Creating Regional Advantages in Appalachia

45 Pages·2006·0.19 MB·English

by  Appalachian Regional

CREATING REGIONAL ADVANTAGE IN
APPALACHIA: TOWARDS A STRATEGIC
RESPONSE TO GLOBAL ECONOMIC
RESTRUCTURING

Keystone Research Center
April 2005

FINAL REPORT UNDER
ARC CONTRACT NO: CO-12884T-03

ASSESSMENT OF WORKFORCE DISPLACEMENT AND ADJUSTMENT
POLICIES IN APPALACHIA’S LABOR MARKETS

This report was written by Stephen Herzenberg, Suzanne Teegarden, and Howard Wial,
with assistance from Amy Glasmeier, Mark Price, Peter Wiley, and Matt Yancheff.
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Table of Contents

I. Executive Summary....................................................................................................2
II. Introduction.................................................................................................................4
III. Historical Context for Contemporary Restructuring...............................................5
IV. Recent Restructuring in Appalachia...........................................................................6
V. Responses to Worker Displacement and Economic Restructuring..............................10
A. Overview of Field Research Site Selection..........................................................10
B. Responses to Worker Dislocation.........................................................................13
C. Economic Readjustment.......................................................................................19
1. Strategy and Planning.......................................................................................19
2. Policy and Implementation...............................................................................23
Traditional Practices.....................................................................................................25
New Approaches...........................................................................................................27
Building on regional strengths..................................................................................27
Diversifying the industrial base................................................................................29
Movement toward higher value-added manufacturing.............................................30
Improvements in job quality, including in services..................................................30
VI. Conclusion.................................................................................................................33
Appendix A. Appalachian Economic and Social Indicators, 1970-2000........................36
Appendix B. Summary of Best Practices in Two Areas..................................................39
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I. Executive Summary

This report documents the findings of field research in seven Appalachian states on
responses to worker displacement and economic restructuring. (The seven states are
New York, Pennsylvania, Ohio, West Virginia, Kentucky, North Carolina, and Georgia.)
This field research complements quantitative analysis of worker displacement in
Appalachia from 1993-2003 that is detailed in a earlier report (and summarized below).1
Overall, we found that Appalachia has experienced significant economic distress
especially beginning in 2001 (earlier in some places) and that worse may be yet to come,
especially in Southern Appalachia. Other major findings include the following.

• The Appalachian region is highly vulnerable to economic changes now occurring as a
result of the concentration of low-wage manufacturing in Southern Appalachia,
incomplete adjustments from earlier manufacturing job losses in the “rust-belt”
regions of Northern Appalachia, and longstanding underdevelopment in the coal-
dependent regions of Central Appalachia.

• In Appalachia as a whole, manufacturing still accounts for one out of every six jobs,
and one out of five in Southern Appalachia, compared to one out of nine nationally.

• In January 2004, among workers displaced in the 2001-03 period, lower shares of
Appalachian than non-Appalachian workers were re-employed, in the labor force, and
enjoying wage gains compared to their previous job. Appalachian workers’ difficulty
bouncing back from displacement likely stems from the higher share of older, less
educated, and long-tenured workers displaced in the region as well as a high share of
jobs lost due to plant closings. Plant closings in some rural areas wiped out a
substantial share of employment in regional labor markets.

• Appalachian wages have lost ground since 2001 at virtually every point in the wage
distribution, including a drop in the median wage from $12.74 to $12.58 (in inflation-
adjusted 2004 dollars). This compares with a wage gain over the same period in the
non-Appalachian U.S. from $13.80 to $14.07.

• A wide variety of responses to worker displacement and economic restructuring can
be observed in Appalachia. Most field research regions had developed systems of
responding to layoffs and connecting dislocated workers to services. In many
regions, however, the overall response to restructuring has been reactive, with more
energy and activity focused on coping with the direct impact of displacement than on
developing a comprehensive and strategic long-term response.

