Overview

Manufacturing has long been the backbone of the North Carolina economy. In 1975, for example, it accounted for over 36 percent of all non-farm jobs in the state. Nationally, by a variety of measures, the state ranks eighth largest in the nation in manufacturing even though its only the eleventh most populous. And it ranks even higher in terms of the proportion of the total population that has a factory job.

The absolute totals for factory employment continued to rise, with some fluctuations, after 1975 before peaking in 1995. Since then they have declined steadily (Figure 1). In terms of its relation to the total economy, the decline has been even sharper. The 1975 share was halved by 2004, to just 15.4 percent of the total. The state tends to have a greater proportion in factory jobs than does the US generally. In 1997 North Carolina’s share was 22.1 percent, compared with the national proportion of 15.4 percent.

Industrial employment data from the Employment Security Commission of NC for the 1990-2004 period illustrate both recent declines in manufacturing but also the considerable diversification that has taken place in this sector of the economy (Table 1). For example, the textiles, apparel and furniture industries lost a combined total of over 214,000 jobs during the period while all other manufacturing industries loss just 27,000 jobs. Increases were led by the chemicals, plastics/rubber, fabricated metals, and transportation equipment industries, which together added over 16,000 jobs. For the most part, these industries paid average annual wages that were close to or in excess of the $37,443 average annual wage paid to all manufacturing employees in 2004. The state’s highest wage industry, computers and electronics products, the fourth largest industrial employer, recorded a 24 percent employment drop, but that rate was less than that for all industries. Diversification has had a substantial geographic component to it. For example, 1n 2002, 63 per cent of all jobs in chemicals were in the Raleigh-Durham, Charlotte-Gastonia and Greensboro/Winston-Salem/High Point MSAs and 79 percent of jobs in the computer and related electronics industry were found in these same three MSAs, led by Raleigh-Durham. Reflecting this, a national publication, "Business Facilities: The Location Advisor," ranked Raleigh-Durham fourth and Charlotte 11th highest among U.S. high-tech cities in 2003.

These changes, both national and for North Carolina, reflect both sharp cyclical and secular downturns in manufacturing activity during the recent economic slump. The cyclical decline is shown by the fact that national factory jobs declined only 0.6 percent from 1999 to 2000 but recorded a sharp 10 percent decline from 2000 to 2001, with a loss of over two million factory jobs in that one year alone. However, the North Carolina slide goes back further, to the 1995 peak, reflecting the diversification noted above, a secular change. Total manufacturing employment has declined steadily since then and by 2004 the state’s loss totaled over 240,000 factory jobs, a drop of nearly 30 percent since 1990 (Figure 1). Thus, while the national losses reflect a short-term, cyclical loss that will rebound as the economy improves, a major part of North Carolina’s losses are longer-term and probably irreversible.

Old Gibson Textile Mill Concord, NC (David Hartgen)	Productivity Early History Declines in Traditional Industries Manufacturing Specialization Implications of Industrial Changes Statewide Distribution of Jobs Losses Recent Factory Closings An Alternative Approach to Rural Factory Losses The Future Outlook for Manufacturing
R.J. Reynolds Tobacco Plant Winston Salem, NC (Patrick Jones)
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Productivity

A large part of the national decline in manufacturing employment has been the result of a steady rise in productivity, primarily through the greater application of technology to production processes. This explains how output can rise even as employment falls. Since 1970, US manufacturing output has doubled, increasing by 50 percent since 1992 despite the current recession. On the other hand, manufacturing’s share of total employment nationally has fallen from one-third in the 1960’s to 12 percent today. A measure of productivity is provided by data on Gross State Product (GSP) with the latest data available on it from the US Bureau of Economic Analysis being  for 2003. GSP is the measures of the total value of goods and services that are produced by the, economy. The previously mentioned national loss of 10 percent of factory jobs between 2000 and 2001 happened as GNP in manufacturing fell at the slower rate of just six percent, an indication that rising productivity required the employment of fewer workers.

Between 1997 and 2003 national GSP rose 33 percent while total employment increased by 7.4 percent. In manufacturing, employment fell 18 percent even as total employment in all sectors grew by nearly 8 percent.

