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Averting Layoffs and Revitalizing the Manufacturing Economy: Lessons from the Great Lakes States

As the country enters into a recession and suffers increasing job losses, the Great Lakes Region is facing a particularly acute crisis. Literally millions of decent-paying manufacturing jobs have disappeared from the region in recent years.  How regional political leaders are responding to that crisis provides lessons for state policymakers across the country.

On April 17th, government officials, labor leaders, and policy organization staff came together in Cleveland for the Great Lakes Regional Economic Revitalization Summit to share insights on what their states are doing to avert layoffs and revitalize their economies.  

The Great Lakes Manufacturing Crisis:  Since 1998, the Great Lakes states have lost 1.5 million manufacturing jobs, due both to recession and chronic trade imbalances.  Just since 2005, the Big Three automakers have announced another 1/2 million new layoffs, mostly in the region.

Add in the subprime mortgage and foreclosure crisis that has devastated communities and a private equity market that has "stripped and flipped" many industrial firms of key assets and abandoned their local employees, and you end up with a hollowing out of the economic vitality of communities across the region.

The loss of manufacturing jobs is critical, since it is often the heart driving other service jobs in the United States.  Manufacturing is often the lead purchaser of new technology, financial and technical services, and, for workers, has most often been the key economic ladder for young people and people of color. 

The flip side is that as job opportunities recede, communities suffer.  For every 1% rise in unemployment, the nation sees an additional 36,887 deaths, 648 additional homicides, 4,227 admissions to mental hospitals, and 3,340 additional state prison admissions.  Mass job losses create stress on both families and communities. 

Policy Innovation in the Region:  But that's only one side of the story in the Great Lakes region.  The other is the incredible policy innovation rippling through states across the region, as government, labor, business and community leaders have developed new programs to revitalize their economies.  Many are in their early stages, but there are important lessons for all states struggling with how to deal with job losses and, more importantly, think about how to avert them in the first place.

Policy leaders coming together at the Cleveland Summit outlined programs throughout the Great Lakes regions that are giving hope to workers and communities, from rapid response networks to help workers during layoffs, early warning programs to avert layoffs in the first place, new industry partnerships to help whole sectors revitalize themselves in the face of global competition, and policy programs to promote high road manufacturing and a greening of the regional economy. 

Progressive State Network joined participating staff from other policy organizations including the National Employment Law Project, Policy Matters Ohio, Keystone Research Center, Fiscal Policy Institute, Steel Valley Authority, Center for Economic and Policy Research, Economic Policy Institute, Brookings Institution , Apollo Alliance, and Center on Wisconsin Strategies.  Labor representatives from Illinois, Michigan, and Ohio attended, as did workforce and economic development public officials from Ohio, Michigan, Pennsylvania, and New York.

This Stateside Dispatch is designed to share some of the insights and resources developed out of that Summit for state leaders across the country looking to avert layoffs and more broadly revitalize their economies.  The National Employment Law Project (NELP) is hosting  a detailed list of resources from the summit.  

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Developing a Rapid Response Program for Layoffs

As Lynn Minick of the National Employment Law Project outlined in his Rapid Response Training Overview, the most basic program states need in place is a rapid response policy to identify the causes of job losses, rapidly intervene to help laid off employees with services, and explore ways to preserve the jobs threatened.

The key to helping workers facing layoffs is to get help to them as early as possible and help them regain employment as quickly as possible.  Most rapid response programs are established under the umbrella of the federal Workforce Investment Act (under under section 134(a)(1)(A)) and Minick outlined key rapid response steps:

  • Make the earliest intervention possible, including layoff aversion where possible (see next section).
  • Establish on-site contact with employees and their representatives.
  • Provide information and access to employment and training activities, including assistance with Trade Adjustment Aid and other income sources.
  • Create labor-management committees to implement a strategy for helping dislocated workers.
  • Provide emergency assistance tailored to a particular closure or mass layoff.
  • Help communities develop a coordinated response, including Community Adjustment Committees.

Minick cited the example of Ohio's Rapid Response System which, along with coordinating services for laid off employees, engages in layoff aversion strategies such as exploring options of employee buy-outs and sale to other parties, assisting with new business financing, and restructuring the business.  The program uses "pre-feasibillity studies" to bring in consultants to explore whether alternatives to layoffs are viable or whether efforts should focus on rapidly helping employees find new employment.

