Automation and offshoring in durable goods manufacturing: An Indiana case study.

• Author: Slaper, Timothy F.
• Position: Case study

What accounts for the massive loss of employment in manufacturing over the last 15 years or so? Even while the U.S. economy recovered from the 2002 recession and grew through the mid-aughts, manufacturing employment continued to fall both in the U.S. and Indiana, but mildly bounced back after the Great Recession. Figure 1 provides visual context.

To help answer this question, we conducted something of a case study focusing on durable goods manufacturing in Indiana to ascertain whether manufacturing job losses in the state can be attributed to offshoring of labor (shifting production and employment to another country) or automation. Having suitable and sufficient data somewhat limits making iron-clad claims, but the available data and our analysis does point to whether offshoring and/or automation influenced (the mostly negative) employment outcomes in manufacturing in the state.

As the average Hoosier will be able to tell you, Indiana is the most manufacturing-intensive state in the United States. Employment concentration in manufacturing as a percent of the workforce is greater in Indiana than any other state. As with many of its Midwestern manufacturing-intensive neighbors, the steady rate of manufacturing job losses in the last decade and a half across the country is well documented. Indeed, announcements of foreign direct investment by Indiana-based companies that would create jobs in countries like China and Mexico add to the evidence and general unease about manufacturing jobs being offshored from Indiana to other countries. Table 1 presents Indiana-based company job announcements from the f DiMarkets data source.

Table 2 presents the durable goods manufacturing industries in Indiana that suffered the greatest job losses from 1998 to 2015.

This article tees-up the empirical results of a publication that will soon appear in the journal Economic Development Quarterly, available online November 2018. Lest we "scoop ourselves," the detailed findings are not presented here, but we can present the state of the discussion about offshoring versus automation, provide theoretical background and, we hope whet the appetite of the reader to read the full article.

State of the discussion

The change in the geography of manufacturing employment has been a source of concern among many economists, policymakers and those in traditionally middle-class jobs who have found themselves displaced. Pierce and Schott (2016) link the stunningly swift decline of U.S. manufacturing jobs to the U.S. establishing permanent normal trade relations with China. By the later aughts, the concept of offshoring, and its empirical validation, had gone mainstream, with researchers attempting to assess the effects of offshoring on wage and income inequality, as well as determining how the increase in trade has affected productivity growth (Houseman, 2007).

The research literature generally points to the increasing practice of offshoring for the decline in manufacturing production and employment (e.g., Olsen, 2006). But service jobs were not immune from offshoring either (Bradford & Kletzer, 2005). Houseman and colleagues have a considerable opus related to offshoring, the importation of intermediate inputs, import prices and measures of productivity (e.g., Houseman et al., 2011). Acemoglu and colleagues (2016) also argue that even before the Great Recession, the U.S. was in an employment sag and suggest job losses due to Chinese import competition to be in the range of 2.0 million to 2.4 million.

With such job losses, the gains from trade seemed illusive, or at least those gains were inequitably distributed. States like Indiana were in turmoil as they tended to bear the disproportionate impact of jobs being relocated.

There has also been emphasis on the types of jobs lost, as well as the potentioal for certain occupations to be offshored or automated away. The focus of this research is the types and level of skills associated with at-risk occupations. While manufacturing jobs moving to lower-wage countries was typical and had higher visibility in the opening decade of the century, there has been an increasing focus on routine service jobs moving to lower-skill countries, or even high-tech jobs that can be moved to lower-cost locations (for example, tech support provided by workers in India). Indeed, there is a growing literature on how to score a job's vulnerability to offshoring, see Autor and colleagues (2003), Blinder (2009) and Blinder and Krueger (2013). For a follow-on to this discussion about a job's vulnerability to being offshored shifting to the vulnerability of jobs being replaced by automation and computerization, see, for example, Frey and Osborne (2017). Just last year, our fellow Hoosier researchers at Ball State University published a report and supporting data--How Vulnerable Are American Communities to Automation, Trade, & Urbanization?--that synthesizes the scholarly work mentioned above and makes some rather grime predictions about the vulnerability of American jobs...