Despite jobs losses, the national manufacturing GNP rose 9.6 percent between 1997 and 2003, a likely indication of increasing productivity. However, North Carolina had a somewhat different experience. Total state GSP rose in part because total non-farm employment also rose, by 5.4 percent but also partly because of inflation. However, in manufacturing, North Carolina’s GSP rose by 16.3 percent even though it fell sharply in the several cloth industries. As Table 1 shows, jobs in manufacturing fell by over 29 percent during the 1990-2004 period. The fact that employment declined sharply while GSP rose is an indication that there was an increase in productivity, as measured by GSP per employee and Table 2(b) shows that this was precisely the case. Overall, GSP per employee in all sectors rose 31 percent and 50 percent in manufacturing. However, the fact is also that the three traditional industry groups, apparel, textiles and furniture, despite modest gains between 1997 and 2003, still had levels of productivity that were well below those for the balance of the manufacturing sector, less than half of those for all other manufacturing sectors. Thus, North Carolina’s job losses are a function of the combined effects of rising productivity and down turns in the less productive industries.

It is conventional wisdom to blame cheap foreign imports for manufacturing job losses when, in fact, it is rising productivity that accounts for much of these losses. Forgotten in the emotionally charged rhetoric that typically surrounds discussions of such issues is the fact that these imports are a benefit to American consumers. When consumers can buy cloth and clothing for less, this effectively increases their net incomes. The problem is that these benefits are diffused, available to millions of consumers throughout the country. On the other hand, the jobs losses are geographically concentrated, with thousands of textiles and apparel jobs losses confined to the Carolinas, as noted above.

Another statistical measure of economic output is known as Value Added, a number available only from the US Census. Value added is a dollar measure of output that takes places at particular locations. It excludes purchased materials, for example, but includes the contributions of labor and capital at a factory. In short , it’s a precise measure of what actually happens at a given factory location.Even though the 1997 Census of Manufactures reported that the Textiles, Apparel, and Furniture industries together accounted for over one-third of North Carolina's manufacturing employees in that year, those industries accounted for just 18.5 percent of the state's total value added by its factories. By 2001, the latest year for which this information is available, the share of value added that was attributed to these industry groups had fallen to just 13.3 percent of the state's total in manufacturing.

The labor-intensive nature of the textiles, apparel, and furniture industries is indicated by the proportion of their value added that is contributed by labor costs, total payrolls in this case. In 2001, payrolls accounted for 23.5 percent of value added in all manufacturing industries in North Carolina. However,  in the two cloth and the furniture industry groups collectively nearly 44 percent of their value added was attributed to their payroll costs. That is, even though wages are low in these sectors, labor costs make up a relatively high share of their cost of doing business.  This fact is what makes these industries so vulnerable to competition from foreign producers who pay much lower wages.

Another ominous aspect of these traditional industry groups is that they invest less in capital equipment and facilities. The Census reported that while North Carolina manufacturers, apart from the textiles-apparel-furniture industries, invested nearly $9,300 per employee in capital expenditures in 2001, the traditional industries togetheraveraged spending not quite $3,700 per employee. This suggests that these industries are not acquiring the technologies that would allow them to increase their productivity in order to more effectively meet the competition from low labor cost foreign producers.

This GSP data also suggests that using employment trends as the sole measure of economic change can be misleading, in this case tending to overstate the apparent decline of manufacturing in the nation and the state. Unfortunately, however, GSP data are not available at the county level. In addition, changes in employment at the local level are probably the most meaningful measure for most individuals, as well as for economic development agencies. Furthermore, not only are employment statistics available at smaller geographic levels, they also tend to become available more quickly, thus giving a more current measure of change. For all these reasons, employment is the measure that is used in the remainder of this report.