 

Creating a PEERS Program:  A particularly effective approach to helping laid off employees are Peer Networks, where employees are trained to help fellow employees during these transition crises.  John Kreucher from Michigan's Human Resource Development Institute outlined the success of that program, established by the Michigan AFL-CIO in 1982, as it has become the largest independent provider of dislocation services in the state.

The PEERS program is designed to train a group of workers in any workplace facing layoffs to:

  • collect information on employee needs,

  • work with their peers in the workplace to help them connect with community services,

  • find job referrals and prepare resumes, and

  • work with community leaders to plan cooperative responses. 

Employers help the Peer to Peer systems operate by providing release time to workers trained in the program to use part of their final weeks at a company working with fellow employees, while the program itself keeps them on payroll after the layoffs are fully implemented.

Reforming the Unemployment Insurance System:  To make these programs most effective, states in many cases need to upgrade their unemployment insurance policies to address challenges in the new economy.  Helpful policies range from streamlining application procedures to expanding coverage for many part-time and contract workers currently excluded from those programs.  The National Employment Law Project has extensive resources supporting such efforts at their Unemployment Insurance Safety Net Project.

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Layoff Aversion: Early Warning and Industry Partnerships to Avert Plant Shutdowns

As Tom Croft of the Steel Valley Authority (SVA) argued in his talk, Early Warning and Layoff Aversion, it is "easier and less costly to save an existing local firm than to create a new business or attract one from outside."  The trick is to identify firms needing help before they reach a final crisis and give them the support needed. 

Croft and his colleague Scott Smith described one model, the Strategic Early Warning Network (SEWN), created by SVA under a mandate from the State of Pennsylvania back in 1993 -- an approach that has helped save 600-700 firms and created over 14,000 jobs.

Early Warning Monitoring:  The key is not to wait for a mass layoff notice, but to establish programs that monitor key sources of business information for economic danger signs that can predict plant closures -- and proactively allow states to reach out to firms in trouble and implement response and prevention strategies. 

Sources of information officials should tap include loan deliquencies, bankruptcy filings, business tracking by firms like Dun & Bradstreet, company annual reports, utility company reports detailing drops in power usage, and referrals by individuals, including union officials, company vendors, managers, and local elected officials.

Core Retention Steps:  SEWN works with firms on everything from financial restructuring to dealing with owner succession issues to cost management to promoting new labor-management cooperation to improve productivity.

An example cited was a recent effort to target a large number of small auto suppliers in the state, employing 23,000 workers in Pennsylvania, who SEWN knew would be facing a crisis with the large scale cutbacks by the Big Three automakers. 

  • To encourage firms to participate Governor Rendell signed a personal letter to 510 firms, which was followed by 385 calls by SEWN, aimed at firms impacted by the auto downturn.

  • Firms were offered marketing and product development help, turnaround assistance, incumbent worker training, participation in an industry partnership.

  • SEWN worked with 38 auto-related companies and an additional 25 non-auto firms referred to the state through the process. 

  • Firms needed help on improving productivity, new product development, joint marketing, and energy conservation.  

  • SEWN also worked on the sale and buyouts of the firms, succession and leadership planning, and improvements in productivity. 

Using Worker Capital to Assist in Layoff Aversion:  Croft highlighted the fact that employee pension funds represent $10 trillion of capital in the U.S.  States can promote "economically-targeted investments" (ETIs), that coordinate with pension funds to fill capital gaps, build a stakeholder voice in companies, rebuild infrastructure, and reposition a region for new industries and growth.  In 1995 SVA and Steelworkers launched the Heartland Working Group to find ways to use labor union pension plans to retain and create good jobs, including publishing Working Capital: The Power of Labor's Pensions.  SVA will soon be publishing an update about responsible investment funds across the region that are helping to build affordable housing, promote green buildings, promote advanced manufacturing industries, build clean-tech industries, and support urban revitalization.  Public policy can help by supporting the building of pools of capital investment across regions and linking building projects to supply chains to support regional industries.

