Manufacturing

The fastest-growing sectors of manufacturing in California tend to be in the higher skilled advanced-technology realm. Above, an employee assembles a server at the Z Microsystems facility in San Diego. (Sam Hodgson, Bloomberg)

By Chris Kirkham
January 19, 2015

The United States has seen a remarkable turnaround in manufacturing employment since the economy bottomed out five years ago — but California hasn’t.

The state has been among the slowest to recover jobs in an industry long viewed as a bastion of middle-class opportunity.

Since February 2010, U.S. manufacturing employment has increased at a rate of 6.7%, with some Midwestern and Southern states such as Indiana and South Carolina seeing gains of 15% or more. By contrast, California manufacturing has grown at about 1% over the same period.

The Golden State still has the nation’s largest manufacturing base. But California’s high costs for land and energy are preventing the state from grabbing its share of companies relocating production back to the U.S. from overseas markets such as China.
Unless you’re forced to be in California…, increasingly it’s hard to find reasons that you have to be here. – Dorothy Rothrock

“It comes down to housing costs and the costs of doing business in California overall,” said Jordan Levine, director of research at Beacon Economics in Los Angeles.

That could hurt California’s middle-class workforce: Manufacturing is the classic path to higher paying jobs for less-educated workers. On average, manufacturing workers make 8.4% higher wages each week than those in all other industries combined, according to a 2012 Brookings Institution study.

As manufacturing jobs disappear, workers without advanced credentials are far more likely to move down the pay scale into service industries such as retail or hospitality.

The recent national uptick in manufacturing comes after severe cuts that started in the 1990s and continued through the Great Recession. Companies lowered costs by shifting production to cheaper labor markets in China and the developing world.

But in recent years the conventional wisdom has shifted. China’s rapid rise as a global economic power has pushed up workers’ wages there, eliminating much of the labor cost advantage.

Since 2004, the average wage in China more than tripled, after adjusting for inflation and other factors, compared with only a 27% increase in the U.S., according to a recent study on the so-called reshoring phenomenon by the Boston Consulting Group.

At the same time, the U.S. has seen a boom in natural gas production, bringing down domestic energy costs.

“We’re a high-wage country, but that equation is changing,” said Michael Zinser, a manufacturing expert and managing director at the Boston Consulting Group.

In the same vein, companies looking to return to the U.S. are confronting regional cost equations — which often don’t favor California.

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