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What Really Determines Whether a Manufacturing Firm Locates and Remains in California
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Research Findings
Manufacturing plays a big role in California’s economy. About 10% of residents are employed in manufacturing, which generates $150 billion in value, and the jobs pay well: In 2004 the average income earned in manufacturing was $57,000, 54% more than the state’s median income.
Between 1990 and 2003, however, California has lost almost 400,000 manufacturing jobs. A 2008 paper by California State University, “What Really Determines Whether a Manufacturing Firm Locates and Remains in California,” examines the causes of this trend as well as possible solutions.
The study’s key findings include:
- Factors that attract and retain firms include lower wages for equally skilled or educated workers, lower level of unionization on industrial activity, strong transportation networks and lower taxation on manufacturing firms.
- Statewide economic development programs have a smaller-than-expected effect in reducing the outflow of existing manufacturing. A 10% decrease in business taxation is likely to increase manufacturing activity in the state by only 1.5% to 3.5%, assuming that other states do not match the offer.
- Key business conditions that negatively affect manufacturing investment in California include concerns about the future of its skilled labor force, traffic congestion, relatively higher electricity rates and rising costs of workers’ insurance. Other factors are taxes, workers’ compensation costs and labor and housing costs.
Suggested policies that could retain and increase manufacturing investment in California include tax credits, transportation infrastructure and worker training/education.
Photo by Francine Orr of the Los Angeles Times.
Tags: California, infrastructure, taxation, labor unions
Teaching Notes
Analysis assignments
Read the California State University paper titled "What Really Determines Whether a Manufacturing Firm Locates and Remains in California."
- Summarize the study in fewer than 40 words.
- Express the study's key term(s) in language a lay audience can understand.
- Evaluate the study's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the study's data or research design?)
Read the issue-related Los Angeles Times article titled "Losses of factory jobs in California blamed on regulation."
- If you were to rewrite the article based on knowledge of the study, what key changes would you make?
Newswriting assignments
- Write a lead (or headline or nut graph) based on the study.
- Spend 60 minutes exploring the issue by accessing sources of information other than the study. Write a lead (or headline or nut graph) based on the study but informed by the new information. Does the new information significantly change what one would write based on the study alone?
- Interview two sources with a stake in or knowledge of the issue. Be prepared to provide them with a short summary of the study in order to get their response to it. Write a 400-word article about the study incorporating material from the interviews.
- Spend additional time exploring the issue and then write a 1,200-word background article, focusing on major aspects of the issue.
Thanks for the post on manufacturers locating to California. I agree about 10% of Cali’s workers are employed in the manufacturing sector. But let’s not forget all the other jobs manufacturers create in other sectors that serve the manufacturing industry such as shipping/logistics, commercial cleaning, landscaping and so on.
Rich