Virginia Manufacturing Output Up, Jobs Down

There are more than 2,000 craft breweries in the U.S. now. Could artisan foods and beverages be the Next Big Thing in manufacturing?
There are more than 2,000 craft breweries in the U.S. now. Could artisan foods and beverages be the Next Big Thing in manufacturing?

by James A. Bacon

Manufacturing output in Virginia increased 3 percent between the 4th quarter of 2007 and the third quarter of 2015, yet manufacturing employment decreased more than 14% during the same period. Put another way, Virginia added $1 billion in manufacturing output, even after adjusting for inflation, but lost more than 40,000 manufacturing jobs, writes Aaron Williams in the Commonwealth Institute blog.

Overall Virginia employment is gaining steam. The state gained almost 20,000 jobs in the first quarter of 2016 and 100,000 jobs over the last year. But the gains were concentrated in service sectors like education, health and business services. The bastions of blue-collar employment such as construction, mining and manufacturing remained close to flat.

Williams’s commentary focuses on manufacturing. One possible explanation for increased output with declining employment is increasing productivity — the adoption of new technologies such as robotics to enable each person to produce more goods. While Williams doesn’t rule that out, he leans toward a second explanation: a turnover in manufacturing enterprises from low-value, high-labor intensive enterprises to high-value, low-labor businesses. “For example, high-end craft breweries and wineries replace textile mills and furniture factories,” he writes.

Between 2007 and 2013, food, beverage, and tobacco products manufacturing increased 40 percent while furniture manufacturing decreased 51 percent, textile mills decreased 57 percent, and petroleum and coal manufacturing decreased 65 percent. Simply put, manufacturing is a quickly changing sector in Virginia’s changing economy.

Bacon’s bottom line:

Whether or not you except Williams’ analysis of the why manufacturing jobs are drying up, there is no disputing that manufacturing output is increasing while jobs are shrinking.

What does this mean for public policy? First, it calls into question the economic development priorities of the Commonwealth of Virginia — the Virginia Economic Development Partnership, regional economic development partnerships, the Tobacco Indemnification and Community Revitalization Commission, and time spent by Virginia governors on traditional economic development salesmanship — which have changed little since the model was perfected in America’s 1970s industrial-era heyday. If the goal is to create jobs, then pursuing manufacturing investment offers diminishing returns. Virginia still lands deals, but the deals offer less employment.

Another point: the high value-added model of breweries and wineries is a largely bottom-up phenomenon. While the Commonwealth has bolstered the wine industry through research, education and marketing under the auspices of the Virginia Wine Board — 2015 budget of $350,000 — please notice that the state is not in the business of subsidizing the start-up new vineyards and wineries. (Subsidies for craft breweries is a different matter, especially if they are big breweries coming from outside the state. Witness Stone Brewery.)

The trend toward local artisan food products is one that has occurred largely outside the eye of the traditional economic development apparatus, geared as it is to finding tenants for industrial parks. The Virginia’s Finest marketing campaign promoting craft food manufacturers is the exception that proves the rule. But, similar to the wine board, the support has been entirely at the level of branding and marketing… which is as it should be.

If Virginia wants to support the emerging craft economy, it needs to re-think its approach to economic development. I haven’t given much thought to which supporting structures are needed to boost the sector, but I’m pretty sure it’s not tax breaks and subsidies for individual enterprises, or industrial real estate development. The best approach may be thinking about reducing regulatory barriers and obstacles for entrepreneurs.

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10 responses to “Virginia Manufacturing Output Up, Jobs Down”

  1. Steve Haner Avatar
    Steve Haner

    “One possible explanation for increased output with declining employment is increasing productivity — the adoption of new technologies such as robotics to enable each person to produce more goods. While Williams doesn’t rule that out, he leans toward a second explanation: a turnover in manufacturing enterprises from low-value, high-labor intensive enterprises to high-value, low-labor businesses.”

    Uh, gee – I thought moving capital and labor into high-value, low-labor enterprises was the very definition of productivity. That’s where I’d want my &%$#* capital. Is it their plan to pump money into high-labor and low-value? I think they are “feeling some Bern” over there….

  2. LarrytheG Avatar

    I could not disagree with Jim – more. Craft beer and wine is not going to be an economic future for Virginia – but high-value manufacturing that utilizes well-educated workers capable of doing that kind of work – will.

