EXPORTS' IMPACT ON EMPLOYMENT:
NEARLY ALL NEW MIDWEST JOBS IN MANUFACTURING COMING AT COMPANIES THAT EXPORT, IU REPORT FINDS

BLOOMINGTON, Ind. -- Between 1992 and 1996, manufacturing employment in seven Midwest states and New York increased by 3.4 percent and nearly 200,000 jobs. A new Indiana University study finds that most, if not all of those jobs, were created by companies competing at the global level.

The study, done for the GE Fund by two professors in the Kelley School of Business at IU, found that the number of manufacturing export jobs rose by 27 percent over the same time period and accounted for virtually all of the rise in manufacturing employment in Indiana, Illinois, Kentucky, Michigan, New York, Ohio, Tennessee and Wisconsin.

"This dramatically underscores the importance of export activity to manufacturing employment in these states, and explains why the Midwest's major manufacturing industries did not suffer the same declines that were felt by the nation," said Lawrence Davidson, director of the Global Business Information Network at IU, and Heejoon Kang, IU professor of business economics and public policy.

The business economists' report indicates that the number of export-related jobs in manufacturing grew by more than 294,000 over the same four-year period in these states.

In an interview, Davidson said the study results show how much employment might have fallen if not for increased export activity by companies in these states.

"Illinois, Ohio and Indiana led the eight states we studied in having 1.8 manufacturing workers involved with indirect exports for every employee producing direct exports," Davidson said. "If there were 10 workers producing goods that were shipped directly out of those states to a foreign country, there were 18 workers at the same time producing goods in that state which went off to Michigan or to some other state that shipped the items abroad."

As a group, total employment resulting from indirect exports in manufacturing totaled 842,600 workers in 1996 in the eight states. This means that there was an average of 1.57 workers involved in indirect exports for every one worker who produced goods that were directly exported.

"It really sends a chilling message, and one that I really don't think some states are taking seriously," said Davidson, also a professor of business economics and public policy at IU. "The whole Midwest region is producing products that are shipped abroad. We produce for one another."

This emphasis on learning more about state exports is consistent with concerns raised by recent economic forecasts. For example, the U.S. Labor Department forecasted that while exports accounted for only 12 percent of total U.S. gross domestic product (GDP) in 1995, U.S. exports will increase by $560 billion between 1995 and 2005. That would represent 38 percent of the change in GDP over those same years. Manufacturing employment is expected to decline in many of the nation's largest industries, unless they seek new markets for their products through exporting.

"Our study suggests that if employment and wages respond as they have in the recent past, then industries in Midwestern states that export have a good chance to buck this tide," said Davidson and Kang.

Their study found that Indiana had the highest percentage increase of the eight states between 1992 and 1996, with export sales growth of nearly 19 percent annually. Kentucky was close behind with an annual rate of 17 percent, followed by Illinois with 13 percent. New York and Michigan were tied for last with a rate of about 8 percent.

Four industries accounted for nearly half of estimated export employment in manufacturing in 1996. They were, in order of importance, industrial machinery and computer equipment, electronic equipment, fabricated metals, and transportation equipment. The professors also studied the industries' relative importance as measured by employment, instead of sales.

Industrial machinery, the second-most important industry according to sales, "becomes first by a long shot," Davidson said, when ranked according to employment. "There's an industry that's much more important, because -- as you can imagine -- there's a lot of machinery that's intermediate."

Fabricated metals -- which ranks seventh according to sales -- moves up to third place when employment is the prime factor. Transportation equipment, which is typically the biggest industry according to sales figures, ranks fourth in terms of employment.

Davidson and Kang said their study is important because existing rules of thumb about the impact of exporting on area workforces no longer can be considered reliable. States often differ from how the nation and other states are performing.

A rule frequently repeated by government officials and economic development leaders is that nearly 20,000 jobs are linked to every $1 billion in manufactured exports. But this is based on studies that are a decade or more old -- the federal government last published data on export employment for the year 1991, when it stopped gathering such information. Also, the really useful information has to be reported at the local level.

"What we're finding here is that rule-of-thumb doesn't hold true for particular states or for particular industries," Davidson said. "To pretend that any industry is going to produce 20,000 jobs for $1 billion in sales is unrealistic."

For example, in their study, Davidson and Kang found that Ohio increased employment by 6,900 jobs for every $1 billion increase in direct export sales, and Tennessee increased employment by 11,200 jobs. "But here is where productivity becomes an issue. It may be that Ohio's just done a lot more in terms of manufacturing productivity than Tennessee," he said.

Another example, the food products industry in Indiana, had 3,500 increased employment for every $1 billion increase in export sales, while that state's furniture industry created 15,100 jobs for the same change in trade activity.

"We can't get 20,000 jobs," Davidson said. "We just don't find that number's right. In the last five to six years, manufacturing productivity has really improved significantly, so it just doesn't take as many workers to produce $1 billion in goods."

For more information, contact George Vlahakis, Office of Communications and Marketing, 812-855-0846 or 812-855-3911, gvlahaki@indiana.edu

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