Insights

On July 15, 2010, the Pittsburgh Business Times reported that the Pittsburgh region had lost 44,100 manufacturing jobs since the year 2000. This puts us right in the middle, ranked 51 out of the top 100 metro areas across the country included in the study. To some observers this is bad news, and to others it could have been a lot worse.

What’s going on here, and how did this happen? More importantly, what does the future hold? To be sure, we do not have enough time or space here to go into all of the reasons, but we can certainly make some high-level observations.

The decline of heavy manufacturing was well documented through the 1980s and 1990s. Unquestionably, when the heavy manufacturing left, so did many supporting manufacturing jobs. This trend continued into 2000 and beyond.

As this region’s manufacturing base declined, manufacturing in other regions blossomed. Manufacturing jobs were created in more business-friendly regions of the country. One need only look to the South and Texas as examples. Doing business in Pennsylvania, or, more specifically, the Pittsburgh region, is more costly than in other parts of the country. In many cases, when a foreign company was looking to relocate to the US, Western Pennsylvania was never on the list of possible locations.

One reason for the loss of manufacturing jobs here that does not get much attention is consolidation or mergers. Early in the decade, a rash of mergers and acquisitions moved many jobs to other locations. When a larger corporation purchased a manufacturing company in Western Pennsylvania, it was only a matter of time before that unit was closed or moved to another region.

That said, undoubtedly the biggest reason for the decline in manufacturing is that the world is much smaller now than it used to be. With advances in manufacturing technology, advances in supply chain management, advances in skilled labor around the world, and more significantly, lower material, labor and transportation costs around the world, it is more cost-effective to manufacture goods elsewhere. It’s classic economics 101.

With an increased awareness and utilization of the world-wide supply chain, improved logistics, improved technology, free trade agreements, and, in many cases, less-restrictive environmental and labor requirements, it has been easy to move manufacturing jobs out of the region, or out of the country.

The future will look vastly different than the past. The days of big heavy manufacturing dominating the landscape are probably gone forever. In order to succeed, manufacturers will need to be lean and efficient at every step of their development and operations. Managing the supply chain, managing the customers, managing costs, managing quality, will be the order of the day. According to the Pennsylvania Manufacturers Association, the manufacturing sector is currently the largest contributor to the greater Pennsylvania economy, generating 13.6% of the Commonwealth’s Gross Domestic Product, adding $75 billion of wealth every year, directly employing more than 560,000 Pennsylvanians, and sustaining even more jobs in manufacturers’ supply chains and distribution networks.

Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH. 

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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