Productivity Growth In The State

California is still the largest contributor to the United States manufacturing industry. In fact, California's manufacturing industry is doing better than the nation as a whole. This is due in part to the pandemic, which has created "clear opportunities" for high-tech manufacturing in CA.

Even though California has a high cost of living, the state is still the largest contributor to the U.S. manufacturing industry when it comes to employment and output. A recent analysis shows that there are many manufacturing companies in California that are doing well, contrary to the popular belief that these companies and their workers have been priced out of the state.

The report, produced by Beacon Economics LLC and commissioned by California Manufacturing Technology Consulting (CMTC), found that the state’s manufacturing output has been more than double the national rate since the late 1990s. And contrary to widespread belief, California’s share of manufacturing jobs in the United States has increased slightly since 2000, currently standing at 11%.

The study points out that high housing and other costs are a big problem for workers. But it also shows that the state's manufacturing sector has done very well. The sector has seen productivity gains, which have been mostly in high-tech industries. These industries have created jobs, but lower-tech industries have lost jobs.

“It’s a well-understood trend that traditional manufacturing jobs in sectors such as apparel and food processing have diminished over the past several decades in California due to the state’s exceptionally high land and living costs. But the headlines we read miss the striking advances that have occurred in output as a result of innovations, improvements, and investments in production processes – particularly in high tech,” said Taner Osman, Research Manager at Beacon Economics and the report’s lead author.

The analysis also showed that there is a trend of having fewer jobs but more production. This trend can be seen at the national level too. Manufacturing jobs have decreased by 32% since 1990, but the production has increased by almost 40%. This difference is because of increased labor productivity, which is mostly due to increases in durable goods manufacturing.

Key findings:

• Today, in the United States, each hour of manufacturing labor produces twice the value of output as it did in 1990.
• According to the latest figures, California contributes the most to national manufacturing GDP at 14.5%, followed by Texas at 10.9%. Rounding out the top ten are Ohio, Illinois, Indiana, North Carolina, Pennsylvania, and Michigan.
• However, the manufacturing industry’s ‘value added’ in California has grown much faster than the national rate. It has increased almost 176% since 1997, compared to only 51% in the nation overall.
• California is still the largest contributor to the U.S. manufacturing industry. Manufacturing in California has seen more growth in productivity than the industry nationally by more than 80%. This growth can be traced back to the 1990s.
• The pandemic has shown that global supply chains are very fragile. This means that it is a good opportunity for companies to bring production closer to home. This is because different parts of the supply chain are vulnerable in different ways.
• The long-term decline in manufacturing employment is evident. Approximately 5.7 million manufacturing jobs were lost between 1990 and 2020 in the United States, reducing employment in the industry by nearly one-third.
• There are currently 53,000 job openings in California's manufacturing sector. If the state is unable to address its housing affordability crisis, some of the industry will continue to leave.
• Eleven out of California's 21 manufacturing subsectors gained jobs between 2010 and 2020. Transportation equipment manufacturing gained the most jobs, while apparel manufacturing lost the most.
• California's key competitive advantage will be to keep workers with the latest skills in the sector. The state's manufacturers need a workforce who can work with more advanced technologies. To keep up, California policy should target and support the training that workers need to stay ahead of the competition.
• The value of production in the U.S. manufacturing industry has more than doubled in nominal terms since 1990, reaching nearly $4.5 trillion in 2019. Manufacturing accounted for 11.7% of U.S. GDP in 2020.
• California is a competitive state for high-technology industries such as semiconductors, computers, and other electronic equipment. However, these industries are also competitive in lower-technology industries, such as food processing and beverages. This is due to advancements in productivity.

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