The Midwest as a whole received relatively high grades in an annual rating of states’ manufacturing industries, but Illinois’ manufacturing sector is still struggling due to an unpredictable economic climate and unfunded public liabilities.
The 2017 Manufacturing & Logistics Report Card gave Illinois a “C+” for the overall health of its manufacturing industries, but the state earned a “D” in the “Tax Climate” category and an “F” in “Expected Fiscal Liability Gap.” That latter estimates the state’s ability – or inability – to fund bond obligations and pension costs.
Illinois also received an average grade – “C+” – in “Human Capital,” which measures the education level of the state’s workforce in an effort to gauge how well it is serving manufacturers.
The study gave Michigan an “A” for the health of its manufacturing sector, while Ohio and Wisconsin both received “B” grades.
Mark Denzler, vice president and chief operating officer of the Illinois Manufacturers Association, echoed some of the points made in the Ball University study.
“Manufacturing is alive in Illinois,” Denzler said, noting that manufacturers in the state employ about 570,000 people. “However, it is struggling.”
The state’s strengths include good colleges and universities and a great transit system, according to Denzler.
“Seventy-five percent of the nation’s freight comes through Illinois,” he said.
But an out-migration of jobs to other states and workers compensation costs that are the highest in the Midwest and eighth highest in the country continue to add to the state’s economic uncertainties, Denzler said.
Although Denzler said today’s manufacturing workforce in Illinois is second to none, the employers continue to deal with a skills gap as they try to hire new workers. Manufacturers need to hire 20,000 to 25,000 production workers and 5,000 engineers every year just to remain at a constant level, he said.
“The governor has put a focus on vocational education and trying to provide workers with the skills needed,” Denzler said, but lately there has been no money for job-training programs.
Manufacturers have some advantages in the near future, including a growing advanced-manufacturing industry around the Chicago area, he said. But the state needs major structural reforms and begin to live within its means, according to Denzler.
“Quite frankly, Illinois needs to change its focus moving forward,” he said.
Illinois did end it’s more than two-year-long budget stalemate last week, but it came at a high cost to businesses and workers, who will both see tax increases.
“[Last week’s] action by the Illinois legislature will speed up the loss of manufacturing jobs and will further decimate our economy,” Greg Baise, president and CEO of the Illinois Manufacturers Association, said shortly after the state House voted to override Gov. Bruce Rauner’s vetoes of the tax hikes and budget bills. “Imposing a $5 billion dollar tax hike on Illinois families and businesses without addressing the root causes of our stagnant economic growth is a recipe for disaster and will only hasten the further loss of Illinois’ middle class.”
Those knowledgeable about the manufacturing industries in other Midwest states questioned some of the conclusions in the Ball State University study. Kurt Bauer, president and CEO of Wisconsin Manufacturers and Commerce, took issue with the state’s “C-” grade in the “Tax Climate” category.
“I don’t think the Ball State report recognizes that Wisconsin’s Manufacturers and Agricultural Production Tax Credit reduces the corporate tax liability for qualifying companies from 7.9 percent to 0.4 percent,” Bauer said in an email. “Combine that with our right-to-work status and our recent regulatory and litigation reforms, and Wisconsin is clearly one of the most attractive states for manufacturing in the U.S.”
All of Illinois’ neighbors are right-to-work states – meaning employees can opt out of joining a union if they choose – which is another competitive disadvantage.
Professor Edward Hill, a faculty member at the Ohio Manufacturing Institute, took issue with some of the variables the study used to give Ohio a “C-” in “Human Capital.” The six states receiving “A” grades in this category were Iowa, Minnesota, Nebraska, New Hampshire, North Dakota and Washington.
“There are good manufacturers in many of these states, but none, with the exception of Washington and possibly Minnesota, can be claimed as centers of exceptionally skilled pools of manufacturing workers,” Hill said.
Still, Ohio is not doing particularly well in providing the type of skilled workers manufacturers need, he said, but all states likely have this problem.
“Manufacturers themselves are just waking up and taking ownership of the problem … and reinventing secondary and community college manufacturing training programs,” Hill said.
In Ohio, major employers such as Honda, Minster Machine, Lincoln Electric and Yaskawa Motoman are working hand-in-hand with educators to turn out a more skilled workforce, he said.
“We will see progress over the coming year,” Hill said.
Though Michigan was rated a top performer in manufacturing, it received “D” grades in both “Human Capital” and “Sector Diversification” in the Ball State study.
“It’s all tuned to just transportation,” Devaraj said, adding that the lack of diversification in Michigan’s manufacturing economy means that if any shocks hit that industry, the impact for the state as a whole will be major.
Recently released economic forecasts for Michigan have been positive. A University of Michigan, Ann Arbor, study said that the state recorded 28 straight quarters of payroll growth through the first quarter of 2017. But job growth should moderate through 2018, the report said.
“Manufacturing employment declines modestly over the forecast, reflecting the slowdown in the light vehicle sector,” the University of Michigan forecast said.
Devaraj stressed that manufacturing remains a key player in the U.S. economy, even as productivity gains have held down employment growth. Increased skill attainment by workers will help lower the risk of them being replaced by automation, he said.
“In reality, things are going really well in terms of manufacturing,” Devaraj said.
Back in Illinois, the state earned an “A” for the health of its logistics industries. That was due to a number of Illinois’ assets, including its central location, the value of shipped goods in the state and an efficient transportation system.
“Chicago is leading the pack in terms of the commodities flows,” Devaraj said.