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 By Roger Tutterow, Ph.D
For the past few decades, the manufacturing sector has faced extensive competitive pressures, much of it due to economic globalization. During this same period, the rise of the internet and wireless communications has enhanced interest in businesses that cater to the "information economy". As such, in some circles, it has become almost passé to discuss the importance of the manufacturing sector to regional economies. However, the case should be made that manufacturing still plays an important role in regional economies.
Despite the recent trend toward the "offshoring" of production in some industries, manufacturing employment remains significant in Georgia. As of December 2007, the manufacturing sector provided over 431,000 jobs in Georgia – or about 10.3% of all non-agricultural employment. In addition, the job creation from the indirect and induced spending associated with manufacturing is a multiple of the employment directly created in manufacturing.
For example, when a manufacturing firm purchases products or raw materials from local suppliers they support employment at that enterprise. This is known as the indirect effect. Likewise, when the employees of a manufacturer or their suppliers spend their wages in their community, that spending also supports employment at a variety of businesses. This is known as the induced impact.
At the national level, a recent study prepared for the National Association of Manufacturers concluded that manufacturing growth spawned more economic activity and jobs than any other economic sector. The NAM report estimated that every $1.00 of final demand for manufactured goods generates an additional $0.67 in other manufactured products and $0.76 in products and services from non-manufacturing sectors. That is, the "multiplier effect" in the manufacturing industry is among the most significant.
It is also worth noting that manufacturing plays a greater role in the rural regions of the state. As of December 2007, manufacturing represented roughly 7% of non-agricultural employment in Atlanta Metropolitan Statistical Area and 15% of employment outside of the Atlanta MSA. In other words, manufacturing employment is more than twice as large a percentage of employment outside the 28-county Atlanta MSA as inside the Atlanta MSA. Further, manufacturing employment is over 17% of employment in the 115 Georgia counties that are not part of one of the four largest MSAs in Georgia MSAs (Atlanta, Augusta, Columbus, Macon and Savannah). Thus, the relative importance of manufacturing employment in the rural counties and smaller cities of Georgia is clear.
Manufacturing is also distinguished from many other sectors in terms of the higher than average compensation it provides. For example, during 2006, average weekly wages in manufacturing were 10.7% higher than the statewide average for non-manufacturing employment despite the cost pressure faced by manufacturers. Outside of the Atlanta MSA, manufacturing wages were 20.2% higher than non-manufacturing wages. In many rural communities, a local manufacturer is both the largest and best compensating employer.
However, these figures still understate the compensation paid by manufacturing firms because they do not capture the value of fringe benefit packages. At the national level, employers' contributions to discretionary fringe benefit programs were 32% higher in manufacturing firms than for all firms.
Finally, because many manufacturers export product out of their regions, they contribute to "wealth creation" in the communities in which they produce in a manner that is more significant than that of businesses that sell goods and services to only local residents.
In recent years, Georgia has taken some proactive steps to support manufacturing in the state. In 2005, Georgia passed legislation that altered how state corporate income taxes were calculated. Under the new "single factor" system, a businesses tax burden is based solely on its Georgia sales rather than on a weighted average of its sales, payrolls and real property. This shift was phased in over three years with sales becoming the only factor in January 2008. Making this change, Georgia removed a disincentive for manufacturers to locate in the state.
In both the 2004 and 2007 Georgia Power PSC rate cases, recognition was given to the role of electricity cost on manufacturers profits through the addition of an industrial load retention rider. Currently, legislation is under consideration to initiate a "Made in Georgia" program that will promote the state's goods-producing enterprises.
In all these cases, the importance of manufacturing for the Georgia economy has being recognized. However, competition from both abroad and neighboring states remains intense. As such it remains important that we continue to acknowledge and articulate the high value of manufacturing for our state.
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