by Michael Hicks
The news that Carrier would keep some 1,000 jobs in Indiana was clearly welcomed. Still, it is worth asking some tough questions about what this means, why Carrier made this decision and the limits to this sort of policy intervention.
Nationwide, manufacturing employment has been on the decline since 1977, and here in Indiana since 1973. In contrast, manufacturing production nationwide hit a new peak in 2015 (the latest year for which we have data). American manufacturing production is at a record level (in terms of inflation-adjusted dollars, or really any other meaningful measure). We are just doing so with far fewer workers. That trend is primarily a story of mechanization, automation and computing technology. The outsourcing of American manufacturing is a sideshow to the productivity induced employment declines. Nothing in this announcement will alter that fact.
Manufacturing employment in Indiana rebounded briskly after the recession, but in this record year of auto production, manufacturing employment has returned to its declining trend. We are a half century into a tend predicted as early as the 1930s. It’d be useful if everyone finally began to understand it.
Employment changes at the firm level are huge relative to employment. The loss of 1,000 Carrier jobs over the projected four-year period represents about 0.06 percent of the gross job losses in Indiana. In terms of net jobs, this represents only three out of every 10,000 jobs in Indiana. So, as comforting as this news surely is to those folks who work at Carrier, saving of these particular jobs has no effect on the national or even state economy. But, as an indicator of what general economic policies the Trump-Pence Administration may be pursuing, this portends big things.
A few cynics have suggested that Carrier’s parent company, United Technologies, is worried about federal contracts. They are mistaken. Federal acquisition rules impose a far more onerous challenge than ISIS. If Trump is able to influence defense purchasing, he will have already solved nearly every other matter of consequence. Make no mistake about it, this issue is about federal regulation and tax policy.
Carrier timed its jobs announcement last spring during heated presidential primaries for some purpose. It is abundantly clear that focusing the candidates on issues of business costs, especially regulations, played a role in the framing of that announcement. That the company would reverse its decision now suggests that it believes regulatory relief and tax relief is near.
To be clear about the importance of this issue, a recent study for the US Small Business Administration reports that regulation adds more than $10,000 to the cost of each worker annually. Other studies find the aggregate impact of this seriously impacting economic growth.
Anecdotally, there is abundant evidence that regulatory intervention affects costs for businesses and government. Take, for example, the Obama Administration’s favorite industry – higher education. The handbook for simply reporting (not implementing) the federal campus safety rules runs past 255 pages. It’s hard to imagine what business is like in industries the administration disfavors.
In the end, the jobs saved at Carrier are simply icing on the cake. The real economy-wide benefits come from honestly addressing a regulatory burden that is at least partially responsible for our sluggish recovery.