Is the New Pittsburgh Really the Old Pittsburgh?

Is Pittsburgh still an industrial powerhouse? In the Comments, Harold Miller argues that manufacturing remains the key to Pittsburgh's economic future. He writes:
"Pittsburgh is still a manufacturing center. In fact, manufacturing is still the largest contributor to regional personal income (other than retirement benefits! -- see my Post-Gazette column on this a while back). In fact, I think one of the biggest problems in the region is that people erroneously think we're NOT a manufacturing center any more, and so we don't place a priority on the kinds of policies that will retain what we have and grow more of it. Moreover, I think that Pittsburgh has already gone through a process of shedding the lower-wage, lower-value manufacturing jobs that other regions have yet to go through (we lost our jobs to the sunbelt, and they will now lose them to Asia). Because of that, if we don't screw it up, manufacturing can become even more significant here in the future relative to other regions."

Interesting. I wish I had a staff -- or a grad student in labor economics; I'd like to look at some data. I still think that Harold is out in the cornfield, going against the grain. Some quick notes on his argument:

First, are manufacturing wages as a percentage of regional personal income a fair measure of whether or not Pittsburgh is a manufacturing center? That statistic doesn't tell you anything about the concentration or distribution of income, or about the number of jobs involved, or about the overall trend line for personal income. Lots and lots of assembly line jobs or a smaller number of professional jobs? You can't tell, but my money is on the latter. Is modern regional "manufacturing" is completing a shift away from the kind of commodity production that characterized Pittsburgh's earlier industrial economy? I think so. Is personal income growing or falling?

Second, manufacturing as a percentage of the current economy conceals an important and obvious change in denominator: the total dollar value of manufactured goods produced in the region. In constant dollars, I'm going to guess that this number has gone down steadily for the last 50 years, and probably longer. I'm also going to guess that this trend is pretty consistent across the Northern United States, from New England through the Mid-Atlantic and Middle West states; in other words, I don't think that Pittsburgh is a leading-edge city when it comes to the need to replenish its local economy.

Maybe I'm wrong about that (data will tell), but I have a back-up hypothesis: I'll bet that even if the dollar value of manufactured goods has remained level, or even increased, the number of regional jobs associated with producing those goods has gone down. What is manufacturing's share of total employment? I'm pretty confident that those numbers go down, down, and down over the years.

Comments

8 Responses to "Is the New Pittsburgh Really the Old Pittsburgh?"

Harold D. Miller said... 12/19/2006 9:54 PM

"Out in a cornfield," eh? Well, I've been accused of worse.

Actually, an example of some unique manufacturing synergy here is the conversion of the former Sony Video Glass plant in New Stanton into an ethanol MANUFACTURING plant, which may also provide a market for local farmers' corn. (See for example http://www.pittsburghlive.com/x/pittsburghtrib/news/mostread/s_483411.html)

You don't need a staff to research this. You can find a lot of the key information here: http://www.pittsburghfuture.com/economy.html.

A few points:
(1) the number of jobs in manufacturing firms is a poor measure of the health of manufacturing and a particularly poor measure of the impact of manufacturing on a region's economy. What used to be jobs employed directly by manufacturing firms are often now employed in lots of other firms that supply services, such as IT, accounting, janitorial, etc. So some of the decrease in "manufacturing jobs" actually reflects a shift of those jobs from inside of manufacturing jobs to firms in other industries.
(2) Although Pittsburgh lost about one-fifth of its manufacturing jobs between 1999 and 2005, the U.S. as a whole lost almost the same proportion of its manufacturing jobs.
In fact, every major region in the country lost manufacturing jobs, and many lost a larger share of their manufacturing jobs than did the Pittsburgh Region. Silicon Valley lost 29% of its manufacturing jobs. Austin lost 27% of its manufacturing jobs. Boston lost 23% of its manufacturing jobs.
(3) Pittsburgh ranks 12th among the top 40 regions in the country in the proportion of regional income from manufacturing, and Pittsburgh’s manufacturing jobs have the seventh-highest average earnings.
(4) Income from manufacturing jobs in the Pittsburgh Region has been increasing even though there are fewer jobs in manufacturing.
(5) If what you want is traditional assembly-line jobs, you're going to have to go overseas to find a place where they're growing. There are still assembly line jobs here, but they are a smaller number of high-paid knowledge workers, rather than a large number of low-paid drones. The high-end jobs ARE growing here (witness Medrad's new manufacturing plant), but that growth is offset by the continuing loss of the old-style manufacturing jobs (both here and everywhere else).

As you yourself point out, the Westinghouse contract with China is one of the biggest stories in months. That's a manufacturing success story!

Now, none of this means that we are a booming manufacturing center -- the point of my comment was exactly that we are at risk of losing what we have, much less growing faster, if we don't make manufacturing a priority. If we continue to have high corporate taxes, uncompetitive electricity rates, etc., we may wake up one day and find out what happens when the manufacturing that everyone wants to believe is already gone actually leaves. It won't be pretty.

Anonymous said... 12/19/2006 11:07 PM

It seems to me to be irrelevent as to whether the prosperity attributed to the manufacturing industry is more or less concentrated in a group of individuals. The bottom line is that it is a major contributor to the well-being of southwestern Pennsylvania. In fact, the lower paying manufacturing jobs have moved on - first to less expensive regions of the US, then to China, and now from China to even less expensive countries such as Vietman. It is as it should be. Capitalism is based on delivering goods at the cheapest price. Manufacturing jobs that stay here are typically creating high-value, technology rich, cutting edge goods where competitivenes is ascribed to high quality, just in time delivery, and retention of intellectual property. Vietnam is welcome to punch out cupie dolls - we'll build state of the art medical equipment.

