Manufacturing Value Rises Even As Employment Drops

Fred V. Carstensen is an economics professor at the University of Connecticut and director of UConn’s Connecticut Center for Economic Analysis and director of the Connecticut State Data Center. Here, he discusses the latest economic reports with Harlan Levy of the Journal Inquirer newspaper.

In the CCEA economic outlook for Connecticut, your group says that manufacturing continues to lose ground while services gain. Is there no relief in sight for manufacturers?

F.C.: It’s a little deceptive. Manufacturing in the state, nationally, and globally is systematically losing employment. That’s because the manufacturing sector has been systematically able to improve productivity and maintain or even increase the value of its output.

Even here in Connecticut, despite the long, long decline in jobs, its value of output has gone up almost as the mirror image of the decline in employment.

The historic analogy is the decline in jobs in agriculture, even though we have the world’s most productive agriculture. The activities that moved out of agriculture and those that are moving out of manufacturing are in the gigantic service sector, the largest sector in all of the advanced economies.

The jobs are shifting, and as we become wealthier, people consume more and more services as well, so that there’s this whole array of activity, like the development of electronic games in the software industry, or online banking, or travel and concierge services, all of these included in the service sector.

In Connecticut, our primary growth will come in business services, but it’s interesting how we continue to do very well in manufacturing of durables, like Pratt & Whitney or Hamilton Sundstrand, or U.S. Surgical.

Connecticut has done a better job of preserving its manufacturing base than the other New England states.

Your report says that the jobs total has finally bested the 2000 record. Will it increase, and if so why?

F.C.: What seems to be happening in Connecticut is that we’re actually getting some fairly robust growth in employment in small firms. That’s why the preliminary employment numbers for 2006 under-counted by 6,000 the number of new jobs in Connecticut. The weakest reporting comes from the small firms. The procedure for statistical reporting doesn’t capture them as readily as big employers. It takes a while for them to show up, because of the way the procedure is set up.

It’s very encouraging to see that kind of growth and suggests that we’ll see continuing modest job growth, which will carry us past the previous highs in Connecticut, which happened at the end of 2000 and into the first quarter of 2001. But that was only just above the level at the end of the 1980s, so it will have been 20 years since Connecticut enjoyed any significant job growth. But we do think it’s coming.

One thing that’s important to remember is that the recovery from the recession in 2001 and 2002 nationally has been extremely slow in terms of job creation. Secondly, since 1980, essentially all job growth in the U.S. has been in small business.

Could Connecticut have done better?

F.C.: Connecticut probably would have done better in the past five years and certainly would do better in the next five years if it has more coherent economic development strategies and a coherent set of public policies to facilitate economic growth.

We have two very, very substantial challenges here in Connecticut that we need to address if we are to sustain our economic success: No. 1, we have a serious problem in workforce development. Increasingly our workforce will be coming out of urban school systems, where the outcomes have not been satisfactory.

In fact, on current trends, the share of Connecticut’s work force with college degrees will decline by 10 percent over the next decade. At the same time, Connecticut has been dramatically underinvested, not only in K to 12 education, but in its community colleges.

North Carolina, one of our principal competitors, spends nearly three times what Connecticut spends per capita to support its community colleges. Community colleges are an absolutely critical component in providing appropriate training for people entering the workforce.

The second major challenge is, of course, our transportation infrastructure. We aren’t making sufficient investment to create the transportation infrastructure that the state must have in order to maintain a competitive position.

The two factors that business leaders always identify as being the most important in making decisions about where to expand and where to locate are work force quality and transportation infrastructure.

How business-friendly has the current legislature been in this year’s session?

F.C.: I thought things got off to a very promising start, when Governor Rell in her budget address raised the issue of the crisis in educational funding and taxation issues.

Unfortunately, we don’t seem to have made much progress on either of those issues during the legislative session. None of the proposals on the table by both Democrats and Republicans offers either meaningful property tax reform or even relief, nor do they address significantly the shortfalls in educational funding or accountability.