Industry Partnerships:  Stephen Herzenberg at Keystone Research Center laid out an additional component of the model in his talk, Pennsylvania's Industry Partnership Strategy.  Beyond short-term interventions, Pennsylvania has built 90 Industry Partnerships (IPs) to promote longer-term strategic cooperation among regional firms:

  • About a third of the Industry Partnerships (IPs) are in advanced manufacturing and other manufacturing sectors. 
  • The IPs are coordinated by Workforce Investment Board staff, non-profits, industry associations and labor organizations. 
  • The IP program has engaged more than 6000 businesses.
  • About 18 of the IPs include labor unions as equal partners in their operations.
  • Main goals have been to connect training and education to the needs of industry sectors, help companies adopt high-performance organizational approaches, and expand opportunities for workers in those industries.

The industry partnership program has been supported by $5 million in state funds to identify industry clusters and build the IPs in the first place, plus an additional $15 million for training through the IPs.

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Revitalizing Manufacturing in the United States

Although conventional wisdom says that manufacturing is doomed in the United States, such thinking ignores both the continuing core dependence of the economy on manufacturing as an engine for service and financial jobs, along with the vitality of manufacturing in many sectors.

The Continued Vitality of Manufacturing:  Susan Helper from Case Western Reserve University laid out these principles in her talk, Helping manufacturing can help the rest of the economy.  (See also her paper at the Agenda for Shared Prosperity page, Renewing U.S. manufacturing). 

The reality is that a large percentage of U.S. manufacturing plants are cost-competitive or within 10% of the costs of low-wage countries.  How do they compete?

  • First, direct labor costs are usually only 5-15% of overall costs.
  • High skill labor and collaborative supply chains and regional clusters of firms can increase competitiveness.
  • Local manufacturing can avoid the costs of long supply trains and communication difficulties of far-flung subcontracting.

The counter-intuitive lesson is that to be competitive, U.S. firms won't win by lowering wage costs but only by creating long-term investments in a high-skilled and dedicated workforce. 

Policy to Promote High Road Production:  Because high road production is based on a shared pool of skilled labor and a set of collaborative institutions to support high-performance industry clusters, public policy is needed to address chronic market failures where firms lack the individual incentive to invest in those shared public goods.

One key problem is that 90% of manufacturers report a moderate-to-severe shortage of skilled production employees, while 65% report moderate-to-severe shortages of scientists and engineers.  That highlights the need for more public focus on policies that teach workers and manufacturing leaders key skills, promote research and development, and support collaboration where skills can be shared.  One example is Wisconsin, which has brought together agricultural and garden equipment manufacturers to organize classes, focus on lead time reduction, and highlight top-performing suppliers.

The flip side of promoting high road production is "cutting off the low road", i.e. preventing low-wage firms from benefiting from public investments and workforce trainings, while not paying their fair share of taxes or reinvesting themselves in decent wages. 

The Chicago Manufacturing Renaissance Council Model:  Dan Swinney, executive director of the Chicago Manufacturing Renaissance Council, highlighted in Building Chicago as a High Performance Manufacturing Region how this collaboration of regional industry, labor and community leaders are aiming to make the Chicago Metro region a global leader in high productivity, high wage jobs.

12,000 manufacturing companies are in the Chicago Metro area, employing 484,000 people and a total of nearly 1.8 million jobs associated with manufacturing -- good jobs paying an average wage of $64,000.

One key focus of the Council is upgrading the production skills of the next generation of manufacturing leaders, symbolized by the establishment of the Austin Polytechical Academy for high school students in Chicago.  This is NOT a trade school but a school designed to lead to skilled production positions, management and ownership positions for its graduates.  It has 37 company partners, mostly small private manufacturing companies who provide internships and summer jobs for all students.

The Council is also working with the City Colleges of Chicago to match manufacturing programs with industry needs and integrate education curricula with industry-recognized credentials.

Building the High Road in New York:  Bruce Herman from New York's Department of Labor highlighted new efforts in that state to remake its disjointed set of job subsidy, employee training, and wage enforcement programs into a more coherent policy to promote high road job growth.  Those efforts include:

  • Reforming tax subsidy programs to create more accountability and transparency in requring the creating of high-wage jobs.
  • Using wage enforcement crackdown against low road employers, including a multi-agency taskforce to crack down on misclassification of employees as independent contractors.
  • Expanding apprenticeships, including pre-apprenticeships for youth in low-income and communities of color.
  • Promoting multi-firm partnerships to revitalize industry sectors.

