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Arkansas must fight for manufacturing jobs

guest commentary by Greg Kaza

Greg Kaza is executive director of the Arkansas Policy Foundation, a nonprofit think tank founded in 1995 in Little Rock.

The last two decades have not been kind to manufacturing, once Arkansas' largest private industry sector. Manufacturing peaked at 247,300 in February 1995, and has shed 93,400 jobs – an unprecedented loss of nearly four-in-10 positions. Except for small gains in three years (1997, 1999, 2010), the number of Arkansans employed in manufacturing has declined each year since 1995.

Another troubling metric: Arkansas manufacturing jobs are disappearing in the current expansion, which entered its fifth year in June, while U.S. Manufacturing employment turned positive in mid-2010.

Manufacturing job losses have harmed many Arkansas communities, including Fort Smith. There were 21,800 Manufacturing jobs in the Fort Smith metropolitan statistical area when the expansion started (June 2009), state Department of Workforce Services records show. Yet there were only 18,600 Manufacturing jobs in July 2013. There were 32,300 Fort Smith MSA Manufacturing jobs when the sector peaked locally (June 1999), which means more than four-in-10 positions have vanished.

The decision by Whirlpool, a Benton Harbor, Mich.-based company, to close its Fort Smith production facility has contributed to these job losses. The plant's closure and its aftermath have been painful to the community, according to former employees I've spoken with.

As troubling as these developments are it would be a mistake to give up in the fight for manufacturing jobs. Manufacturing jobs, especially those centered in durable goods production pay higher wages than many service-sector positions. Manufacturing played a key role in creating a broad middle-class in postwar America. High income jobs move Arkansas closer to 100% income parity with the U.S., a goal of state officials. Arkansas is now 82%.

Some argue that “knowledge-based” jobs deserve more attention. These critics ignore that many modern-day manufacturing jobs are knowledge-based positions that require extensive training and problem-solving skills. In short, manufacturing is knowledge-based.

There are other reasons to fight for jobs. Manufacturing is Arkansas' third-largest private industry sector, employing 13% of total payroll employment. Unfortunately, labor market data show some states are attracting more manufacturing jobs (see the associated graphic).

Factors that affect Arkansas' manufacturing sector include trade, monetary, regulatory, and tax policies. Trade and monetary policy are beyond state officials' control. But tax policy can be addressed.

The status quo combines targeted tax credits with the state's quick-action closing fund. A 2002 report (Fluor GLS) commissioned by the state legislature found Arkansas uncompetitive versus other southeast states. One example: Arkansas' sales tax on industrial material used and consumed in the manufacturing process was among the region's highest.

The report explained rates are an economic development factor:
"A state's tax structure can be beneficial or detrimental to a company's long term profitability. Firms seeking to locate or expand a facility understand that taxes are a necessary burden that enables the government to provide services to all businesses and citizens of the community. Businesses realize that any location they choose will result in a tax burden for the company. Therefore, companies take into consideration the tax and assessment rates at which taxes are levied in areas being evaluated.

"The State of Arkansas must understand this fact and take the necessary steps to minimize the state tax burden on companies interested in locating or expanding their operations in the state."

Some taxes on Arkansas manufacturers have been lowered but the gap with some nearby states will be tough to close in the short-run.

The contrarian view is that tax exemptions to the politically-connected should be ended, with lower overall rates for Arkansans.

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Contrarians also recognize that abandoned manufacturing facilities do not generate revenues or paychecks. Whirlpool, in November 2003 announced a global reorganization plan. Our non-profit floated the idea (Dec. 18, 2003) of Razorback Production Zones, i.e., waiving most taxes for Arkansas super-projects that employ more than 2,500 workers. Michigan uses a variation of this policy in Benton Harbor, where Whirlpool is based.

The status quo prevailed. Whirlpool left Fort Smith. Arkansas has not attracted a super-project employing thousands. A Fort Smith production facility sits idle.

A Razorback Production Zone is no panacea. It is a partial response, first suggested in 2003, to the post-1995 loss of Arkansas manufacturing jobs. It is a modest step in the fight for manufacturing jobs.

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