    Here’s an example:

    Orange County business to add 56 jobs

    ORANGE — Lohmann Specialty Coatings in Orange County announced Thursday that it will construct a new $6.7 million building to construct parts for automotive manufacturers at its existing plant south of the Town of Orange.
    On Thursday afternoon, Gov. Terry McAuliffe visited the plant in Orange County’s Lee Industrial Park to present a check for an $85,000 grant from the Commonwealth’s Opportunity Fund to help Orange County facilitate the plant’s roughly 25,000 square-feet expansion.
    According to its website, Lohmann “is one of the pioneering forces in adhesive tape technology and is now active on a global scale. The Adhesive Tape Group is headquartered in Neuwied, Germany. The company now has over 1,500 employees worldwide, 29 international sites, and exclusive sales partners in over 50 countries all around the world.”
    The company’s USA division has plants in West Virginia, Kentucky and Virginia.
    Lohmann President Steve De Jong said Thursday the new building at the Orange facility will create 56 new jobs, many of which will be high-paying.

    Our problem is we are not even graduating kids who are qualified for college – much less the 21st century manufacturing jobs that do exist.

    Manufacturing still occurs – it’s not dead – but plants that used to need 300 now need 50 or less but those 50 have to have a far higher education level than before.

    the very best economic development is an educated workforce – educated to 21st century standards.

    it’s not regulations that is killing us – it’s our complete failure to deal with the reality of required education levels for 21st century work.

    1. I did not mean to imply that craft manufacturing is the sole future of manufacturing in Virginia. I’m just acknowledging the reality of what Aaron Williams suggests, which is that the nature of manufacturing is shifting…. and also that we cannot count on advanced, high-performance manufacturing as a job-creation machine.

      As for the example you cite, by all means, let’s try to get more companies like Lohmann Specialty Coatings. Just remember that it will take dozens of such investments to reverse the decline in manufacturing employment — that’s only 56 jobs. They’re probably great jobs. I’ll bet they pay well. But there’s just not many of them.

  3. Cville Resident Avatar
    Cville Resident

    As I’ve been saying for years…the idea of “work” is going to have to change. Yesterday’s post along with this post are canaries in the coal mine. We’re moving towards a 20/80 or 25/75 society.

    “Traditionalism” is going to cause some to obsess over “making” the 75 to work. But it will ultimately be seen as inhumane. We could look at this as a rebirth for humanity….But I’m sure the Tea Party types will screech about “the value of hard work” and “I pay my taxes and these people better damn well work.”

    LarrytheG has it right…if you stripped all gov’t jobs at all levels (fed’l, state, local) and all public school teaching jobs….how much “middle class” would there be in America? 10%? We’re already at the 25/75 society, we’re just paying Gov’t workers to create an illusion of a middle class.

    I know plenty of people making 100K or more. I know a lot more people making 40K or less. I know next to no people making 40-90K who are not employed by the gov’t.

    You want something else to write about that’s changing? Go do a piece on 2016 agriculture….you’d be shocked at how much mechanization and technology have replaced labor in that industry as well…..

  4. LarrytheG Avatar

    re: ” also that we cannot count on advanced, high-performance manufacturing as a job-creation machine.”

    no we cannot but 56 jobs is better than none if you can’t get the 300 and if we have a competitive workforce – we’ll get “more” of the companies with “fewer” jobs.

    The world is transformed with cyber-security and drone and autonomous vehicles, as well as medical technology, etc… but almost all of them require much higher levels of education than we are producing.

    When our kids that are supposedly on a college-track – need remedial language and math before they are qualified to start Freshmen year – what does that tell you about the kids who are not on a college track in our schools?

    Our problem is that we refuse to accept 21st century realities and spend all our time blaming regulation, Common core, bad parents, teachers and bad genes.

    The truth is – we won’t tell the workers why they are unemployed and why their kids face an even bleaker future and why we face ever increasing entitlement costs.

    at some point -we need to take responsibility for our problems rather than blaming everything from govt to low IQs.

  5. LarrytheG Avatar

    Actually McAuliffe and the late John Miller have it right also:

    from the RTD:

    “Gov. Terry McAuliffe signed legislation Thursday aimed at transforming how high schools prepare students for the future.
    The legislation directs the Virginia Department of Education to create a “Profile of a Virginia Graduate,” which will identify what skills students need in high school and then change statewide graduation requirements to meet the expectations laid out in the profile.

