The Manufacturing Debate:
Should we Focus on Employment
or Productivity?

BankRI, Lardaro on the Economy Series
August 2003

Manufacturing’s defining role in Rhode Island history is undeniable. In 1984, the last year RI manufacturing employment increased, there were 121,740 manufacturing jobs, 29.2 percent of employment. By 2002, only 62,400 manufacturing jobs remained, 13 percent of our total job base.

In reaction to these statistics, discussion has begun on ways to revive manufacturing, with a four-year goal of increasing employment by 20,000 jobs, a 32% increase. But beyond changing how manufacturing taxes are calculated, not much has emerged to demonstrate how this is to be accomplished.

This discussion, though well intended, has a misdirected focus. In times when productivity, or output per worker, is rising significantly, more output can be attained using fewer workers, which is how firms have cut costs to remain competitive. So is it employment or production that should be increased?

Both manufacturing output and productivity have been rising in Rhode Island (Table 1). Manufacturing output per worker rose by 5.1 percent during the last recovery (1992-2000) even though employment fell by almost 14,000 jobs! The result was an increase in output per hour from $50,059 to $62,700, or 27.8 percent.

Where Rhode Island manufacturing shows problems is in terms of comparative productivity. As Table 2 shows, Rhode Island lags behind our neighbors by wide margins. In 2001, output per hour was $63,997 in Rhode Island, $99,414 in Massachusetts, and $112,170 in Connecticut.

Our "low" productivity results from the mix of manufacturing categories in RI, unacceptable educational quality K-12, and a tax and cost structure that is not yet competitive. We are in the early stages of adapting our tax structure. To eliminate the educational deficiencies, we need to focus more on educational quality and funding. THIS should be the central focus of the discussion: educational quality and high-productivity manufacturing are critically linked.

 by Leonard Lardaro