Category: Politics

Headlines on the state of U.S. manufacturing are picking up again, which can only mean one thing: We must be approaching an election.

Automation. Trade agreements. China. Trump. Each provides a crucial storyline for the narrative in 2020. Well, maybe not that last one given the thorough debunking by Caroline Freund, Jonathan Rothwell, and others of the suggested link between manufacturing and the 2016 election results. But why let truth get in the way of a good story, as Twain put it. And, really, who wouldn’t want to hear from Twain about the state of affairs today.

Automation, trade policy, and foreign competition are all important aspects of the story, but there are others not getting their due. Of course, some lack of nuance in reporting should be forgiven. It can be difficult to get past the magnitude of top-line statistics that show the loss of about 2.5 million manufacturing jobs since 2002, according to data from Emsi, an Idaho-based labor market analytics firm. Details can get buried under the weight of that lede.

But look beneath those top-line statistics and an interesting story starts to emerge. One that Lawrence Mishel, Susan Houseman, and even people at the Congressional Research Service have tried to call attention to recently without much luck, at least not in the form of stories in the mainstream media. And that’s a shame because while it might not rise to the level of political fodder, this underappreciated aspect of the story could have far more important implications for labor market policy and the future of work in communities relying on manufacturing for a significant portion of local employment.

That missing piece of the story is the shift in payroll jobs from manufacturing companies to staffing firms. Yes, outsourcing has been a prominent feature of the narrative since at least the 1970s; it’s not a new storyline. But consider what’s happened during our record-setting period of economic growth since the last recession. The number of production workers on payrolls of manufacturing companies grew by less than 1% per year during 2009-2018. By contrast, the number of production workers employed by staffing or temporary help firms (NAICS 5613) increased by 72%. Put another way, we’re approaching the point where 1 out of every 12 production workers in the U.S. is now employed by a staffing firm, an increase of nearly 60% since 2009, according to my analysis of Emsi data.

That still pales in comparison to the 6.5 million production jobs at manufacturing firms, but outsourced labor is gaining ground. Manufacturing companies account for about 70% of all production jobs in the U.S. economy, but only an estimated 51% of net new production jobs created during 2009-2018. Staffing firms added 43% of those new jobs.

Mishel’s analysis does an excellent job of explaining another important aspect of this story: the wage gap. The median wage for production workers employed by manufacturing firms is about 35% higher than the median wage for production workers at staffing firms, which is just $26,690 annually, according to the Bureau of Labor Statistics (2018). Even at the 90th-percentile wage for the most skilled or experienced workers, the gap is still more than 30%. Mishel summarizes what a continuation of this trend could mean for how manufacturing is viewed through the lens of economic and workforce development policy:

“Contrary to some claims, there is a sizable manufacturing compensation premium…[but] there has been severe pressure on manufacturing firms to reduce pay and they have done so by reducing wages and by using staffing services firms as intermediaries. The result is that the compensation premium in manufacturing is substantially lower in recent years than it was in the 1980s. This suggests that those who advocate policies to expand manufacturing cannot take the pay premium for granted. Rather, they should create and promote policies to support compensation levels and the overall quality of jobs in manufacturing.”

Mishel is right, of course, but it’s a double-edged sword. On the one hand, the shift of jobs to staffing firms is eroding the wage premium. On the other hand, there is some evidence that suggests staffing firms may be keeping people out of long-term unemployment. During the decade of the 2000s in Michigan, for example, the manufacturing industry averaged about 44,000 employee separations per quarter, according to my analysis of Census data. Sixty-two percent of those separations resulted in persistent non-employment, defined as two or more quarters; 34% of those separated workers transitioned to other jobs. That ratio has since flipped. In 2017, 54% of manufacturing employee separations resulted in workers moving to other jobs and 43% resulted in persistent non-employment.

Lack of detailed industry data makes it difficult to say how many of those separations in Michigan resulted in workers transitioning from jobs at manufacturing companies to jobs at staffing firms, much less how many of those employees were production workers versus other types of occupations. But we do know based on averaging the most recent five years of available data, 2013-2017, that 23% of manufacturing employee separations in Michigan resulted in workers transitioning to jobs at companies classified in the parent industry for staffing and temporary help firms (NAICS 56 Administrative, Support, Waste Management and Remediation Services), up from an average of 18% in the early 2000s.

One thing is clear: We need more smart people in the weeds on this, focused on what this piece of the story means for workers and communities, especially in areas of the country specialized in, and therefore largely dependent on, manufacturing. On the policy front, what can we do to ensure that manufacturers have access to needed workers but at the same time protect temporary labor from further erosion of the wage premium and the uncertainty of contingent work? Can we strengthen the safety net in a way that boosts productivity for firms and positions temporary workers for higher-skill, higher-wage employment opportunities, assuming this trend will continue? What, if anything, are staffing firms doing to work together to address these challenges, particularly if they believe accelerating automation threatens their business model? Is our workforce development system prepared to respond?