1 Readers can find more detail on the experience of displacement in Appalachia, including bar graphs
summarizing key findings, in a stand-alone report. See Stephen Herzenberg, Mark Price, and Howard
Wial, Displacement in Appalachia and the Non-Appalachian United States, 1993-2003:
Findings Based on Five Displaced Worker Surveys, report prepared for the Appalachian Regional
Commission, 2005, available online at www.arc.gov.
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• The areas with the most potentially effective workforce and economic development
practices have effective leadership and base local practices on a regional vision and
strategy developed with input from diverse stakeholders; an emphasis on building on
local economic assets; strong stakeholder partnerships; explicit goals that are
measured and tracked; and an awareness and use of external “knowledge.”

• Virtually all of the case study sites described a shift in emphasis away from industrial
recruitment strategies and towards industrial retention, growing new businesses, and
human capital strategies. In the distribution of business subsidies, some attention to
job quality and accountability (e.g., clawbacks that require incentives to be partly or
completely returned if promised job or wage targets are not met) were becoming
standard economic development practice in these regions and in many cases these
features are built into state subsidy programs.

• Several interviewees observed that, while listening to business is pivotal, that
business does not always know what it needs. Their observations underscore a need
to go beyond simply being industry driven; sophisticated economic and workforce
developers also need to assist business with identifying collective needs important to
regional industries and bolstering these industries’ capacity to anticipate future
market trends and threats.

• Although not currently recognized as part of the standard economic development
toolbox, technical assistance that supports organizational change within firms
emerged as a practice for retaining and/or improving jobs at several of the case study
sites.

• In all field sites, a lack of confidence was evident, especially but not only among
displaced workers, regarding whether there is any approach that could create enough
middle-class jobs in the context of global economic pressures.

• Implicit in the best practices evident across all of these seven regions is a new
Appalachian economic development strategy with the potential to replace the
previous emphasis on industrial recruitment. So far, no economic or workforce
developer has articulated the new strategy in a comprehensive way, which could
advance its refinement and implementation.

• Further developing the emerging strategy, in part by pooling the most advanced
approaches across all regions, is likely to be critical to enabling Appalachia to prosper
in the face of the economic pressures of the next decade. To foster more developed
“next generation” economic development strategies for rural Appalachia, this report
recommends the following:

• Inclusive strategic planning that creates and tracks efforts to improve middle-class
well-being for the whole community. Improving job quality, for example, is
difficult enough in the current environment that it is not likely to happen without
tactics aimed explicitly at that goal.
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• More recognition of and support for human capital and learning institutions that
cut across multiple companies – such as industry workforce partnerships or
intermediaries, collaborative networks of small companies, and industrial
extension services that go beyond routine “lean production” to include technical
assistance on strategic planning, marketing, and organizational change.
• Experimentation with diverse approaches to giving local industries forward-
looking strategic knowledge and the ability to anticipate the next competitive
threat and opportunity. Such capacity might be housed in industry centers of
excellence, community colleges, higher-level academic institutions, or industry
associations. Without such capacity, more segments of Appalachian industry will
find themselves unable to cope with the pressures of the next decade.

Over the past decades, the Appalachian region has used infrastructure development
coupled with industrial recruitment and some improvements in human capital to close the
economic gap with the rest of the United States. This has been an important achievement
and in many cases creates a strong foundation for coping with new challenges. But while
improved infrastructure and education levels are necessary, they are not sufficient. The
overall message of this report is that past economic development approaches are
inadequate to cope with the pressures confronting Appalachia today. Building on the
most creative economic and workforce ideas and practices in the region, however, many
of the region’s relatively accessible rural regions retain opportunities to flourish in the
21st Century.

II. Introduction

This report is based on field visits to seven different regions within Appalachia including
counties within the southern tier of New York, the Athens metropolitan region of Ohio,
North Central Pennsylvania, Southeast Kentucky, South Central West Virginia,
Northwestern Georgia, and the Asheville metropolitan region of North Carolina.2 The
field work for this report was undertaken for two major purposes: to deepen the
understanding of the character and impact of dislocations within Appalachia and to
understand and describe current responses to the impact of job/worker displacement with
an emphasis on promising approaches that:
• expand opportunity for individual dislocated workers; and
• bolster longer-term regional economic viability including via “next generation”
economic development strategies.

