Manufacturing on the Move.

• Author: Cebula, Richard J.

In this study, Robert Crandall empirically examines the shift in manufacturing employment and output from the so-called "Rust Belt" states--the states from Wisconsin to New York--to the South and West [the "Sun Belt"]. Crandall finds that differences in labor market conditions--in the degree of unionization and wage rates--provide the principal explanation of this growth of manufacturing employment and output in the West and South. He also provides evidence that the movement of manufacturing from the Rust Belt to the Sun Belt is not likely to stop because the interstate differentials between the Rust Belt and Sun Belt in terms of wages and the degree of unionization have not significantly narrowed.

Crandall notes that the popular explanations for the decline in manufacturing in the Rust Belt states were slow economic growth after the oil price shocks of the 1970s and the sharp rise in the value of the dollar that occurred in the early 1980s. Crandall rejects both of these explanations. He observes that the United States experienced eight years of sustained economic growth after the 1981-82 recession and that by 1992 the dollar had receded to its lowest real level since the early 1970s. He reasons that if the lack of growth and an overvalued dollar were causes of the Rust Belt problems in the 1980-85 period, then surely this area should have rebounded since 1985. But, ". . . seven years after the peak of the exchange rate and eleven years after the peak in energy prices, there has been no recovery in Rust Belt manufacturing employment". Indeed, manufacturing employment in the Rust Belt states continues to fall, and manufacturing jobs continue to shift to the South and West. He also observes that ". . . any attempt to link the long-run decline of Rust Belt manufacturing employment to the value of the dollar is difficult . . . because this decline has persisted through periods of dollar appreciation and depreciation".

In chapter 2, which is the pivotal chapter in this study, Crandall empirically investigates why manufacturing continues to move away from the Rust Belt. The author integrates several factors into his estimates, including: WAGE, the average wage rate in each region; UNION, a measure of the pervasiveness of unions in each region; P, a vector of other input costs such as energy; GOVT, a measure of the region's government spending on such things as education and welfare; INFRA, a measure of the region's public infrastructure; DEMAND...