Donald Trump won the White House promising to bring back manufacturing jobs. Now that he’s going to actually be president, he has to figure out how to make good on that promise. He would like to accomplish this through a series of high-profile, photo-op-worthy announcements, like last month’s deal to keep 800 Carrier jobs in the United States — or perhaps by renegotiating trade deals to give US workers a leg up over their foreign competitors.
But the reality is that there’s unlikely to be a quick fix for America’s declining manufacturing sector. Carrier-style deals are too small to reverse decades of declining employment in manufacturing, and sparking trade wars with China and Mexico is likely to make everyone worse off.
But Tim Bartik, an economist at the Michigan-based Upjohn Institute, argues that there are things that the federal government can do to encourage the creation of manufacturing jobs in economically distressed areas. The feds could subsidize services to train workers, assist businesses, and fix problems from crime to infrastructure. These proposals — which he laid out in a 2010 white paper — may not get as much media attention as personally announcing the creation of new jobs. But in the long run, they could do a lot more good for American workers.
Job training should focus on skills that are actually in demand
Standard job training programs start with a group of workers and try to figure out what jobs they can be trained for. In contrast, Bartik argues that it makes more sense to start with the jobs local employers need to fill and design a customized job programs that will train area workers for those specific jobs.
“You try to link the community college with businesses — particularly small and medium sized businesses — and you essentially try to design the training around the needs of the business. You could argue that you're simply trying to make sure the community colleges are providing skills that are actually in demand as opposed to skills that aren't in demand.”
“It's a little more difficult to help the most disadvantaged through job-oriented job training,” Bartik admits. Customized job training tends to offer the most benefit to workers who “have good basic skills but need some specific training for the skills that are needed at this particular job.” People at the bottom of the economic ladder might not meet the minimum requirements for these training programs.
On the other hand, Bartik argues that the kind of job training program he advocates has a better track record than conventional job training programs of actually helping workers and boosting regional economies. Because the programs are built around job skills that specific employers actually need, there’s a high probability that workers will actually get a job when they graduate from the program, and so the training efforts are less likely to be wasted.
These job training programs are typically run at the state or local level. But Bartik argues that the federal government could provide more financial support to these programs, allowing distressed areas to expand their job training efforts to help more people.
Manufacturing extension services help small manufacturers grow
Another way that cities and states can help local businesses is by offering them technical assistance that helps them grow.
Known as manufacturing extension services, these programs are “targeted at a smaller manufacturer who may not be up to date on what the latest technology is or what services are available at the local community college,” Bartik says. “They may need some help in figuring out some marketing thing, like how to sell their products in China or how to sell to the federal government.”
A manufacturing extension service connects local businesses with experts who can provide them with this kind of information. “In some cases they might pay for a consultant or a professor at the local business school or the engineering school to provide technical assistance to the businesses on how to redo their production process, how to integrate computers better in how they produce whatever they're producing.”
He argues that this kind of program works best when businesses are asked to pay a portion, perhaps half, of the cost of providing the service. That ensures that taxpayers don’t wind up subsidizing services that provide very little value to local businesses. “If firms are not willing to pay some fee for this, then services in an area go out of business,” he says.
Revitalize empowerment zones
Empowerment zones were a program created under President Bill Clinton to provide grants to local communities struggling with economic challenges. Under the program, local areas could apply for federal assistance to help them cope with economic challenges.
“They had to pick an area that met certain criteria for distress. Some were rural, some were urban. They had to come up with a plan for what they wanted to do to overcome the area's problems,” Bartik says.
For example, “if the area had a crime problem, they had to come up with a plan on what they were going to do with that. If the area had an infrastructure problem, they had to come up with a plan about what they're going to do about that. In addition to providing various wage subsidies for employers that hire in the zone, each empowerment zone got a $100 million block grant that can be used to provide a wide variety of services.”
“In some cases,” Bartik says, “they might run a small-business development center, they might set up a business incubator, they might run a job training program. They might stick in some infrastructure. They might redo the streetlights.”
“There's some reason an area is economically distressed,” he adds. “There are some barriers it faces to development. What they are will vary from location to location, which is one reason why it's hard for the federal government to solve these problems.”
Under the empowerment zone program, local governments identified the biggest needs, while the federal government provided the cash. A 2013 study of the program found that it “substantially increased employment in zone neighborhoods and generated wage increases for local workers.”
Unfortunately, he says “the empowerment zone program eventually got whittled down until it was just some tax breaks. If all you're doing is tax breaks, you're not directly dealing with whatever the barriers to development are to this distressed area.”
Bartik argues that Congress should bring back the original, more ambitious empowerment zone concept, and that there’s a lot local governments can do to make their regions more attractive to businesses.
Why services can help more than cash
“You make sure if there are issues with building codes and zoning and environmental regulations, that those are dealt with properly and clearly so there aren't unnecessary delays. I'm not talking about changing the regulations or relaxing them — I'm talking about making sure that regulatory decisions are reached in a timely way and they're clear-cut,” Bartik says.
“Let's say you're trying to attract firms, and instead of providing huge cash incentives, your major expenditure is actually on infrastructure for the firm — if it needs an access road or something, you provide that. If it needs customized job training, you provide that and make sure it has the workers it needs.”
Bartik’s suggestions run contrary to the conventional view among economists: that it’s most efficient to give people cash that they can spend on whatever they want. But Bartik argues that when local governments are trying to lure local businesses, offering infrastructure and services actually makes more sense than simply giving companies money.
“The easiest thing to do is to just provide cash, but it's very expensive,” Bartik argues. “There's unlimited demand for cash. If you're offering cash, no matter how much you're providing, companies would like more. There's a tendency for companies to pit different states against each other.”
If you give a company money to locate its factory in your neighborhood, there’s a risk that the company will only stay temporarily. Once the term of the original deal runs out — which might be for five, 10, or 20 years — the company will go back on the market looking for an even bigger handout somewhere else.
“If you do infrastructure improvements and the company leaves, they don't take the infrastructure with them,” Bartik says. “Even in the case of customized job training, if the company leaves, a lot of the workers will stay. These investments have an automatic clawback.”
Also, Bartik argues, companies have a natural incentive to lobby for services to be effective. “Companies are not going to lobby for these services to be continued unless the service is in fact effective in providing something that the companies value,” he says. “So the political economy of controlling costs is easier if you're focusing on services.”