Hopefully we won’t need to wait for the post-election explainers in 2021 for answers.

Congratulations to Nashville Mayor-elect John Cooper, who won the runoff with nearly 70% of the vote last week. The word is he may be open to some input on what the priorities should be for the next four years. While, admittedly, my usually steadfast objectivity could be a bit compromised in this case, here’s my two cents for what it is worth to them.

First, when it comes to priority setting, luckily they don’t have to rely on my objectivity. In 2018 we launched Nashville’s first recurring, random-sample resident survey, a performance management tool most communities of this size have had in place for a long time. The survey collects data from 400+ households each quarter (MOE +/- 5 on a quarterly basis and +/- 2.5 on an annual basis) and results are posted on Metro’s open data portal for public use.

The usual suspects–public education, police, affordable housing, streets and sidewalks, and public transportation–are consistently represented as high priorities, but note some of the differences in rank order and value across groups. For example, respondents who have lived in Nashville for less than five years are nearly twice as likely to say that public transportation should be Metro’s highest priority compared to respondents who have lived here for twenty or more years. Despite making up the majority of WeGo ridership, only 6.0% of low-income (< $30,000) respondents and 4.7% of black respondents think that public transportation should be Metro’s highest priority. Affordable housing, by contrast, gets 26.6% and 32.6%, respectively.

None of that likely comes as a surprise to transit advocates or political candidates and campaign staff with access to expensive polling data. But polling data isn’t usually in the public domain and open to scrutiny; thus it can’t provide the common set of facts needed to openly debate and reach consensus on controversial issues. I’m hoping Mayor-elect Cooper is serious about pushing Metro, and the city, in this direction. Increasing Metro’s investment in the resident survey to get a large enough sample for council district breakouts would be a good start.

Second, there needs to be more public engagement in Metro’s budget process. There’s a question on the resident survey about satisfaction with Metro’s budgeting and stewardship of public funds. The campaign rhetoric from Cooper’s side painted a dire picture of majority, widespread discontent on that front. In reality, 41% of respondents are dissatisfied with Metro’s management of public funds, according to the survey. Now, while 41% is not a majority, it is significantly higher than the 19% of respondents who are satisfied, so, you know, well-played and all. But that leaves 40% who say they either don’t know or are neutral on Metro’s financial management–and that’s an information gap that shouldn’t be wide enough for politicians to exploit. But it was a smart strategy. The column in the table above marked Highly Engaged includes respondents who have contacted a Metro elected official and attended a public meeting in the last year. This gets to the difference between political polling focused on voters and performance management surveys focused on all residents, but it’s probably safe to assume that the Highly Engaged crowd generally maps to voters. They are 20% of the survey sample and 58% of them are dissatisfied with Metro’s financial management.

We need to reverse that trend. Engagement should yield more confidence in Metro’s budgeting and stewardship of public funds, not less. There are several approaches worth considering. The City of Austin, for example, starts holding community meetings several months in advance of the proposed budget. Check out this summary of Austin’s FY 2019 budget engagement process and consider how it compares to Metro’s standard approach. Other communities have experimented with participatory budgeting. Results are mixed, but it’s worth considering in Nashville. It would be a logical next step in the evolution of nonprofit direct appropriations and the Community Partnership Fund.

Finally, Metro and the city of Nashville need an economic development strategy. We touched on this in our meetings of the Tax Increment Financing Study and Formulating Committee, but it was a bit outside the narrow scope of that effort. To be clear, Metro’s economic development staff is, and has been, top-notch. They are professionals in every sense of that word. But we are deploying subsidies–the “tools in the toolbox”–without a clearly articulated, consensus position on what we are trying to accomplish. In strategic planning terminology, we are deploying strategies (the how) without clearly defined goals (the what), and we’ve entirely skipped over the call to action (the why).

We have to fix that by engaging the community to help develop clearly defined, measurable goals for inclusive, equitable economic development that improves living standards for residents. That should be the goal. I’d encourage Mayor-elect Cooper to check out Austin’s economic development policy. We revamped it about ten years ago to include a publicly available cost-benefit analysis of every proposed deal–a common set of facts–and multiple opportunities for the community to weigh in before a contract was approved. It even earned an award for transparency from a leading anti-subsidy advocacy group, Good Jobs First. Restoring trust starts with transparency.

Congratulations, again, to Mayor-elect Cooper and his team. Here’s to a more data-driven Nashville.