The context for this report is the unprecedented economic challenge from the expansion
of Mexico and China as manufacturing export platforms serving the U.S. market. This
challenge is more daunting in Appalachia than the United States as a whole because of
the region’s dependence on manufacturing for 17 percent of all jobs, as compared with 11
percent in the United States as a whole. Appalachia also has a concentration in labor-
intensive manufacturing, such as textiles and food processing, in which imports have

2 Case studies providing more detail on each field visit are included as appendices.
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grown and are projected to continue growing rapidly. The high poverty rates in
Appalachia make residents of the region even more vulnerable to economic downturns
and the low education levels make efforts to diversity the economy more challenging.

While the field visits confirmed the impacts of manufacturing job loss related to trade,
the experience of displacement within Appalachia also varied by region. Sites in
Southern Appalachia reflected the loss of manufacturing jobs throughout the south; sites
in northern Appalachia were shaped by earlier waves of “rust belt” manufacturing job
loss and the responses that had been made to that earlier restructuring; sites in central
Appalachia, in which manufacturing was much less important, continued to be affected
by a combination of longstanding underdevelopment and displacements caused by long-
term changes in the coal industry.

There were a wide variety of responses to economic restructuring among the site visit
regions. In general these practices can be grouped as follows:

• Reactive: energy and activity were focused on coping with the direct impact of
displacement, but there was little emphasis on developing comprehensive and
strategic long-term responses.
• Dispersed: effective practices that went beyond simply coping with dislocations
existed in one or several local agencies, but these practices were not closely
connected or coordinated into an overall strategic response.
• Comprehensive: a shared vision and strategy existed and was being implemented
across multiple workforce and economic development agencies.

Most hopefully, there were an emerging set of new practices that hold promise for
readjustment strategies in rural Appalachia. No region fully articulated or implemented a
new economic development vision, but each offered examples of innovative programs
and several appeared to be moving towards a newer, more comprehensive approach.

III. Historical Context for Contemporary Restructuring

In Appalachia, the current displacements – and those that appear to be looming -- are
shaped not only by the region’s economic history and industrial structure, but also by
differences within Appalachia. The last 30 years have seen overall improvements in
many economic and social indicators in Appalachia, but varied changes within different
parts of the region. Southern Appalachia has become less poor and more educated, but
has a larger concentration of manufacturing making it more vulnerable to pending swings
in manufacturing employment. Northern Appalachia weathered significant
manufacturing losses in the 1980s and 1990s, but has retained pockets of high-wage
manufacturing jobs. Northern Appalachia has also gone from a poverty rate lower than
the national average to one higher. It may have fewer manufacturing jobs to lose than
Southern Appalachia, but has not fully recovered from previous restructuring. Central
Appalachia remains the region with the highest poverty levels and the lowest levels of
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education. Appendix A provides additional background on economic and social progress
in Appalachia from 1970 to 2000.

IV. Recent Restructuring in Appalachia

This section examines recent economic restructuring using three sources.
• Employment data from an establishment data based maintained by the Bureau of
Labor Statistics (BLS).
• A displaced worker survey (DWS) conducted by the Census Bureau and BLS as a
supplement to the Current Population Survey (CPS) in one of the first two months
of 1996, 1998, 2000, 2002, and 2004. Each DWS asks workers about displacement
experience in the previous three years.
• The CPS itself, a monthly survey of 60,000 households that is the standard source
for wage and demographic information in non-Census years. Although
Appalachia per se is not identified in the CPS (or, therefore, the DWS), we
constructed a sub-sample that approximates Appalachia using the metropolitan and
state geographic identifiers that are available.

Table 1 shows manufacturing employment trends in the United States, Appalachia, the
Appalachian portion of 13 states, and the seven field site regions studied for this project.
The table shows that manufacturing employment in Appalachia and the United States was
flat from 1990 to 1998 but declined 18 percent between 1998 and 2003. Since
manufacturing accounts for a larger share of employment in Appalachia, the same
percentage loss of employment in manufacturing from 1998 to 2003 amounts to 3.9
percent of total employment in Appalachia versus 2.5 percent nationally. (The second-to-
last column of numbers in the Table 1 shows manufacturing job loss from 1998 to 2003
as a percent of total employment. This is a better measure of the regional impact of
manufacturing job loss than percent decline in manufacturing employment.) In southern
Appalachia, manufacturing job loss from 1998-2003 varied from 3.9 percent of total
employment in Appalachian Virginia to 8.6 percent in Appalachian Mississippi. In the
Appalachian portions of the three most northern states in the region, New York,
Pennsylvania, and Ohio, manufacturing job loss from 1998 to 2003 ranged from 3 to 4
percent of total employment. In the five field site regions in Southern and Northern
Appalachia, manufacturing job loss from 1998-2003 amounted to between 4.3 and 6.8
percent of total employment.