Less energy should go into quibbling over how concentrated are the benefits of having a manufactruing indutry in the region and more energy should go into ensuring that we have in place the increasingly sophisiticated workforce that will be needed to support it.

C. Briem said... 12/19/2006 11:39 PM

The simplest counter to that is that the location quotient for manufacturing employment in Pittsburgh is now less than 1.0. That just means that the proportion of regional jobs in manufacturing is less than the nation's.

An argument based on that fact manufacturing makes up one of the largest parts of regional income borders on a tautology.... that statement is true of a lot of regions.

All that being said, sure it's true that manufacturing is still important and a significant part of the regional economy. Drive in from the airport and you will see the billboard for the local chemical industry (I refuse to call it the chemistry industry which their branding people want me to do) advertise how many jobs they create in the region. That is all manufacturing. Steel is still here, not just production but R+D, infrastructure and services for the global steel industry.. I could go on. So I agree that its not fair to write off manufacturing, which is ever more high tech anyway.. but I would also tweak Harold who has been making the case that manufacturing employment will be making a comeback in the region for a long time now (decades?) and it just has not materialized.. the freefall has stabilized for sure but an employment growth engine??

Harold D. Miller said... 12/20/2006 7:46 AM

Location quotients are a lousy way of measuring regional dependence on an industry, for two reasons:

(1) They don't measure interdependencies among industries. Let's suppose we have two small hypothetical communities. One has only a manufacturing plant, and it buys its accounting services from a firm in another region. The second has a manufacturing plant and also has the accounting firm that the manufacturing plant uses. (In both cases, assume that the manufacturing firm is the biggest customer of the accounting firm.) The location quotient for manufacturing in the second region is lower because it also has the accounting jobs and therefore appears to be a more diversified economy. But if the manufacturing plant closed, the second community could lose not only the manufacturing jobs, but also the accounting firm. The second community's economy may be more dependent on manufacturing, even though the location quotient is lower.

(2) They are based on number of jobs, not quality/pay of jobs. Ceteris paribus, a community with a large number of low-wage manufacturing jobs will have a higher location quotient for manufacturing than a community with a smaller number of high-wage manufacturing jobs. But the latter are more likely to persist in the longer run if they are knowledge-based jobs.

Anonymous said... 12/20/2006 10:25 AM

I do think I appreciate the occupational mix of industries and IO linkages. Location quotients need not be based on just the number of jobs, you can do them based on earnings as well.. or do occupational employment LQ's which addresses some issues.

but more importantly, in terms of relative pay across industries, Pittsburgh's manufacuring industries have not fared that well. Not that long ago the income distribution in Pittsburgh was actually bimodal with this atypical 2nd peak caused by the manufacturing jobs that paid so well compared to the remainder of jobsof in the region. The convergence of manufacturing wages with other jobs in the region has eliminated that odd distribution and given us income distributions typical of most other places.

While I would be the first to tout that many local successes are the result of manufacturing legacy, they are not manufacuring today. The Westinghouse jobs we all seem to agree will be a big deal for the region will have some manufacturing but mostly will be R+D and services globally. The same is true for a lot of the steel-related employment in the region.

Jim Russell said... 12/20/2006 12:29 PM

I find Harold Miller's analysis confusing. From his most recent blog post:

"If we don't lower business taxes, we could lose manufacturing jobs.

If we don't keep electricity rates competitive, we could lose manufacturing jobs.

If we don't keep air quality regulations competitive, we could lose manufacturing jobs.

Manufacturing jobs can go anywhere, and costs are important."

If manufacturing jobs are so mobile and Pittsburgh doesn't compare well in terms of costs, why did Westinghouse decide to locate here? What would help me understand the situation is a few comparisons with regions that provide a more attractive manufacturing environment.

I fail to see the upside of a pro-manufacturing policy. Regardless, lowering the cost of doing business would benefit every sector of the economy. Isn't there considerable common ground here?

Harold D. Miller said... 12/20/2006 1:30 PM

We do quite well in the headquarters and R&D components of manufacturing (which actually aren't even counted as "manufacturing" per se in the job measures anymore), in new products, and in the types of production that depend heavily on knowledge-based workers. But as any new company/product develops competition and as its products become more commodotized, the cost factors become more and more important, and when investment and reinvestment decisions are made, they may go elsewhere.

For example, Allegheny Technologies has a huge manufacturing production base still here, and they have decided not to replace/expand their steel facilities here because of the dramatic growth of electricity costs. That means that we won't get the growth, and we may lose the base. It's hard to see the upside of losing them.

Not all costs of business affect all sectors equally. Steel and chemical facilities are more affected by energy costs because energy is a bigger share of their production costs. Different taxes affect different industries differently.

Jim Russell said... 12/20/2006 2:41 PM

I'm still struggling to understand the gravity of the current state of manufacturing in Pittsburgh. I would agree that businesses leaving Pittsburgh is bad for the region, but I'm trying figure out the benefits of a more pro-manufacturing orientation.

If Pittsburgh throws manufacturing a bone, does it hurt some other sector? What kind of priority should Pittsburgh place on keeping and attracting manufacturing if the number of jobs are declining nationwide?

What I am seeing in this discussion looks painfully familiar, another Pittsburgh turf battle and we are left to consider only the zero-sum games. In terms of the knowledge economy, cheaper electricity attracts server farms (see Google and the Columbia River Gorge). Why not broaden the appeal of the policy recommendation?

Let's look at a few regions that are doing a good job of promoting manufacturing. I think this would help everyone understand the benefits of the changes in policy you recommend.

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Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at]gmail.com. Mike also blogs at Madisonian.net, on law and technology. Chris Briem of Null Space drops by from time to time.

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