Early History of Manufacturing

A few textile mills operated in North Carolina prior to the Civil War but hey were small and primarily supplied local markets. The real beginning of the industry did not occur until the 1880s. D.A. Tompkins, first owner of the modern Charlotte Observer, was one of the principal spokesmen for the New South movement that advocated industrialization as a way to revive the South's post-Reconstruction economy. Tompkins used the Observer's editorial page as a bully pulpit to promote this cause and even published a manual for prospective mill developers. In it he advocated organizing mill villages away from  cities, where mill owners could maintain control over their labor forces.

Borrowing from the experience of New England industrialists, the North Carolina mill owners initially used waterpower as their primary energy source.  The fast flowing streams of the Piedmont offered the greatest array of such energy sites within the state. However, by the end of the century an increasing number of mills supplemented water power with steam engines or relied on steam engines entirely. This is illustrated in the map of the Location of Cotton Mills, 1899, figure 14 in the History chapter.  Steam engines had the advantage of allowing the mills to be located at sites on the railroad lines. Some of the earlier water powered mills were not on the rail lines and had to haul raw cotton bales in and finished cloth out in wagons over typically poor roads, adding significantly to their cost of doing business.

In 1884 Thomas A. Edison personally supervised the installation of the first electrical dynamo in the South in a mill in the Gaston County town of McAdenville. Its purpose, however, was to provide lighting so as to extend the workday, not power the machinery. By the early twentieth century improved technology for generating and transmitting electricity gave mill owners greater locational freedom. However, the conversion to electricity was slowed as the mills had to install new machinery that could be powered by electrical motors.

The industry continued to expand and by 1929 southern textiles had surpassed New England in the number of spindles operating in its mills and  in the amount of cotton consumed.  North Carolina led the South, accounting for over one-third of the number of spindles among the six leading southern states.  More efficient southern mills, no longer satisfied with producing only cheap cloth, began taking markets away from the increasingly obsolete New England factories.

Dispersion of Factories and Population

The textile industry reinforced the dispersed settlement pattern of North Carolina.  In the North and elsewhere, industrialization reinforced urbanization.  However, in North Carolina, manufacturing enterprises, especially textiles, were located mostly in mill villages rather than in the cities of the Piedmont, as shown in the map of the Location of Textile Mill, 1931, figure 15 in the History chapter.  These modest towns were strung along the railroad line and seldom developed other economic functions.  Workers moved from nearby farms to factories with relative ease and back again as their desires and pockets dictated.  Following Tompkins advice, mill owners had consciously avoided the “bad influences” of the city.  Although subsistence wages, and other forms of economic, religious, and social exploitation existed in the mill villages, a sense of camaraderie emerged among the workforce that made mill life bearable.  Family members often worked together at the mill, recruited kin for mill work, and supported each other through difficult times. Low wages necessitated that everyone in the family work, including children and women.  By the early twentieth century, North Carolina led the nation in the percentage of its female work force in manufacturing.

A smaller concentration of furniture plants in the northern Piedmont around High Point and Greensboro and in the western mountains augmented the dispersion of people and jobs associated with textiles.  By 1927 furniture manufacturing employed 15,000.  Tobacco, textiles, and furniture comprised the “Big Three” of North Carolina industries that dominated the state’s economy and leadership for decades.

A study conducted in 1926 compared operating costs in a Massachusetts mill with those in the South. Most costs were similar except for labor, which cost one-third less for a 55-hour workweek in the Southern mill, in contrast to a 48-hour workweek in Massachusetts. This documented the fact that the industry was drawn away from New England by the South's pool of cheap labor. Ironically, this is precisely why so much of North Carolina's industry has declined sharply as production has shifted to low labor cost countries in Asia and Latin America. In the history of industrialization, the textile industry has been "first in and first out." It led the emergence of the Industrial Revolution in Great Britain, then in New England, and now in the US South. It has now left or is leaving these areas and moved offshore.