Our second data source is our constructed Appalachian displaced worker survey sub-
sample from 1993 to 2003.3 Over the entire period, Appalachia experienced the same
displacement rate among long-tenure workers (who have at least three years of
experience) as the rest of the United States. Displacement rates escalated in both the
United States and Appalachia in the most recent three-year period, 2000-03 – to about 4

3 Readers can find more detail on the experience of displacement in Appalachia, including bar graphs
summarizing key findings, Herzenberg, Price, and Wial, Displacement in Appalachia and the Non-
Appalachian United States, 1993-2003.
7
percent overall and to nearly 10 percent in manufacturing. Displacement rates were
higher in rural Appalachia than in the rural parts of the rest of the United States.
Especially towards the end of the 1993-2003 period, workers without a high-school
education experienced higher rates of displacement in Appalachia than outside it.
College educated workers experienced lower rates of displacement in Appalachia.

Table 1. Manufacturing Employment, the United States, Appalachia and the Appalachian
Portion of Thirteen Appalachian States
Percent Change in Manufacturing Manufacturing
Manufacturing Employment Manufacturing Employment Employment as
Employment Change As a a Share of Total
Share of Employment,
1990- 1998- Total 2003
1990 1998 2003
1998 2003 Employment,
1998-2003
United States 17,797,353 17,616,672 14,459,712 -1% -18% -2.5% 11%
Appalachia 1,826,312 1,818,196 1,491,316 0% -18% -3.9% 17%
App. Georgia 160,002 185,959 165,081 16% -11% -3.0% 19%
GA Field Visit 40,123 38,134 32,992 -5% -13% -4.6% 28%
App. Kentucky 50,263 54,457 47,194 8% -13% -2.3% 14%
KY Field Visit 1,051 1,308 952 24% -27% -1.9% 5%
App. Maryland 15,516 15,125 13,477 -3% -11% -1.7% 13%
App.
Mississippi 85,931 81,974 63,967 -5% -22% -8.6% 30%
App. New York 89,611 78,796 66,175 -12% -16% -3.0% 16%
NY Field Visit 17,511 18,860 13,411 8% -29% -6.8% 17%
App. North
Carolina 173,688 168,203 124,928 -3% -26% -7.2% 20%
NC Field Visit 35,752 32,909 24,097 -8% -27% -5.7% 14%
App. Ohio 85,474 96,638 79,423 13% -18% -4.0% 17%
OH Field Visit 14,661 13,960 10,887 -5% -22% -4.3% 15%
App.
Pennsylvania 424,786 404,271 333,260 -5% -18% -3.1% 14%
PA Field Visit 23,891 25,794 21,283 8% -17% -5.4% 24%
App. South
Carolina 131,379 126,552 103,778 -4% -18% -5.1% 22%
App. Tennessee 245,035 237,975 194,843 -3% -18% -4.6% 19%
App. Virginia 44,075 42,602 35,460 -3% -17% -3.9% 18%
West Virginia 79,495 76,217 63,963 -4% -16% -1.9% 9%
WV Field Visit 6,770 6,350 5,909 -6% -7% -0.4% 6%
Source: Keystone Research Center (KRC) based on the Quarterly Census of Employment and Wages
(QCEW).

Throughout the 1993-2003 period, Appalachian displaced workers experienced more
difficult post-displacement labor market experiences, with lower shares of Appalachian
workers re-employed, in the labor force or enjoying wage gains compared to their
previous job. The gap between Appalachia and the rest of the United States in the share
of workers re-employed at the time of the DWS peaked in the most recent DWS survey,
covering displacement in the 2001-03 period.
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Two factors that may have contributed to the low resilience of Appalachian workers
in the face of displacement were the prevalence of plant closings and the high share
of high-tenure displaced workers.
• From 1999-2003, 55 percent of displaced Appalachian workers lost jobs due to
plant closings, compared to 42-47 percent outside the region.
• Nearly one out of five displaced workers in Appalachia had more than 20 years
experience on their previous job compared to just under one in 10 in the rest of
the United States.

