are the most effective approaches to placemaking and community building.  Yet, in the field, the most important judges—local residents—don’t always seem to embrace this message.  They push back against plans to increase local density and to build busier, more active communities.  They often continue to embrace more traditional suburban living patterns of large single family homes on large lots, and greater separation of various work, play, and live uses.    I’m not making any value judgments here—just describing the reality in many communities.

An interesting new study from Michigan State University’s Land Policy Institute offers some useful insights into this divide. The report, Building Prosperous Places in Michigan, is based on surveys of residents in six Michigan cities and five other Midwest locations.  The survey asked residents to comment on two sets of questions:  1) What kind of amenities (e.g. parks, stores, etc.) do you want in your neighborhood?, and 2)  What is the economic value of these amenities?

The study found, not surprisingly, residents value important amenities, like parks, restaurants, bike lanes, and cultural resources; they also like to have them nearby—within a ten minute walk of home, if possible. They highly value walkability and believe it contributes real economic value, yet, at the same time, they continue to prefer large suburban lots and larger homes, and rural/suburban locations.   In other words, they want to have their cake and eat it too.

This is not the only case where Americans hold widely contradictory views—think of the Medicare security recipients who want to keep the government out of health care.   But, it is a stark reality that will continue to face advocates of smart growth and placemaking.   The report includes recommendations for better education and better outreach, but also hints that the real force for change will be the growth of the Millennial generation and its preference for more urban living options.   If you’re interested in better understanding how people view community today, this study is well worth a look.

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EntreWorks Insights, June 2014 edition, now Available.

The latest edition of our quarterly e-newsletter, EntreWorks Insights, is now available here.  This issue looks at how communities are using economic dashboards to benchmark regional performance and to track program results and outcomes.   You can subscribe to the newsletter here.

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