Long Term Effects of Labor Disputes

One of the legacies of the industry's early history is prevailing anti-union attitudes of contemporary factory workers, even though they are among the lowest paid in the country. A major reason for this is thought to be a result of the after effects of several historic labor disputes. In 1929 communist labor organizers called out the workers at the giant Loray mill in Gastonia, where a recently instituted "stretch out" had eliminated hundreds of jobs and increased the work load for the remaining workers. . The strike ended after much violence, including the murder of the Gastonia police chief. As it ended, striking workers lost not only their jobs but also their company housing. In 1934, Franklin Roosevelt implemented the Textile Code that called for a 40-hour workweek, a minimum wage of 25 cents an hour and gave mill workers the right to organize. When the Code's provisions were ignored by mill owners, thousands of mill hands went out on strike and in the violence that accompanied the outage some strikers were killed and others were herded into concentration camps originally built to hold German prisoners of war during World War I.  Again, when the strike was over the strikers lost both jobs and homes. Ironically, in both cases, the mill workers came to blame the unions for their hardships, not the mill owners.  The memory of these bitter episodes remains alive today, as the daughter of one striker said, as a "dirty secret." These strikes are still controversial topics. For example, in 1979 a Charlotte television reporter went to Gastonia to do a story on the 50th anniversary of the Loray strike and no one would talk to him about it on camera. In 1996, a documentary about the 1934 strike, "The Uprising of '34," was broadcast on Public television but the Charlotte PBS station, WTVI, never showed it and the UNC-TV network showed it at midnight on a Saturday.

Declines in Traditional Industries

The reason for North Carolina’s longer slide in factory employment than in the nation as a whole is that its traditionally major, labor-intensive industries have been losing ground for many years. In 1975, for example, their major representatives, the textiles, apparel and furniture industries (North American Industry Classification System {NAICS} industries 313,314,315, and 337), together accounted for the majority (54.6 percent) of the state’s manufacturing employees. This proportion has declined steadily to their 28 percent share in 2004. Collectively, these three industries lost over 213,000 jobs between 1975 and 2004, whereas all other manufacturing industries added over 100,000 jobs (Figure 1). More recently, these “other industries” have shared in the national industrial downturn, losing over 103,000 jobs since their statewide peak, which occurred in 1998.

The greater and more long-term losses in the three traditional industry groups involves several sets of factors. First, they reflect the vulnerability of these labor-intensive industries to foreign competition, in great part because of their previously noted low levels of productivity. For many years these industries enjoyed comparative advantages domestically in terms of operating costs, especially labor costs. However, in the recent era of globalization, a number of foreign countries offer even greater operating costs savings. Further, the technology of these industries can be transferred relatively easily and adopted by rural labor forces. Thus, the US industries have been faced with a rising tide of less expensive imports in cloth, clothing and furniture. Domestic consumers have become accustomed to buying these items from China, Brazil and other countries. “Buy American” appeals have largely fallen on deaf ears, it seems.

Ironically, this trend is very similar to the late 19th and early 20th century shift of the cloth industries from New England to the South, as noted earlier. The end of decades-old quotas on the importation of textiles on January 1, 2005 is expected to dramatically increase the flow of cheaper textiles into the US market. Some 40 countries are now free to ship unrestricted amounts of textiles to US stores. One economist has projected that this will cause the Carolinas to lose another 20 percent of jobs in the apparel and textiles industries in 2005 alone.

Within the labor-intensive industries, especially textiles, job losses are not always solely a function of losing markets to foreign competitors. Many of the better managed and more highly capitalized companies have invested heavily in new technologies that dramatically increased their productivity, thus allowing them to stay competitive with their offshore counterparts. However, the point of these investments is to reduce labor costs and employment, thus adding to the jobs losses generated by companies that went out of business.

These trends produced a geographic shift that occurred within the state for several decades after World War II. As shown in the North Carolina Atlas (pp. 183-184), many textile and apparel operations opened facilities in rural parts of the Coastal Plains and the Mountains during this time. These locations represented a search for cheaper labor by companies that found it too expensive to compete for workers in the growing, increasingly more diverse economies in the original heartland of the cloth industries, the Piedmont corridor. This era of rural industrialization ended in the early 1970s as offshore sites began to offer even lower operating costs. By 2003, North Carolina's Metro areas contained 67 percent of the state's manufacturing jobs, a sharp increase from their 48 percent share in 1975.

