When factories leave, painful ripples are felt all around town

GALESBURG, Ill. – (KRT) – More than a year remains before Maytag Corp. finally pulls the plug on its 1,600-worker refrigerator factory here.

But already, economic shock waves from the planned shutdown have begun to ripple outward from this prairie town, killing the jobs of hundreds of non-Maytag workers and threatening to claim as many as 2,000 more, including nurses, postal workers, mechanics and schoolteachers whose work has no connection with the appliance maker.

For decades, growth-minded rural towns have vied to attract manufacturers by offering tax breaks and other incentives. The expansion strategy is based on what economists call the “multiplier effect”: When a new employer comes to town, the influx of new payroll money creates jobs throughout the local economy, as workers begin buying new homes, cars and other goods and services.

Now, with manufacturers closing U.S. plants and switching production to cheap-labor sites in Mexico and China, the multiplier is working in reverse. The very attribute that has long made manufacturing so attractive to communities – its ability to spark an outsized number of new jobs – is now serving to magnify the economic dislocation caused by manufacturer pullouts.

Rural communities’ strategy of seeking growth through manufacturing “is colliding full force with a globalizing economy,” says Mark Drabenstott, an economist with the Federal Reserve Bank of Kansas City’s Center for the Study of Rural America.

What’s happening in Galesburg, Ill., also is playing out across America in rural areas such as Ozark, Mo., where the closing of a Fasco Motors plant last year cost 427 workers their jobs; in textile-mill towns across the Southeast; and in Manitowoc, Wis., where Newell Rubbermaid Inc. unit Mirro Co. is within weeks of completing the shutdown of a 900-employee cookware factory.

In general, the trend toward a global marketplace has been a plus for American consumers, because the flood of Asian and Mexican-made goods is helping keep prices for many products low. But as people in Galesburg can attest, globalization is also cutting into the social fabric of communities that are being abandoned by manufacturers.

Although a factory closing creates financial distress wherever it occurs, rural areas feel such blows most intensely, says Kate Bronfenbrenner, director of labor education research at Cornell University. For displaced production workers seeking new work, geographically isolated regions provide fewer options.

And when the multiplier takes hold, it becomes all the harder to find new jobs. In regions far from urban areas, where one manufacturer is the dominant employer, “the tax base is dependent on the company,” Bronfenbrenner said. “The schools, the social services, the infrastructure of the community” all feel the impact when the leading factory skips town.

Although it’s been nearly a year since Maytag announced that it would shutter the Galesburg site, the company has only recently begun to cut its workforce, and the closing won’t be completed until late 2004. But the impact is already being felt.

In Ludington, Mich., the Straits Steel & Wire Co. plant that supplied the Galesburg factory with steel-wire refrigerator shelves already has responded to Maytag’s move by eliminating 125 jobs, or 70 percent of its workforce. The Straits workers are joining the ranks of the jobless at a time when unemployment in the area already stands at 10.8 percent.

In DeWitt, Iowa, a Brazeway Inc. plant that produces aluminum refrigeration coils for Maytag’s Galesburg factory will be closed by early next year, throwing all 69 of its employees out of work. (Separately, Brazeway’s Michigan-based parent earlier this year disclosed that it’s expanding its presence in Mexico.)

In Sheffield, Ill., and in Joliet, two Freedom Plastics LLC plants that supplied a variety of components to the Galesburg factory already have closed, erasing 135 jobs.

“I hope there will be some work for us after Maytag leaves,” frets Monica Lee, as she methodically rivets casters bound for the bottom of Maytag refrigerators. Lee works at a modest Galesburg production facility operated by Phoenix Industries, a non-profit concern through which the Knox County Council for Developmental Disabilities in Galesburg provides work, and paychecks, for mentally retarded adults.

Lee, who recently was able to leave a group-home setting and move into her own apartment, takes the city bus to her job in the morning, and is in danger of losing the job she’s so proud to hold.

Phoenix holds the contract to assemble casters for Maytag’s Galesburg plant, as well to perform certain packaging and pre-assembly work. When Maytag shuts down, says disabilities council head Ned Hippensteel, between 75 and 100 of the about 200 mentally disabled people that Phoenix employs full- or part-time will lose their jobs.