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Greening the Economy to Revitalize Manufacturing

One theme that was a thread throughout talks at the Cleveland Summit was the opportunity to use the challenge of addressing climate change and fuel costs to revitalize manufacturing in our country.   Susan Helper noted that a focus on energy sustainability, such as a goal of renewable capacity to meet 25% of U.S. electricity, would create new manufacturing demand that could employ 925,000. 

Labor's Role in the Green Economy:  Bob Baugh of the AFL-CIO's Industrial Union Council outlined the labor movement's commitment to that goal in his talk, Greening the Economy, which outlined a few key principles:

  • A Green Economy should be tied to the goal of improving workers' rights, fair trade rules, and rebuilding manufacturing with full employment goals.
  • There needs to be strong domestic investment to capture new green technologies for export.
  • We need to cut green house emissions from existing coal and other fossil fuels, while ramping up renewable energy, energy efficiency, advanced auto and other green technology.
  • Public policy should concentrate on building the full domestic supply chain in green technology, including upgrading training to create a supply of trained employees for new green industries.

Green Public Policy:  Kate Gordon from the Apollo Alliance highlighted that green tech is a growth industry, one of the few in 2007, which can be supported by a range of policies outlined in the new Greener Pathways: Jobs and Workforce Development in the Clean Energy Economy report, produced by Apollo in association with the Center on Wisconsin Strategy and the Workforce Alliance.

Public policy can leverage the large amounts of private money coming into green industries, but Gordon cautioned that failure to take advantage of this opening could lead to that capital flowing overseas.  States have a number of tools at their disposal, including:

  • Regulating carbon markets,

  • Using green procurement rules to spark new investments in green jobs,

  • Assuring that the power grid and transit systems efficiently connect people and firms within regions, and

  • Promoting green workforce development, the recent Washington State green jobs bill being a good model.

A Regional Strategy for Sustainable Growth:  Regions need to assess how to collaborate to create a green jobs strategy.  Both Joel Rogers from the Center on Wisconsin Strategy and John Austin from the Brookings Institution emphasized that the Great Lakes region has the natural assets to thrive in the new green economy, with its combination of natural resources, existing manufacturing capacity, research and development capacity, and good rail and water transit systems. 

John Austin noted that many analysts forget that early research on the Internet and the World Wide Web was done at Great Lakes Region universities like University of Illinois and that the region still is an innovator in technology and manufacturing.  The Great Lakes region was also the birthplace of public investments in land grant colleges and great public institutions that fueled economic development over centuries.

Joel Rogers highlighted the challenge of coordinating economic development and assuring that the physical infrastructure is organized to take advantage of the assets in a region.  Promoting smart growth is therefore a key economic imperative, along with other public investments in regions, from health care to high-speed broadband to renewable energy.

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Conclusion: Lessons from the Cleveland Summit

If there was a common theme by participants at the Summit, it is that too many programs -- from unemployment insurance to workforce development to tax subsidies to transit investments -- are pursued in too disjointed a way.  States need to bring together government officials, industry leaders, education officials, and labor leaders to bridge gaps in these policies and create a more integrated approach.

Pierrette Talley of the Ohio AFL-CIO had opened the Cleveland Summit pointing to the need for Ohio to preserve its strength in manufacturing.  Recognizing that problem, Governor Ted Strickland this February proposed a new program, Building Ohio's Jobs, a $1.7 billion jobs stimulus plan that would bring together workforce development, green energy job creation, infrastructure investments, and revitalization of urban areas -- an example of the integrated approach badly needed by more states.

A key challenge for state governments is not only to integrate those policies within their states but to work collaboratively with other states in their regions and with the federal government to strengthen regional industry supply chains and targeted financial investments. 

Despite the often grim economic news in many states, the incredible policy innovation flowering in those same states gave participants at the Summit strong optimism that manufacturing would remain a vital economic engine and that communities are taking action to seize the new opportunities in the greening of the economy.

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