Economic Workhorse : Diversity and cheap labor in manufacturing are cushioning the Southland against defense layoffs.
Anywhere else, the news would have been devastating; it would have provoked anguish and outrage from politicians and sent severe shivers through the local economy.
The news: Hughes Aircraft said in June that it would eliminate 6,000 jobs, mostly in the Los Angeles area, by year-end. The reaction here: hardly more than a shrug.
Of course, the giant cutback has caused pain and dislocation among Hughes employees. But the general lack of outcry across Southern California to such a massive loss of jobs is stark evidence of how dramatically the manufacturing segment of the region’s economy has changed during the 1980s.
From their traditional dependence on airplanes and government contracts, the area’s manufacturing industries have grown and diversified with dizzying speed. The fastest growing have been those that make so-called non-durable goods designed to last less than three years. Into this category fall the region’s booming food processors, textile and apparel makers, printers and publishers, paper producers, and makers of rubber and plastic products.
Work Force Is Key
These businesses seem to be at the right place at the right time: cashing in on exports and a growing global fascination with California-related goods, particularly clothing and food.
Meantime, the “durable” goods manufacturers--most notably defense contractors and their hundreds of suppliers, faced with the end of the Reagan era’s huge defense buildup--are shifting, with varying degrees of success, to production of consumer-oriented electronics, new aircraft and equipment, and biotechnology products.
“Traditionally, manufacturing here was defense-oriented,” says Harris Smith, a partner at the accounting firm of Grant Thornton, which produces an annual study of regional manufacturing in the United States. “Now, it’s much more diverse.”
But perhaps the most profound change in the manufacturing climate here, according to some economic observers, has been the massive immigration of low-wage, relatively unskilled workers from Mexico and Central America.
“(Manufacturers) in Southern California that employ large numbers of immigrants, particularly Mexicans, have tended to grow faster than those that employ mostly native-born citizens,” says David Hensley, director of the UCLA Business Forecasting Project. Those industries include apparel, textiles, furniture and food processing, he says.
The result of all this diversification and immigration has been the creation of a regional manufacturing base that seems well-cushioned to withstand the current decline in defense spending, many economists and business people say.
Because the area is sometimes better known for its service industries, movies and tourism, the surprising strength of manufacturing has occasionally been overlooked. California ranks as the nation’s biggest manufacturing state in terms of employment--with 2.15 million workers--and more than 40% of those jobs are in Los Angeles County.
‘Call It a Pause’
Although Southern California’s manufacturing growth has spilled over--sometimes dramatically--to adjacent Orange, Riverside, San Bernardino and Ventura counties, Los Angeles remains the region’s “Mother Earth” with more than 900,000 manufacturing jobs, according to Joe Wahed, senior vice president and chief economist at Wells Fargo Bank. (By contrast, Orange County has about 256,000 manufacturing jobs, Riverside and San Bernardino together have about 82,000, and Ventura about 30,000.)
“There is no such thing as a slump (in manufacturing) due to the defense budget cuts,” Wahed says. “I’d call it a pause or a temporary slowdown. Layoffs in defense are being compensated for by growth in commercial aircraft and electronics. And meantime, the other areas of manufacturing are mostly very healthy.”
Evidence suggests that Wahed’s “pause” began last year and is continuing. According to state employment figures, the number of durable goods manufacturing jobs in Los Angeles County was down by 4,000 in March this year, compared to March, 1988. But in that same one-year period, the number of non-durable manufacturing jobs rose by 1,000.
And that increase follows a trend that saw the number of jobs in non-durable manufacturing jump to an estimated 317,600 last year from just over 284,000 in 1985, while the number of those making durable goods fell to an estimated 593,000 from more than 602,000, according to the California Employment Development Department.
Others aren’t quite so sure that the cushion against defense layoffs provided by the growing manufacturers will be enough. UCLA’s forecasters, for instance, expect regional manufacturing jobs to show at least a slight decline overall for the next two years, followed by “quite modest” growth in the 1990s, according to Hensley.
And Jack Kyser, chief economist for the Los Angeles Chamber of Commerce, sees “no exuberance” but also no slump for the region as defense spending drops.
‘Abundance of Cheap Labor’
Even if 1989 proves to be a relatively slow-growth year for manufacturing, however, many economic observers believe that the region is poised for a significant rise in the 1990s because of powerful economic forces at work, the strongest being the immigration of low-wage workers.
A flood of people from Mexico and Central America has created much of the growth for industries such as furniture, apparel, food processing and textiles, UCLA’s Hensley says. And despite strong new laws intended to prevent employers from hiring illegal immigrants, there is little evidence of a slowdown in immigration, he says. “There is an abundance of cheap labor, so industry comes here to use it.”
Some are worried, however, that the manufacturing jobs that have been created here in the 1980s as a result of immigration have largely been lower-paying positions with few benefits. Hourly wage statistics support that concern.
