In the pre-recession “bubble days,” productivity growth in manufacturing nationally was led by new capital investments. Labor productivity and TFP shrank, likely due to the effects of the bubble, which kept open too many uncompetitive factories. Another possible cause is that many factories restructured their production process in the last decade to take advantage of broad investments in information technology. This temporarily reduced TFP. Since the start of the recession, TFP rebounded and has accelerated within the manufacturing sector since the end of the recession. This is a major turnaround from the last decade. Moreover, Indiana leads this productivity growth within the Midwest, and ranks high nationally. This is a clear bit of good news for the most manufacturing-intensive state in the union.
Michael J. Hicks, Ph.D., is director of the Center for Business and Economic Research and an associate professor of economics at Ball State University. Contact him at email@example.com.