Indiana is the most manufacturing-intensive state in the United States in terms of jobs per capita. However, like most U.S. states, it has not been immune from loss of manufacturing jobs. Many people attribute the loss of jobs to either offshoring or automation, but which is it?
To help answer this question, you may want to read a recent paper written by Timothy Slaper of the Indiana Business Research Center, Kelley School of Business, Indiana University. It is titled: “Automation and Offshoring in Durable Goods Manufacturing: An Indiana Case Study“. The full paper is currently available with a subscription/fee, but Dr. Slaper did write a publicly available preview (see the end of this blog for the links to both the preview and full paper).
It’s about Offshoring
President Barack Obama tours Allison Transmission in Indianapolis
Slaper ultimately concludes that offshoring was the primary driver for the loss of durable goods manufacturing jobs in Indiana, not automation. A few interesting items from the preview –
- Nationally, the “boom” in robotics investment did not begin until after 2014 (and the impact of automation may not have hit yet).
- Slater argues that offshoring – aka foreign imports – rather than nearshoring (the movement of production from one state to another) is the dynamic responsible for Indiana’s job loss.
- The article cites a table of job creation abroad resulting from foreign direct investment (FDI) by Indiana companies. From 2010-2016, FDI announced by Indiana-based companies was slated to created 5,380 jobs in China, 3,892 in India, and 3,715 in South Korea (the top 3 countries).
- According to some economic theory, the productivity and wages of workers remaining after a layoff should both increase. (Slater investigates this phenomenon in his study and finds that it appears to have held true in Indiana for his dataset.)
Dr. Slater’s full paper examines 38 durable goods industries in Indiana from 1998-2016 for which the data needed were available. He found that offshoring was potentially responsible for job declines in 19 of these industries, while automation was a potential cause in just 5 (including 3 also included in the offshoring number).
From this he concludes offshoring to be the primary cause of manufacturing job loss in Indiana’s durable goods sector over the past 2 decades. Importantly, Slater only looks at intermediate goods (i.e. material inputs, not final products) as a source of job loss in his analysis – what he calls “Type 2” offshoring. These inputs are precisely the kind of parts and components made by most small and mid-sized manufacturers.
Slater is careful to point out that his analysis is not definitive, but that it is consistent with many other national studies, especially those by Susan Helper at Case Western Reserve University. Those of a mathematical bend might want to review Dr. Slater’s study – see the link below. (He utilizes an OLS regression analysis. His empirical model is interesting, though!)
Assistance for Import Impacted Manufacturers
The Great Lakes Trade Adjustment Assistance Center (GLTAAC) tracks trends in U.S. imports in support of our outreach efforts to identify import impacted manufacturers in Indiana, Ohio and Michigan who may be eligible to qualify for $75,000 in matching funds to execute business improvement projects to enhance competitiveness.
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Phone: (734) 998-6227
Email: gltaac@umich.edu
Article Links:
Dr. Slater’s preview article: “Automation and Offshoring in Durable Goods Manufacturing: An Indiana Case Study“.
Full paper in Economic Development Quarterly: Click here to link to the Abstract page. Note that download of the fully paper requires a subscription/fee.