It is often stated, particularly by some politicians campaigning for election, that the reason for the loss of manufacturing jobs in the state is the enactment of the North American Free Trade Agreement (NAFTA). Some have claimed that this agreement caused many manufacturers to move their operations to Mexico, for examole. The fact is that employment declines in the more vulnerable labor-intensive industries, such as the textiles, apparel, and furniture sectors, began long before NAFTA was enacted in 1991. Textiles employment in North Carolina peaked way back in 1973, apparel in 1984 and furniture in 1988. Between these peak years and 1991 these three industry groups together lost over 112,000 jobs. NAFTA may have contributed to some of the subsequent jobs losses since 1991 but clearly it is not the sole, or even primary, reason for most of the losses in those industries. Many Carolinians are concerned that the Central American Free Trade Agreement (CAFTA) will lead to an even further decline of these labor-intensive industries.

Manufacturing Specialization

The dispersion of factories throughout the state has led to a number of areas that have economies that are relatively specialized in manufacturing. This is displayed in Figure 2, which shows the proportion of total employment in each county that is in factory jobs. Statewide, that figure in 2004 was, as noted above, 15.3 percent.

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The heaviest relative concentration of industrial employees is found primarily on the Piedmont, of course.  This includes counties that recorded 30 percent of all jobs in factories, double the statewide share. They are clustered primarily around Hickory and to the northeast of Charlotte. A great number of other areas throughout the state also had proportions greater than 15 percent. They are especially noteworthy on the Inner Coastal Plain, a region generally considered to have agricultural economies. In fact, the rural dispersion of manufacturing is revealed by the shares that are found in counties that are not classified in Metropolitan Statistical Areas  (MSAs), Combined Metropolitan Statistical Areas (CMSAs) or Micropolitan Areas (McrSAs). Definitions of all three of these areas can be found in the Population chapter. The newly created McrSAs  are comprised of non-MSA counties that contain an urban place with a population of between 10,000 and 50,000.

There are 30 North Carolina counties that are not found in either of these three categories and thus they can be considered to be the state’s most rural areas. Factory employment is reported for 26 of these most rural areas and half of them have proportions that exceed the statewide average, including three that have more than 30 percent of all of  their workers in factories. As previously noted, in most cases, these rural industrial economies are heavily concentrated in the very labor-intensive industries that are vulnerable to competition from low-wage, off shore producers.

Several of these rural counties exemplify their dependence on factory jobs and their recent losses.  Ashe, Martin, Montgomery, and Richmond counties had manufacturing proportions that ranged between 24 and 45 percent of total employment in 2004. Between 1990 and the second quarter of 2004 they collectively lost 9,158 factory jobs, a decrease of over 59 percent, double the statewide rate of loss. Consequently, their average unemployment rate was 9.4 percent in 2003, well above the statewide rate of 6.5 percent. Unfortunately, the statistics on specific industries is too sketchy for some of these counties, making it impossible to discern just how much the Textiles-Apparel-Furniture industries contributed to these losses. However, in Montgomery and Richmond counties, which had a combined total of 14,661 factory workers in 1990, the decline in Textiles-Apparel-Furniture jobs accounted for two-thirds of their 40 percent manufacturing employment loss between 1990 and 2004. While not comprehensive, these numbers still tend to support the idea that rural counties have been more severely impacted by the loss of these labor-intensive factory jobs than have most other parts of the state.

Another feature of this pattern is that the areas that are the largest manufacturing employers actually recorded relatively small shares of jobs in factories. The largest was Guilford County, which had 39,208 factory workers,  followed by Mecklenburg’s 36,962. Yet Guilford’s share, 14.6 percent, was less than the state average, and Mecklenburg’s was just 7.3 percent. Wake, another major factory employer, recorded only a 5.5 percent share of all jobs in manufacturing.

Implications of Industrial Changes

The loss of these labor-intensive factory jobs can be viewed as a good news/bad news trend for North Carolina. The good news is that the state is losing jobs in industries that paid an annual average wage of only $28,406 per employee in 2003, compared with an average of $44,238 per employee for the “all other” factory groups. Put another way, the three traditional industry groups accounted for 29.4 percent of all factory jobs but only 21.1 percent of total manufacturing payrolls in 2003. These relatively low wages have been a major factor in holding personal income levels in the state well below national means. However, the lower wages of the traditional industries were still often the highest available in many rural areas.

