American manufacturing is basically the same everywhere. It’s an albatross around the necks of places that depend on it, preventing them from attracting the “creative class,” which drives economic development today. Except in a few very high tech industries, such as pharmaceuticals, manufacturers are looking for lower costs above all else. That’s why, if they’re staying in the United States at all, they’re moving to low-wage locations. Metropolitan areas, with their higher costs, offer manufacturers no special advantages.
These beliefs about the geography of manufacturing in the United States are so common that they’re often taken for granted. Sometimes, though, they surface in public policy debate. For example, Christina Romer, former chair of President Obama’s Council of Economic Advisers, recently claimed that geographic clustering is not especially important in manufacturing. Indiana Gov. Mitch Daniels cited Volkswagen’s decision to locate an auto assembly plant in right-to-work Tennessee as a reason for supporting Indiana’s new right-to-work law.
A new Brookings report, however, shows that these common beliefs are false.
- American manufacturing is primarily located in metropolitan areas, large metropolitan areas, and the central portions of metropolitan areas. About 80 percent of all manufacturing jobs are in metropolitan areas, including the approximately 59 percent of manufacturing jobs that are in the 100 largest metropolitan areas. Very high technology manufacturing industries are even more metropolitan, with 95 percent of their jobs residing in metropolitan areas. Of manufacturing jobs located in metropolitan areas with three or more counties, 89 percent are found in the central counties of those metropolitan areas (i.e., the counties that contain the metropolitan areas’ principal cities).
- More metropolitan areas depend heavily on manufacturing as a part of their economic base today than did so 30 years ago. Despite suffering huge losses of manufacturing jobs, more metropolitan areas were very strongly specialized in manufacturing (meaning that manufacturing’s share of their employment was at least 1.50 times its share of nationwide employment) in 2010 than in 1980. In 2010 there were 84 such metropolitan areas, while in 1980 there were 71. This happened because, in some metropolitan areas, manufacturing’s share of the metropolitan area’s employment rose relative to its share of national employment even as its number of manufacturing jobs (and manufacturing’s share of the metropolitan area’s employment) fell. Manufacturing’s share of a metropolitan area’s economy relative to the national share is what determines how much the area depends on manufacturing as a source of competitive advantage.
- Manufacturing is highly geographically differentiated. Most metropolitan areas fall into one of six broad industry specialization groups. One group, anchored in computer and electronics manufacturing, is disproportionately in the Northeast and West. A group anchored in transportation equipment (primarily autos and parts, aerospace, and shipbuilding) is found mostly in the Midwest and South, while a partially overlapping group anchored in machinery production is more Midwestern. A chemicals-based group is found along the Southeast and Gulf coasts and in parts of the Midwest. A group anchored in low-wage manufacturing is largely in the Southeast, while one anchored in food production includes metropolitan areas located near agricultural areas, especially in the West and Midwest. Many other metropolitan areas, particularly large ones, have diversified manufacturing bases.
- Several high-wage, high tech metropolitan areas are among the ones that specialize the most in manufacturing. Among the nation’s 100 largest metropolitan areas, the 20 that specialize most strongly in manufacturing include Hartford (aerospace), San Jose (computers and electronics), and Worcester (computers and electronics), where both the overall average wage and the average wage in manufacturing are well above the national average. They also include Portland, OR (computers and electronics); Rochester, NY (optics and photonics); and Wichita, KS (aerospace), where manufacturing wages are very high even though overall wages are near the national average.
- Manufacturing is no longer moving to the low-wage South and away from the higher-wage Midwest. During the last two decades of the 20th century, the Northeast and Midwest lost manufacturing jobs while the South and West gained them. This pattern came to at least a temporary halt at the turn of the century. Between 2000 and 2010, when all regions of the country lost manufacturing jobs, the South and Midwest had about the same percentage loss. During the past two years, when the United States gained manufacturing jobs, the Midwest gained those jobs more than twice as rapidly as any other region. This suggests that low labor costs may be becoming less important to manufacturers.
The common beliefs about the location of manufacturing are wrong because geographic clustering, especially in metropolitan areas and their central counties, offers manufacturers important benefits that typically outweigh their higher costs. When located in places with dense clusters of companies, whether or not in related industries, manufacturers gain access to specialized workers and supply chains and can more easily learn performance-improving ideas informally from nearby firms.
Public policy should strengthen manufacturing by enhancing these place-specific advantages. Rather than try to lure manufacturers from elsewhere with low wages or generous subsidies, state and local governments and metropolitan leaders should develop strategies to improve the productivity and innovative capacity of their existing manufacturers and help new, highly productive and innovative manufacturers flourish in their regions. Place-specific support for R&D, worker training, and technical assistance to firms should all be part of the mix, with the details worked out in accordance with regional needs. The federal government should offer financial assistance to these state, local, and metropolitan efforts and help companies solve problems, such as relationships between large manufacturers and smaller suppliers, that typically cross state lines.