“We’re going to have to scramble” to replace the jobs from the Maytag contract, Hippensteel said.

Lots of others will be scrambling as well. Maytag itself provides one of every 12 jobs in Knox County, and with its suppliers also due to take a hit, the county may well lose one of every 10 existing jobs directly because of Maytag’s exit.

Maytag is “wrecking the local economy,” contends Dave Bevard, president of the machinists union local that represents most Maytag workers.

Maytag officials say it was a “difficult decision” to shutter the Galesburg plant, and they note that the bulk of the company’s appliance production still will occur at its remaining U.S. plants.

After the closing, Galesburg still will have a 900-worker Burlington Northern Santa Fe Railway Co. yard, a state correctional facility on the edge of town, private Knox College and a number of smaller manufacturers.

But just how much pain will be inflicted as a result of the plant closing is a question that economists, municipal-bond rating companies, local government officials and area residents will face. The calculation isn’t as simple as it might seem.

In contrast to service-sector employers, factories create a host of new jobs not only by hiring production workers but also by purchasing a range of items “all the way from raw materials down to peanuts for the snack machine in the break room,” says professor Chris Merrett of the Rural Economic Technical Assistance Center at Western Illinois University in Macomb.

Using the 3.72 multiplier that economists ascribe to durable-goods producers, the departure of 1,600 Maytag jobs ultimately should erase nearly 6,000 non-Maytag positions. But that calculation overstates the damage, because it assumes the laid-off workers cease all economic activity when they lose their jobs. In real life, such workers keep buying necessities by tapping their savings, collecting unemployment benefits or doing off-the-books side jobs.

Western Illinois’ rural economics center took a crack at forecasting the economic impact on the nine-county area that includes Galesburg. The study suggests that about 729 workers at Maytag suppliers will lose their jobs. In addition, it found, the region is likely to lose 1,837 more jobs “spread throughout the remainder of the local economy.” Those “induced” job losses are at the heart of the multiplier effect.

The report says the nine-county region could lose as many as 178 education-related jobs, 82 hospital jobs, 158 jobs in restaurants, and 136 jobs in state and local government.

Galesburg is waiting to see if will lose one of its two hospitals. It is waiting to see if home prices nosedive once Maytag’s shutdown is completed. It is waiting to see how the school system fares.

A lot depends on how many residents simply decide that Galesburg’s Rust Belt-focused job base has become so depleted that it’s time to move elsewhere.

For U.S. workers who lose their jobs to foreign competition, the federal government provides funding to cover training in a new career, says Bevard, the local union official. But with the town’s prospects so unpromising, he says bitterly, “guys ask me, `What job should I train for?’ “

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The employment multiplier – that bit of economic alchemy by which one new job can become three or four new jobs – is showing itself to be a two-edged sword.

A multiplier simply measures how many jobs are created indirectly by the addition of one job. But these days, notes Cornell University economist Kate Bronfenbrenner, “everybody’s talking about the multiplier” as a way to measure how the loss of one town’s factory can cascade into much more widespread economic injury.

Certain industries create more jobs than others do: Mining has a higher multiplier than logging, and logging creates more collateral jobs than retailing. Manufacturing boasts one of the largest multipliers.

Each indirectly created job, in turn, generates work further out in the supply chain. All these newly employed workers create jobs for even more people, too, by using their income to buy clothes, school supplies, motorboats or other goods. And they all pay taxes, helping fund jobs for police officers, librarians and other public-sector employees.

Unfortunately for towns now bearing the brunt of U.S. manufacturing’s decline, the multiplier also works in reverse. When one mining job disappears, two others are eliminated elsewhere in the economy, experts say. And when one heavy-manufacturing job is lost, the multiplier effect means that at least three other workers stand to lose their jobs as well.

A job in retail sales, in contrast, is thought to create a little less than one additional job. And that’s why, notes economist Josh Bivens at the labor-oriented Economic Policy Institute, the shutdown of a 1,000-worker factory creates much more economic pain than the closing of a retail shopping mall that employs 1,000 people.

From centredaily.com