Secondly, traditionally the cloth and furniture groups have not required a well-educated labor force to produce their goods. As noted earlier, early mill developers followed the advice of 19th century industrialists D.A. Tompkins and located these operations in small towns or rural areas. Early on they provided desirable economic alternatives for share-croppers who wanted something better than farming. Isolated in dozens of mill villages, these former farmers quickly learned to run textile machinery or to make mass-produced furniture. There was little incentive for them to obtain much education and, even until the early 20th century, children left school and entered the labor force to help supplement the scanty wages of their parents. This environment produced a chronically under-educated work force that has had difficulty adapting to the kind of economic restructuring that the state is now undergoing.

Simply put, thousands of displaced workers cannot easily qualify for jobs in an economy that increasingly relies on information technology or requires workers who can quickly be cross-trained in a host of operations. These jobs require the ability to understand training manuals, use computers and communicate effectively with co-workers. In a reflection of this nationally, the US Bureau of Labor Statistics reported that in May, 2003 the unemployment rate for workers who had less that a high school diploma was 9.2 percent, almost triple that for college graduates (3.1 percent). North Carolina’s long-term reliance on these labor-intensive industry groups has left the state with a labor force that is not well prepared to be very competitive in the state’s efforts to attract more sophisticated, high-technology industries. In fact, this under-educated labor force may be the “Achilles Heel” of future economic development efforts by the state.

The bad news is that the current transition away from labor-intensive industries is producing terrible hardships for thousands of workers and their families, especially in rural areas where factories have been the best, sometimes only, source of incomes. This is exemplified by the highly publicized bankruptcy and closing of Pillowtex mills in three counties, displacing over 5,200 workers, according to a report from the Employment Security Commission of NC (ESC). The difficulties of finding new jobs for these hard working but under-skilled workers has created a major crisis for them. In addition to the loss of work by these often older workers, the job losses hit the affected communities hard, especially when the closed mill was the dominant employer in town. Merchants lose their customers, the housing market collapses and communities face declining tax revenues from which to provide basic public services.

The contractions of these industries have been particularly hard on immigrant workers. In recent years, Latinos took many of the jobs in mills and cut and sew facilities. However, a number were illegal immigrants who found out that they are not eligible for unemployment benefits or other forms of government assistance. According to the Charlotte Observer (August 17, 2003, p. A-1), at a meeting of Spanish-speaking Pillowtex workers, a state official told the crowd that those in the meeting who did not have legitimate documents that they should leave and dozens did so.

Statewide Distribution of Jobs Losses

Between 2000 and 2003, North Carolina lost 182,000 factory jobs, a decline of 23 percent. The statewide distribution of these losses is shown in Figure 3(a). Losses of 5,000 or more were confined to central counties of some of the state’s larger metro areas, especially Catawba, Durham, Gaston, Guilford, Mecklenburg, and Wake counties. Together, these six counties accounted for 43 percent of the state’s total loss. Otherwise, most of the major losses were recorded in other larger industrial counties along the Piedmont corridor and in nearby western areas. Conversely, those counties that experienced smaller losses, mainly in the eastern and far western parts of the state, had smaller industrial labor forces to begin with. The only two counties that recorded gains, Granville and Camden, had increases of just 110 and 77 jobs, respectively.

However, Figure 3 (b) puts these losses into a different context by showing factory jobs losses in relation to total employment, a measure of the overall impact of manufacturing declines on the local economy. Of the 11 counties for which factory job losses amounted to 10 percent or more of total employment, only one, Catawba, was among those losing 5,000 or more of such jobs. It and its surrounding counties have economies that are particularly concentrated in textiles, apparel and furniture manufacturing and all had declines that far exceed the statewide drop of 2.9 percent. The rest that had high proportions of losses were mostly in other western and eastern non-metro areas or in suburban parts of metro areas on the Piedmont. However, in the state’s two most populous counties, Mecklenburg and Wake, factory job losses exceeded 5,000 each but these losses amounted to 1.5 percent or less of total employment, a measure of their relatively more diverse economies.