While the average manufacturing wage in California was $10.95 an hour during the fourth quarter of 1988, the average wage in the apparel business was $6.40. The average furniture maker was paid $8.33 an hour, while the typical aircraft worker got $13.76. A typical textile worker got $7.04 an hour; an oil refinery worker was paid $16.28.
“The higher-paid manufacturing jobs are flat or declining, the lesser-paid positions are increasing,” says one corporate economist who asked not to be identified. “The result is to aggravate the worsening split between rich and poor in Southern California.”
Another statistic shows even more dramatically how immigration has affected the local economy: Nearly 75% of all new jobs--both service and manufacturing--created in Los Angeles County during the past seven or eight years have been filled by people with Hispanic surnames, according to Wells Fargo’s Wahed.
Immigration has also created a boom for the region’s “underground” economy, where day laborers are paid in cash and no records are kept. All the government-maintained economic statistics are suspect, Kyser says. “Both the population and the manufacturing base (of Southern California) are under-counted because of the underground economy,” he says.
And that makes it impossible to forecast the future with precision. No significant effort to estimate the size of the local underground economy has been made since the 1970s, when a survey by the Urban Institute figured that more than 50,000 manufacturing jobs were underground.
Unless immigration slows to a trickle or a severe recession occurs, however, most observers don’t expect the current trends to change.
Along with the growth of non-durable manufacturing has been a gradual shift of jobs within the five-county greater Los Angeles area.
The fastest-growing manufacturing counties, in terms of percentage gains, have been Orange, San Bernardino and Riverside. Most of the growth in those areas has been in durable goods manufacturing, while Los Angeles County has shown growth only in non-durable goods.
‘Voting With Their Feet’
There is some “out-migration” from Los Angeles to adjacent counties, according to Wahed, but for the most part the growth outside Los Angeles County has been a net addition to the economy, not a transfer of jobs within the region.
“People are still voting with their feet and their plants that Southern California is a relatively competitive place to manufacture,” says Stephen Levy, economist and director of the Center for the Continuing Study of the California Economy, a for-profit research organization in Palo Alto. “You can’t deny that some plants are leaving (or moving within the area), but the net vote is a plus. It’s simply not true that the Southern California economic climate is uncompetitive.”
Kyser of the Chamber of Commerce believes that, over time, Los Angeles County may become less the center of manufacturing in the region, but that may not be a bad thing. “There may be other, more profitable uses for the land,” he says. “The (plants and equipment) for manufacturing are getting old, and some companies may be driven out by commercial development.”
But so far, he says, most of those manufacturers who have left Los Angeles County have relocated within the region, meaning no overall loss of jobs.
That phenomenon, some say, suggests that manufacturers’ complaints about regulation, high costs and restrictions that hinder their businesses may be overstated.
“It’s like your neighbor complaining that he’s broke and then buying a new Cadillac,” Wahed says. “Despite all the impediments, (Southern California) has a remarkable record of growth--far superior to most other parts of the country. There may come a time when congestion and high costs will be so debilitating that business will leave, but right now it’s not happening fast enough or deeply enough to hurt.”
MANUFACTURING IN L.A.: WHERE THE JOBS ARE
Figures for Los Angeles County, in thousands.
NONDURABLE GOODS
Industry 1984 1985 1986 1987 1988 Apparel, textile products 77.6 77.8 84.4 93.6 90.8 Printing and publishing 55.2 55.3 57.0 60.4 62.3 Food and kindred products 49.8 47.3 47.7 47.1 48.3 Rubber & plastic products 32.1 31.2 32.0 32.6 33.0 Chemicals & allied products 27.4 27.5 28.2 29.3 31.2 Paper & allied products 18.2 18.3 18.2 18.6 18.6 Textile mill products 8.7 9.7 10.2 10.8 11.5 Petroleum & coal products 12.8 12.2 10.9 10.8 10.9 Leather & leather products 6.3 5.6 5.4 5.1 4.7
DURABLE GOODS
Industry 1984 1985 1986 1987 1988 Transportation equipment 157.9 165.9 168.4 170.1 168.4 Electrical equip. & supplies 150.7 155.5 155.7 155.7 155.8 Fabricated metal 72.7 70.8 68.3 67.5 67.1 Machinery, except electric 76.4 72.2 67.3 63.5 59.4 Furniture & fixtures 38.0 38.1 38.0 40.1 38.9 Instruments 28.7 29.7 29.0 28.1 28.8 Primary metal 21.4 21.1 21.1 21.5 22.9 Stone, clay & gas products 19.5 17.8 17.8 18.2 18.7 Lumber & wood 10.8 10.6 11.5 12.5 12.5 Miscellaneous manufacturing 21.1 20.6 20.4 20.4 20.4
Source: California Employment Development Department
