Boston Foundation releases Northeastern report on the importance of manufacturing to state’s economy: ‘Making things’ promotes innovation, well-paid jobs, economic growth

Boston –Conventional wisdom may relegate manufacturing to the ash heap of earlier centuries, but new research undertaken by the Center for Urban and Regional Policy at Northeastern University and released today by the Boston Foundation establishes not only the importance of manufacturing as a potent part of the regional economy but its role as a catalyst for future growth. Today, almost 10 percent of the state’s workforce is employed in manufacturing, creating almost $40 billion worth of goods annually. The sector retains more than 8,600 firms that are technologically sophisticated and well positioned to compete successfully in the emerging global economy.

“This report reclaims an important role for manufacturing in the Commonwealth,” said Paul S. Grogan, President and CEO of the Boston Foundation. “The products change, sometimes abruptly, but manufacture itself, connected to the extraordinary record of invention and innovation that has long defined Massachusetts, will continue to help stoke a robust regional economy for many years to come.”

A sharp increase in productivity has played an important role in the continued importance of the sector. Since 1997, Massachusetts has sharply outpaced the nation as a whole, with an increase in productivity of more than 60 percent, compared to the national increase of about 30 percent.

The report, entitled Staying Power: The Future of Manufacturing in Massachusetts , reviews the history of manufacturing in the state, from before World War II through recent decades of decline and renewal. In addition, surveys of more than 700 businesses were completed and separate interviews with more than 100 business leaders in the sector were undertaken by the research team, headed by Barry Bluestone, Dean of the School of Social Science, Urban Affairs and Public Policy and Director of the Center for Urban and Regional Policy at Northeastern University, and Don Walsh, a Senior Research Associate at CURP.  Lauren Nicoll and Chase Billingham also contributed to the writing of the report.

The report was commissioned by the state’s 2006 Economic Stimulus bill. Partners in the publication included he Manufacturing Extension Partnership, the Massachusetts Alliance for Economic Development and the Commonwealth of Massachusetts, in addition to the Boston Foundation.

Their findings track overall employment in the sector, which has declined since the high-water mark of 1943, when the military efforts connected to World War II pushed employment above 800,000. Today, employment stands at just under 300,000. That time period included a decline in low-tech manufacturing of more than 50 percent, including textiles, leather products and other items associated with state history. So-called high-tech manufacturing, including computers, electronic equipment and appliances, declined at a far slower rate. Recently, this overall decline mirrors changes in the increasingly global economy, which has seen important declines in manufacturing through the country.

Bluestone expects manufacturing to remain the fourth largest employer in the state, projecting at least a decade into the future. Only healthcare, the retail trade and education are larger than manufacturing in terms of the number of employees today, and when the comparatively high wages the sector provides are factored in, only the health care sector has a higher payroll.

“This research invites all of us to reboot our thinking about manufacturing,” said Bluestone. “We have moved far beyond the shoes and textile mills that put Massachusetts at the center of the American Industrial Revolution in the 19th century, and this information calls us to address the challenges we face if we are to maintain this important sector. That includes finding ways to lower the cost of doing business in the Commonwealth and securing the skilled and trained workforce manufacturing needs to thrive. It may not be as sexy as nanotechnology, but manufacturing is a powerful economic engine for Massachusetts.”

The report cites the certain need for growth in the sector’s workforce in the years ahead, as a wave of retirements is anticipated. According to Bluestone and Walsh, fully one-third of current workers over the age of 45 can be expected to retire by 2016. That will require the hiring of about 50,000 new workers. Taking natural turnover into consideration, the authors anticipate the need for fully 100,000 new workers in that time, creating both a challenge and an opportunity for the commonwealth.

Important challenges remain 

The sector is expected to remain robust. In fact it notes that despite what is described as “near catastrophic” losses in the past decade, manufacturing actually stands today as a bigger part of the state economy than it did in 1997—up to 13.9 percent of the gross state product from 10.9 percent. The report does track current challenges to manufacturing firms uncovered in the survey and interviews. Manufacturers are quick to point to the high cost of employee health insurance and energy as factors that make Massachusetts a less “business friendly” place to locate.

Concerns about future workforce availability also rank high. Finding the 100,000 new workers cited above, which will be needed in the course of the next decade was reported by industry leaders, who already are having difficulty recruiting the skilled craft workers they need.  Many of the sector’s business leaders complain that the lack of attention to manufacturing in contrast to all the respect paid biotech, nanotech, and financial services dissuades young workers from considering a manufacturing career.

Portrait of a sector 

The report details the nature of manufacturing today and as projects the sector ahead a decade. Small, family-owned firms predominate. Fully 35 percent of all such firms employ four or fewer employees. An additional 36 percent employ between five and 19 employees. And only 35 percent of all state firms represent publicly traded corporations. Most manufacturing firms that operate in Massachusetts are headquartered here (more than 92 percent) and six out of seven operate only within the commonwealth.  Many of these firms create products for other manufacturers (43 percent); while only about 20 percent sell directly to retail customers.

The majority of manufacturing jobs require no more than a high school diploma. But if higher education is not often required (only 1.5 percent of companies surveyed reported that the majority of their jobs require a graduate education), job training and vocational skills are critical. Wages are comparatively high, averaging $12.81 an hour for unskilled labor, which is more than twice the federal statutory minimum wage and more than 60 percent higher than the Massachusetts minimum wage of $8 an hour. Skilled production workers averaged $20.48 an hour. When salaried and hourly workers’ pay is combined, the average annual wage is above $65,000, nearly 25 percent higher than the average annual salary across all jobs in Massachusetts.

Businesses surveyed were asked why they have made the decision to remain in the Commonwealth.  Top reasons cited included the strong work ethic in the local workforce (52 percent), the sheer difficulty of relocating (51.7 percent) and the availability of a customer base (38.7 percent). Other reasons that ranked high included the availability of skilled labor, reasonable labor costs and quality of life.

Manufacturing business leaders remain strikingly optimistic about their prospects in the Commonwealth. More than 60 percent expect to expand the number of employees working for them during the next five years.

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The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation, with assets of over $964 million.  In 2007, the Foundation and its donors made more than $92 million in grants to nonprofit organizations and received gifts of more than $155 million.  The Foundation is made up of some 850 separate charitable funds established by donors either for the general benefit of the community or for special purposes.  The Boston Foundation also serves as a major civic leader, provider of information, convener, and sponsor of special initiatives designed to address the community’s and region’s most pressing challenges.  For more information about the Boston Foundation, visit www.tbf.org or call 617-338-1700