Table 2 and Figure 1 report the results of wage analysis using the CPS. Table 2 shows
that the median hourly wage in Appalachia roughly tracked the U.S. median (albeit with
some variation in year-to-year changes) over the 1996-2001 period. In these five years,
the Appalachian and the non-Appalachian U.S. median each rose by almost exactly 10
percent. (For men and women separately, the increases in median wages were also
similar in this five-year time span.) Since 2001, however, the Appalachian median has
fallen by 1.2 percent while the Non-Appalachian median has increased by 1.9 percent.
Figure 1 shows that a gap in the growth of Appalachian and non-Appalachian wages
since 2001 exists throughout most of the wage distribution. The gap is largest at the two
highest wage percentiles shown, the 80th and 90th percentile, as well as the 20th percentile.

Table 2. Inflation Adjusted Median Hourly Wages at Each Wage Percentile in Appalachia and the
Non-Appalachian United States, 1996-2004
All Workers Men Women
Non- Non- Non-
Appalachia Appalachian Appalachia Appalachian Appalachia Appalachian
U.S. U.S. U.S.
1996 $11.58 $12.53 $13.19 $14.29 $9.92 $11.14
1997 $11.72 $12.79 $13.58 $14.36 $10.00 $11.44
1998 $11.86 $13.20 $13.78 $14.91 $10.37 $11.65
1999 $12.33 $13.53 $14.13 $15.32 $10.52 $11.83
2000 $12.29 $13.54 $14.08 $15.40 $10.79 $12.02
2001 $12.74 $13.80 $14.53 $15.61 $11.05 $12.32
2002 $12.77 $13.93 $14.60 $15.64 $11.17 $12.57
2003 $12.80 $14.13 $14.32 $15.51 $11.30 $12.59
2004 $12.58 $14.07 $14.30 $15.37 $11.09 $12.59
% Change
1996-04 8.6 12.2 8.4 7.6 11.8 13.0
% Change
1996-01 10.0 10.1 10.2 9.3 11.3 10.6
% Change
2001-04 -1.2 1.9 -1.6 -1.5 0.4 2.2
Note: Inflation adjusted hourly wages were calculated using the CPI-U-RS, 2004 dollars.
Source: KRC analysis of the CPS.
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Figure 1. Inflation-Adjusted Wage Change at Each Wage Decile, Appalachia vs.
Non-Appalachian United States, 2001-04
Appalachia Non-Appalachian U.S.
3
2
1
0
ge 10th 20th 30th 40th 50th 60th 70th 80th 90th
n
a
h
nt C -1
e
c
er
P
-2
-3
-4
-5

Source: KRC based on the CPS.

Table 3 provides a longer-term regional perspective on the disjuncture in economic
performance represented by the past few years based on CPS data for each of the 13
Appalachian states and for the United States. (Since we cannot approximate Appalachia
in the CPS prior to 1996, Table 8 provides statistics for the entire Appalachian state in
each case not just for the Appalachian portion of the state.)

For Tennessee and for all of the six southern Appalachian states, 1995-2000 was a time
of considerable progress. In Tennessee and four of the Southern states (Virginia, North
Carolina, South Carolina, and Georgia), 1995-2000 capped two decades of wage gains
that increased the median wage by at least 21 percentage points. In Tennessee, Virginia,
North Carolina, and South Carolina, the 2000-03 period was a time of economic
stagnation, especially relative to the previous five years, with median wages climbing by
3 percent or less and declining in South Carolina.

Except for Tennessee and to a lesser extent New York, in northern and central
Appalachian states (Pennsylvania, Ohio, West Virginia, and Kentucky), the 1979-2003
period as a whole was one of economic stagnation, with 1995-2000 the one brief
reprieve. If it were possible to extract data for just the Appalachian portions of New