Manufacturing a crucial component of California's modern economy, new Milken Institute study shows

Press Release

Manufacturing a crucial component of California's modern economy, new Milken Institute study shows

LOS ANGELES — Manufacturing remains a much-overlooked crucial component of California′s economy, despite the importance of high-skilled, highly paid service-sector jobs such as computer software to the state′s prosperity, according to a new study from the Milken Institute.

Not only does manufacturing employ 1.9 million people in California, but it also creates millions of more jobs in other industries thanks to its high "ripple effect" on the economy.

"It has become all too common among citizens and policy makers in the industrialized world to accept the decline of manufacturing as the 'inevitable′ byproduct of economic modernization," the report states. "Such thinking is not only flawed, but potentially threatens the economic vibrancy of a society."

According to the new study, Manufacturing Matters: California′s Performance and Prospects, there are some concerns about this sector′s future in the state. Despite manufacturing′s strong showing over the past decade, especially in the high-tech sector, its total employment in California declined by about 5 percent from May 2001 to May 2002. Since May 2000, 115,000 manufacturing jobs in the state have disappeared.

Many of these losses are a result of California′s steep cost of doing business, which is one of the highest in the nation, the report states.

"There are limits to California′s ability to attract or even retain manufacturing production facilities in the state," the report says. "Other states are aggressively attempting to lure California manufacturers by highlighting their lower business costs, particularly electricity and tax rates, and by offering attractive location incentives."

The report, which was prepared by the Institute′s Regional and Demographic Studies group with a grant from the California Manufacturers & Technology Association, says policy makers can help stem these losses by reducing the financial burden on manufacturing companies through tax reductions, better research and development incentives, and other ideas. Unless these steps are taken, California′s manufacturing base will continue to decline, the report warns.

"Unless public leadership acts to shore up California′s manufacturing base, further deterioration of the state′s industrial capacity is inevitable," it says.

Among the report′s findings:

o Manufacturing is an economically and strategically vital component of California′s modern economy, employing 1.9 million people.
o An additional 3.8 million jobs in other sectors are tied back to manufacturing. When indirect effects are added, an additional two and one-half jobs are produced in other sectors for each manufacturing job created in California.
o Average annual wages in California′s manufacturing sector range from $102,900 in the computers and machinery industries to $19,796 for apparel and textile product workers. The average manufacturing salary per employee in the state was $54,600 in 2000.
o High-tech manufacturing is the strongest sector in California. Not counting aerospace, which suffered many losses in the 1990s, high-tech manufacturing firms created more than 80,000 jobs from 1992 to 2001.
o The biggest manufacturing sectors in California are electronic equipment firms, followed by industrial machinery, instruments and chemicals.
o Most threatened are production jobs, which are crucial to helping maintain a middle class, and which provide employment to many in the state′s inner cities.

In addition to policy recommendations that include paying more attention to the importance of manufacturing to the state and finding ways to lower cost burdens, the report includes detailed analysis of manufacturing′s importance to the state′s diverse population and to its metro economies.

View a pdf of the full report.

Published April 8, 2019