    Driving the new standards is a realization that not all students want, need or should go to college. The idea is for the profiles to identify the core skills individual students need for the tracks they should follow in order to make sure they are prepared to enter either the workforce or college.

    “The underlying structure of high school is still based on expectations rooted in the Industrial Revolution,” McAuliffe said at a bill signing in Northern Virginia. “In fact, high school hasn’t changed much since the 19th century, even though our graduates are competing for jobs in the 21st.”

    State Sen. John C. Miller, D-Newport News, who died last month, sponsored the Senate version of the legislation.

    Miller said in February that he envisioned students taking core classes their first two years of high school. Those who want to go to college would then take courses that would best prepare them for post-secondary education, while those who want to enter the workforce after high school would have the flexibility to earn credits toward their diplomas for internships, apprenticeships and industry certification.

    In both cases, he said, students would be exposed to training, community college, guidance and courses designed to ensure they are prepared to tackle whichever track they follow after high school.

    The legislation came about, in part, from recommendations issued last year by the SOL Innovation Committee, a nonpartisan group of legislators and a range of educational leaders.

    A second piece of legislation signed into law Thursday calls for the Board of Education to provide three-year licenses for industry professionals to teach high school career and technical education courses. This is designed to help get students training from people working in specific fields.”

    note – they do not allude to “craft beer” classes !!!

    this is a huge step in the right direction.

    the major question is – are the schools – and the parents and their kids – prepared for more rigorous standards for Lanugage, Math, and Technology?

    and the truth is – we’re not and that’s a huge problem. The would-be Middle Class itself is not understanding how much more rigorous education has to become to be globally competitive.

    Our problem is we’ve lost faith in our institutions as if the problem is – not us – but instead someone else. The problem is us. We want to blame others for our own failures to be responsible. Someone else is supposed to
    “fix” the problem as “we” the people condemn things like Common Core.

  6. John B Avatar

    For several years I’ve had the rewarding task of reviewing scholarship applications from one of my alma maters’ already admitted students.

    I spent quite a few years in the electrical manufacturing business where we built power transformers, switchgear, transmission line hardware, airport lighting equipment, street lighting equipment, etc.. We still manufacture those unglamorous items but who wants to do it? Do we, for example really manufacture automobiles or simply assemble vehicles with airbags from Takata and components from other overseas sources?

    While I don’t want to be critical it’s hard not to notice none of the apps I reviewed indicated plans for a manufacturing major and/or career path such as industrial engineering. A sampling of majors/future careers was: Endocrinology, Structural engineering, Veterinary research for the government, Spanish governmental affairs, Criminology, Urban affairs and planning, Biochemistry, and Marketing management. Horticulture was the closest I got to manufacturing.

    Perhaps even more revealing were these two: Undecided and Music technology.

    1. Cville Resident Avatar
      Cville Resident

      100% correct. When is the last time anyone met a bright kid in their teens or 20s who wanted to pursue a career related to large scale industrial manufacturing?

      1. LarrytheG Avatar

        kids – and their parents have dreams and often the dreams have little to do with economic realities.

        but it starts way back in K-12 because most kids these days – even the college-bound do not pursue rigorous enough math and language skills attuned to global requirements and most have not acquired real-world problem solving skills using the higher level language and math skills.

        What the Global economy wants is people who have the language skills to read and understand technology – and to incorporate it to solve problems in just about every major discipline from Medicine to drones to big data – to high value manufacturing that incorporates automation and robotics; the workers need to have the knowledge and skills to be able to maintain and operate these things.

        anyone can sit at a computer and query a static database and deliver a printout to someone. What the employer needs is someone who knows how to design and configure that database to work not only for desktop computers but smartphones.

        Our Virginia K-12 in many places is still thoroughly 20th century – and the AP scores show it. Even a place like Henrico has only a 20% participation rate in AP – and a 50% pass rate – and Henrico is considered to be one of the top tier K-12 systems in the state.

        Other schools in the State have AP participation rates of 10-15% and failure rates of 75%.

        That’s horrible and it ought to tell us a LOT about what is happening to the middle class.

        The narrative is not that middle-class jobs have gone away. We have fallen behind and no longer have the education levels that are required to successfully compete for 21st century global jobs.

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