Boon or Bust?

New Technology Manufacturing in Low-Skill Rural Areas
by David McGranahan and Fred Gale

Introduction
Rural areas with less-educated workforces have relied heavily on the recruitment of manufacturing plants as an economic development strategy. For many communities, this strategy has been successful. Low-education counties with a strong manufacturing base have lower poverty rates than those that have failed to attract manufacturing jobs. Manufacturing jobs tend to pay more and offer more benefits than other jobs available to people with less education.

Low-education rural areas promise a low-wage workforce and low taxes. But some observers have questioned whether this is a wise long-term strategy. While manufacturing wages are higher than wages in services industries and agriculture, low-education areas have tended to attract jobs in food processing, wood products, apparel, and textile industries that are still relatively low in pay. Thus, the overall wage structure remains low.

Further, there has historically been little attention given to worker skill development. Manufacturers seeking a low-wage/low-skill workforce have little interest in improving local education and skill development opportunities. Low tax rates also discourage development of a more skilled workforce by limiting funds for schools and other training institutions. In summary, the low-skill manufacturing strategy does little to develop worker skills, and without skills, there is little prospect for a sustained increase in earnings, particularly in today’s economy.

Globalization and new technology squeeze low-education economies
Globalization of the economy and increasing technological sophistication of manufacturing cast further doubt on the viability of the low-wage manufacturing strategy for low-education areas. As trade barriers fall and transportation and communications costs decline, low-education areas can no longer compete on the basis of low labor costs alone. Manufacturers can now build plants in Asian and Latin American countries where wages are much lower.

In response to the heightened competition brought by globalization, U.S. manufacturing operations have become increasingly sophisticated. Manufacturers have adopted new computerized technologies that automate production, improve quality control, facilitate communication, and better manage inventory. Greater emphases on quality and the tailoring of products to specific customer needs have led to the adoption of new management practices, including job rotation, problem-solving teams, and total quality management.

We draw on the 1996 ERS Rural Manufacturing Survey as well as various county-level data sets to examine the importance of manufacturing in rural areas with low-education, the skill demands associated with computerized technologies and new management practices, and the problems that this creates for manufacturers in low-education areas. While we focus on low-education areas, the results are relevant to all rural communities where manufacturing is a major employer.

We find that these new technologies and practices, which we consider together as "New Technology," substantially increase the depth and breadth of skills required of workers. Workers need basic math, computer, and other technical skills to run the equipment, and they need problem-solving and interpersonal skills to make integrated operations run smoothly.

These trends portray a potentially gloomy future for low-education economies. They cannot compete with offshore economies on the basis of low wages alone. At the same time, their workforces are generally not skilled enough to attract the increasingly sophisticated domestic manufacturers. Thus far, this squeeze on low-education rural areas has been largely anecdotal and has received little attention in the currently robust U.S. economy. However, the facts seem clear that a new approach is needed if rural low-education areas are not to be left behind.

Skill-based manufacturing strategy
We argue that, in the current tight national labor market, low-education areas with their relative surplus of labor, may continue to rely on manufacturing as an engine of growth—if local schools and training institutions are improved. Significant resources may be required, but today’s manufacturing employers have an interest in partnering with local communities to create these improvements. This is likely to hold for other potential employers, such as warehouse distributors, as well.

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for more information, contact: David McGranahan
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page updated: December 29, 2000