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home : most recent : statewide implications August 20, 2018

7/30/2018 9:46:00 AM
OPINION: Hoosier manufacturing far from dead

Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University.  His column appears in Indiana newspapers, and his views can be followed on a podcast: His column appears in Indiana newspapers.

         It was common place for Hoosier boosters and politicians in the 20th century to proclaim “Farming is the backbone of the Indiana economy.” I loved to hear that statement. It opened the door for me to say sweetly, “Every corpse has a backbone.”

          For about 100 years, the beating heart of Indiana’s economy was manufacturing. Today, our state and national economies are more diversified and therefore depend less on manufacturing than in the past. The same is true for farming.

 In 1929, manufacturing accounted for 35 percent of all earnings by individuals in Indiana. Farming was just 12 percent of total earning in the state. Nationwide, manufacturing was 26 percent of all earnings while farming was only 11 percent. That’s not the way our folklore would have it. And folklore still has considerable sway in political circles.

           Manufacturing’s 35 percent of Indiana’s earnings was the 9th highest in the nation. By 2017, manufacturing had “fallen” to 21 percent of the state’s earnings, but that made Indiana 1st among the states. First! They give blue ribbons for first place; it’s the badge of honor for the victorious.

           Nationally, manufacturing declined from more than a quarter of all earnings to less than a tenth. That’s the story we’ve all heard and repeated. The decline and fall of manufacturing has been wept over and the industry has been given a splendid wake.

             While many bemoaned and others decried the fate of manufacturing in Indiana, that sector outperformed its national counterpart. Gross Domestic Product for U.S. manufacturing advanced by 21 percent in the past ten years but by 28 percent in Indiana. Nationally, the contribution to the growth of GDP made by manufacturing was just 8 percent. In the Hoosier state, manufacturing accounted for 25 percent of total GDP growth. In no other state did manufacturing do better.

          What’s good for the industry, however, may not be as good for the workers.  The number of jobs in manufacturing nationally declined from 2007 to 2017. It was a very small 0.3 percent reduction (only 18,300 jobs).

           However, the average weekly earnings of production workers grew by a tepid 0.7 percent per year. Simultaneously, earning for all employees advanced at twice that rate. Inflation, averaging 1.7 percent per year, ate those minor gains.

          Wasn’t improved technology to mean job losses accompanied by higher wages for those prepared for the new world order?

          The share of GDP paid as earnings to workers, across all sectors in all states, was 61 percent in 2017. In Indiana, it was 59 percent. Perhaps that’s a small sacrifice willingly made by those who delight in pierogis and persimmon pudding.

          Yet, in manufacturing, the share of GDP allocated for earnings was 48 percent in the U.S. and a surprising 42 percent in Indiana, the eighth lowest in the nation.

          We may be “a state that works,” but what do we get for it?

Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR

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