NY’s manufacturing slump

by E.J. McMahon |  | NY Torch

Credit: www.syracuse.com

“Uneven growth” in U.S. factory jobs since the recession is the subject of a front-page article in today’s Wall Street Journal–and upstate New York is featured as a prime example of a region left behind by the positive trend.

While the nation as a whole has added 650,000 manufacturing jobs since the recession, reversing a long decline, the Journal found that 38 percent of counties had nonetheless lost jobs between September 2009 and September 2013.

In the Journal account (subscription required), the featured example of manufacturing jobs was Mobile County, Alabama, which has added thousands of new jobs in shipbuilding and aeronautics and other industries.

As for the losers:

Among the worst slides has been in Onondaga County, N.Y., where factory jobs fell 17%. A smokeless brick chimney juts from rusting ruins in the county, where a dinnerware plant near Syracuse closed in 2009 after 138 years. A Lockheed Martin Corp. electronics plant has cut jobs to about 1,600 from roughly 2,300 in 2009. Unlike Mobile, Syracuse hasn’t attracted major new industrial employers.

Alabama and other big factory job gainers have much lower total state and local taxes than New York, of course, but taxes aren’t the only factor. States gaining manufacturing also tend to have right-to-work laws, thus lowering labor costs, while New York is the most heavily unionized state in the nation.

States enjoying some growth in factory employment also are best positioned to benefit from the shale oil and gas energy boom, which New York is still deliberately sitting out, despite the massive untapped gas deposits in the Marcellus Shale underlying the Southern Tier. So while New York has just lowered its corporate tax burden on manufacturers — which, as this Tax Foundation study showed, wasn’t actually all that high to begin with –it hasn’t overcome other disadvantages that cause it to be perceived as a less desirable location.

About 1,000 miles northeast [of Mobile County, Al.), the Syracuse metropolitan area and Onondaga County had been losing jobs for decades when the recession hit. Long gone were factories that made GE television sets and Carrier air conditioners.

The trend continued after the recession’s end. Onondaga County—population 467,000—ranked 2,728 out of 2,737 in net manufacturing-job creation in the Journal study, losing 3,735 jobs to end with 18,461 in September 2013.

Labor costs have led some employers to cut jobs. From early 2009 to mid-2012, Magna International Inc., a Canadian auto-parts maker with about 60 U.S. plants, wound down and finally closed a Syracuse-area parts factory that employed as many as 4,000 people a decade earlier. Magna eventually decamped because it determined the factory wouldn’t be competitive without labor-cost savings, a Magna spokesman says. [emphasis added]

Note that, by this account, taxes didn’t ultimately drive Magna away from Syracuse; labor costs did.

For American Intermodal Container Manufacturing Inc., the New York state and local governments weren’t offering compelling incentives. Last year, the startup proposed converting part of the Magna factory to make shipping containers, a project expected to create at about 190 jobs.

It eventually found an Alabama manufacturer to make the containers, says D. Walker Wainwright, its chairman. It proved difficult to attract additional investors to finance a manufacturing startup in New York state, he says, and state and local agencies offered only a “standard set of incentives.” If their offers had been more aggressive, he says, the company might have pursued the Syracuse plan.

When corporate officials are quoted in stories like this saying they chose another state because it offered a richer incentive package, the blame tends to fall on economic development programs. But this overlooks a more basic issue: given its other advantages over a Sunbelt site, including a good transportation network and well-educated workforce, upstate New York wouldn’t need to offer a massive incentive package if it didn’t also have to overcome high labor and energy costs (as well as pervasively high indirect taxes, including retail sales tax and high property taxes on the homes of plant managers and workers).

The Journal story includes a graphic highlighting small pockets of manufacturing job gains surrounded by larger losses in upstate New York (and also downstate) between September 2009 and September 2013.

A nameless state official quoted in the Journal story offers a stock response: denial.

A spokesman for the New York state development agency said it had offered a “competitive” incentive package and that “we believe our economic development strategy is working and positioning the Empire State as a great place to do to business.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.