In contrast to the pattern of absolute job losses, the losses of 4 to 10 percent of total employment were concentrated not only in a number of Piedmont counties but also in many parts of eastern North Carolina and in the western part of the state. The bulk of these are rural counties. This suggests that the local impact of these factory jobs losses on the overall economy was greater in a number of rural areas than the absolute jobs losses shown in Figure 1 would indicate.

While much of the concern about recent manufacturing jobs losses in the three traditional industry groups has focused on rural areas, the fact is that the bulk of these jobs are in or proximate to metro areas. For example, of the 12 counties that had at least 5,000 workers in the traditional industries, 10 are in metro areas and the remaining two (Rockingham and Surry) are adjacent to one. These 12 counties employed almost 53 percent of the state’s textiles/apparel/furniture factory workers in 2000 but collectively lost almost 23,000 of them by 2002, not counting the subsequent losses at the several Pillowtex plants. Catawba County, central to the Hickory-Morganton MSA, was the biggest loser of them all, with a decline of 4,800 jobs in the traditional industries during the two-year period. However, the fact remains that these metro counties have bigger and more diverse economies than do their rural counterparts. Thus, while the rural losses may have been smaller, they constituted, in most cases, a larger part of the local economy.

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Recent Factory Closings

Figure 4 displays the pattern of factory closings that were announced by the Employment Security Commission of NC (ESC) for the 2003-2004 period. These include actual plant closings and not lay-offs. The closing of 185 factories were announced during these two years, along with their job losses, which totaled 26,609. Of these, 100 of the closings and 17,605 of the lost jobs (66 percent of the total) were in the three traditional industry groups (Table 3a). While this two-year period represents only a fraction of the time in which factory losses occurred, it can be taken as a very current portrayal of the major losses. Figure 4 also shows that, while there were a number of closings in rural parts of eastern North Carolina, the great majority were in the Piedmont corridor. In fact, a high proportion occurred in parts of the metro areas in and around Greensboro/Winston-Salem, Charlotte, and Hickory. However, even there many closings were in small towns that are scattered throughout these metro areas, rather than in the larger central cities.

The good news is that the NC Employment Security Commission reports that the rate of factory closings decreased sharply in the most recent eleven months of 2004. The number of closings had averaged 11.5 per month throughout 2003, with a total of 18,889 jobs lost. January, 2004 was another bad month, with 22 more factory closings and 2,250 jobs lost. However, in the February through December, 2004 period there were only 53 factory closings (less than five per month) involving 5,470 lost jobs.

The Employment Security Commission of North Carolina (ESC) reported that total manufacturing employment from plant closings dropped less between January, 2005 and September, 2006 (-19,745) than during the 2003-2004 period (-26,690) and the number of factories that closed declined from 185 to 130 during the same time periods (Table 3b). The traditional, labor-intensive industries (textiles, apparel, and furniture) continued to account for the bulk of the closing impacts, together accounting for about two-thirds of the job losses in 2005-2006, similar to their share in 2003-2004.

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An Alternative Approach to Rural Factory Losses

The economic problems of rural areas have been a major concern for the state for many years. Major emphases have been placed on using financial incentives to induce companies to locate in these areas. The magnitude of these incentives are highest for companies that locate in counties that are designated as distressed, least for the prosperous urban areas. Despite this, however, the great majority of incentives have been paid to new and expanded facilities that located in urban areas. (See the Economy Chapter for more information on this topic)

A potentially more promising approach is offered in a study by the Center for the Study of Rural America in the Federal Reserve Bank of Kansas City cites an alternative and apparently successful approach that has been used in the Catawba Valley of North Carolina. After observing that rural factories in North Carolina produce about 60 percent of the nation’s socks, the study notes that these firms typically employ fewer than 75 workers and are found mainly in rural communities. These facts would seem to make them particularly vulnerable to foreign competition.

