APRIL 1982 - VOLUME 3 - NUMBER 4
U.S. Investment Climate Measured State by State
Goodrich shuts down in Akron, Ohio. U.S. Steel moves out of Gary, Indiana. GM closes a plant in Detroit, Michigan.
These are just a few examples of corporations leaving their traditional base in the U.S. industrial heartland for more favorable "business climates."
What lies behind the term "business climate"? Energy costs to industry, percent of unionization in the workforce, and wage levels, according to state manufacturer's associations recently surveyed by Alexander Grant & Company. As energy costs, percent of unionized workers and wage levels all rise, the "climate" becomes worse, notes the Alexander Grant study, General Manufacturing Business Climates: 1981.
These negative atmospheric factors explain why "Mid-Eastern and Great Lakes establishments moving to the South East and South West" (see map) comprise the largest number of plant dislocations occurring over the past year, the report says.
State manufacturing associations cite energy costs as the most important variable affecting a company's decision about where to locate.
The difference in energy costs by region is striking. "The South Central was the cheapest region and New England the most expensive," notes the report. "The most expensive state in the South Central region was cheaper than the cheapest in the New England, Great Lakes and Mid-Eastern regions."
Percent unionization ranks second in a list of 22 factors weighted by state industry associations. The South Central region with 13.9% unionized workers in the manufacturing sector, and the South Western region with 15.4%, have a clear advantage for management over the MidEastern region with 29.2% unionized and the Great Lakes with 29.5%.
Wages come next in importance, industry says. The regional split is not as wide fof this factor, with southern regions averaging $6.70 an hour in the manufacturing sector, while northern and midwestern regions averaged $7.18 an hour.
This "wage differential is closing," says Barry Bluestone, a labor economist at Boston College, "because wages are rising more slowly in the North." Alexander Grant's figures back Bluestone's claim. Over the past three years, the South Central region has showed the greatest percentage increase in wages, averaging an annual rate of 11.7%; wages in the Great Lakes region have grown at the slowest rate, 9.3%, with the Mid-Eastern and New England regions next, both registering increases at an annual rate of 9.7%.
The study depicts the sharp decline of unionized labor recently. Over the past two years, the level of unionization in the United States has dropped a precipitous 3.9%, the Alexander Grant report states. Nearly three out of every four states has registered a decline in union membership over this period, in terms of labor union membership per 100 workers in the manufacturing sector.
Every region showed a decline in union membership except the North Central, which gained a mere 0.98% in non-agricultural members over the past two years. The South Western region lost 8.29%, New England 4.77% and South Eastern 3.35%.
"There's not a whole lot that can be done" to prevent the flight of capital and the "labor dislocation" it causes, says Bluestone. "All you can do is deal with the consequences," he says, noting that "about 20 states in the country" are working on "plant closing legislation" to require pre-notification, severance pay and redevelopment funds."
"The problem is," says Bluestone, "as long as you operate under a free enterprise system, capital can move where it wants to go."