California losing manufacturing jobs faster than rest of U.S.

California is losing a battle with other states to retain and attract manufacturing jobs, and the cost of doing business is largely to blame, according to a report released today by the Milken Institute.

Manufacturing 2.0: A More Prosperous California found that California had 21 percent fewer manufacturing jobs in 2007 than in 2000, compared with a decline of 20 percent nationally and 13 percent among seven states that are competing for the same types of manufacturing jobs.

The report compares California’s performance and policies to those of seven “peer” states – Arizona, Indiana, Kansas, Minnesota, Oregon, Texas and Washington – chosen for their increasing share of U.S. manufacturing jobs and production, especially in high-tech manufacturing. The report looks at the time period of 2000 – 2007, the latest data available at the time of the research.

The state is hemorrhaging high-tech manufacturing jobs at an even higher rate than in traditional manufacturing industries. California’s employment in this high-wage, high-skill segment is down 23 percent from 2000 levels, as opposed to declines nationally of 19 percent and the peer states’ average of 16 percent. In fact, from 2003 to 2007, encompassing the recovery of the high-tech sector, the peer states gained 24,000 high-tech manufacturing jobs while California lost almost 16,000.

“Widespread misconceptions about the manufacturing sector in California are part of the problem,” said Perry Wong, senior economist and one of the authors of the report. “People don’t understand that manufacturing is an integral part of the high-tech and clean-tech economy. If Californians want to build the future economic recovery on high-tech and retain highly skilled workers, they have to address the underlying issues of this sector now.”

Driving the decline, the report says, are a reputation for an unfriendly business climate, comparatively high tax rates, a restrictive regulatory climate and unsustainable government spending.

Recommendations in the report include:

·        Streamlining the regulatory procedure for manufacturers, without relaxing or changing regulatory standards, to increase transparency and accountability in the regulatory process.

·        Enhancing public incentives through better planning, coordination across government agencies, and partnering with the private sector.

·        Launching an industry-led campaign to encourage Californians to pursue careers in the highly technical and highly paid manufacturing field.

·        Creating a network of education, training, research, and business incubation centers around the state.

·        Developing a public-private initiative to conduct research and develop new manufacturing processes that are cleaner, more energy efficient, and generate less waste.

The authors examine the consequences – lost wages, jobs, tax revenue and economic ripple effects – of the state’s inaction to curb the decline and describe what the seven selected states have done to retain more employment and even grow their manufacturing sectors. As the report notes, these states are increasing their competitiveness through work force development, enhancing their business climates, increasing access to capital and investing in innovation.

The report follows up on a previous analysis of California’s manufacturing economy, Manufacturing Matters, released in 2002, that chronicled the state’s dependence on and decline in manufacturing and made recommendations to staunch the flow of jobs to other countries and other states.

The report was sponsored, in part, by the California Manufacturers & Technology Association. The full report and an executive summary are available at www.milkeninstitute.org. An interactive data set for the report and for each of the eight states is available at www.milkeninstitute.org/manufacturing.