To the contrary, this industry segment has generally prospered in its rural location. The reason seems to be through developing synergy among deliberate clusters of establishments. The Hosiery Technology Center was developed in 1989 at the Catawba Valley Community College. The Center is a testing point for developing and adapting new technologies, something the small firms could not do for themselves. Further, the Center provides training to workers in the use of new technologies. The result has been steady investments in new technologies, more efficient workers, and a very competitive industry. Now the industry is pushing to “. . establish rigorous quality certification programs and to take advantage of e-commerce methods for purchasing inputs and marketing its products.” (Drabenstott, p.4).

The report suggests that developing such cooperative programs will be considerably more effective in reversing the loss of rural factory jobs than will the present reliance on financial incentives. This suggestion is in keeping with observations in the North Carolina Atlas that manufacturing increasingly “. . tends to favor small, innovative firms that are involved in denser supplier/producer networks and where cooperation among allied businesses is possible.” (p.196). While such factors tend to favor urban locations, efforts such as those developed in the Catawba Valley can certainly be used to increase the competitiveness of other rural factories. Without such initiatives, North Carolina's rural areas can expect to continue their job losses even as the national economy recovers and the metro areas resume their growth in a number of industry groups.

• Mark Drabenstott, “New Troubles at Rural Factories: New Implications for Rural America,” The Main Street Economist, March 2003. The Center for the Study of Rural America, the Federal Reserve Bank of Kansas City.

The Future Outlook for Manufacturing

The situation outlined above in the Catawba valley is representative of changes in the nature of manufacturing that were summarized in The North Carolina Atlas (p.196). This analysis was published in 2000 but it seems to be increasingly valid today.

American manufacturing is undergoing organizational and technological shifts that are intended to improve its competitive position in global markets and these will have an impact on its location. An emphasis on just in time deliveries of materials and products tends to favor places that have excellent inter-city accessibility. Automated production, robotics and various high-tech industries play more to the strength of the U.S. economy than do traditional labor-intensive industries. These companies require a well educated labor force and good accessibility to national and global markets, whether via Interstate highways or air service.

Another major change that is occurring is the emergence of flexible manufacturing systems that depend heavily on computer-integrated processes. Production runs are smaller and the uncertainties of volume associated with this are shifted to subcontractors and suppliers. These small, specialized producers do similar work for many different customers, to the advantage of all. Inevitably this arrangement leads to a clustering of related industries, especially in metropolitan areas. In contrast, the rapid changes associated with developing technologies and markets put any plant that specializes in the making a single product or product line at considerable risk. “Flexible” plants are better prepared to weather the turmoil of uncertainty. This favors smaller, flexible operations, including those that are affiliated with corporate headquarters and research and development functions. Labor forces that are amenable to cross-training for a number of tasks also are advantageous. This kind of manufacturing tends to favor small, innovative firms that are involved in denser supplier/producer networks and where cooperation among related businesses is possible. These operations and the related, skilled jobs in research and development, innovation, marketing and finance tend to be located in the dominant urban regions.
These factors may make the current era rank with other major historical turning points in the state’s industrial history, comparable to the first and second cotton mill campaigns of the 1880s and 1920s and the boom of the post-World War II period. This new era promises a continuation of factory growth in and around larger metropolitan areas, especially in the more suburban parts where manufacturers can access central city advantages while avoiding their higher costs. Conversely, a progressively smaller share of industrial growth, especially in high growth, high wage industries, will be going to the more rural parts of the state, despite the use of state and local economic incentives to try and reverse this trend. Industrial employment in rural areas typically is associated with lower wages, fewer fringe benefits and less attractive working conditions than in urban areas. These workers have the skills needed only for routine, inflexible tasks. Mostly they work in branch plants where no decision-making or innovation takes place. All of these factors limit the plant’s ability to respond to rapid changes in technology and markets.

The seemingly inexorable growth of more desirable industries in metropolitan areas will result in a further widening of earnings gaps between their counties and the rest of the state. This, in turn, will erode the general pattern of geographic dispersion that has so strongly characterized the state throughout much of its history.”