I am always reluctant to fill this column with my recent research, but this week’s release of the annual Conexus Indiana Manufactur-ing and Logistics Report (available at www.conexus.cberdata.org) begs comment. The scorecard itself had just a few surprises. Indiana did much better in the cost of worker benefits, and continued to lead in the size of manufacturing and logistics. We also report that Indiana ranked third overall in the pace of manufacturing recovery since the end of the Great Recession, trailing only the tiny manufacturing states of Alaska and North Dakota, whose energy production has propelled their growth.
Our human capital scores took a surprising downturn, but the problem is a good one to have. The classes who entered community colleges in 2007 saw graduation rates dropping by 3.8 percent. This would typically be a worry, since improving graduation rates is the key to our long-term prosperity, but there’s a clear and happy reason for this anomaly. Enrollment growth in these schools jumped from 25th to first place during the recession years (and has subsequently returned to trend). Unsurprisingly, some of these students have yet to graduate; in fact, with enrollment growing more than 15 percent a year during the recession, we should have seen a far deeper drop in graduation rates. Over the next two or three years, the spike in associate degree students we experienced during the Great Recession will boost our human capital, and hence our grades. In the short term, it placed huge stress on our public and private community colleges.
The most interesting part of our manufacturing research this year was revelations on productivity growth in Indiana. The downturn took a heavy toll on our manufacturing of big ticket items (cars and trucks), which are high value-added goods. This left us with a greater share of low value-added production of commodity-type products, and so reduced our ranking slightly. However, there’s an even richer story about manufacturing productivity over the past decade that we reported this week. Manufacturing productivity consists of four things: technology growth, plant and equipment, workers and something economists call “total factor productivity.” This TFP is growth that cannot be explained by other factors. It is really the sole source of economic growth in a developed economy.