Department of Economics at Illinois State University Department of Economics at Illinois State University Department of Economics at Illinois State University

News Archive 2009

Rich Comments on Illinois Manufacturing Jobs

The causes and consequences of declining employment in Illinois manufacturing are discussed in a recent edition of Crain's Chicago Business. Excerpts from this article are provided below.

CAT Straying from Illinois
By John Pletz / Crain's Chicago Business / June 15, 2009

Caterpillar Inc. is emptying out its Illinois factories at the fastest rate in a quarter-century as it copes with a wrenching drop in global demand by accelerating a shift to producing equipment in lower-cost locales. The impact will be devastating in (particular) Illinois communities, where the big-rig maker is one of the few major employers. Unemployment in Pontiac and Decatur is approaching 11%, compared with 9.3% statewide. "If you're in these towns, it's going to be a rough year," says Daniel Rich, an economics professor at Illinois State University. "Your retail and restaurants are going to be affected. The home foreclosure rate is about to go up a notch. These layoffs are happening now, so they aren't even in the books for some of these communities."

In metropolitan areas like Aurora or Joliet, Mr. Rich says, workers can more easily find new jobs by driving a few miles away. But Caterpillar's pain will be felt across Illinois, depleting a manufacturing sector that lost 11% of its jobs in April, about triple the overall job-loss rate in Illinois. CEO Jim Owens says the worst downturn since the Great Depression is to blame for the cutbacks, totaling up to 25,000 Caterpillar jobs worldwide. On March 31, before the most recent cuts, Caterpillar employed about 24,500, including headquarters staff, statewide, down from 27,200 a year earlier, a spokesman says. "Because we employ more people in Illinois than in any other state, there has been a significant impact" here, he says.

Mr. Owens said recently that Caterpillar won't begin hiring again until mid-2010 at the earliest, and he told shareholders last week in Chicago that it could take up to five years for the company to get back to the record $51 billion in revenue it posted in 2008. The company defends the new plants in other states as strategic but says the Arkansas factory will free up capacity in Decatur for the truck business. Caterpillar staffed up quickly in past rebounds. In 2005, Decatur employment surged to 1,400 from about 1,000 in little more than a year. But the recent high of 2,600 late last year was still far below the peak of 4,400 in 1981, says Dave Stanley, president of Local 751. "Each time it comes back, it doesn't come back to where it was," says Mr. Stanley, a 32-year veteran. "We do less and less of the work, and they put more and more out to off-site, to Mexico, to North Carolina, South Carolina and Mississippi."

Illinois factory workers are caught between globalization, which has pushed Cat's U.S. sales down to about one-third of the total from half a few years ago, and automation, ISU's Mr. Rich says. "Automation is the biggest part of the story in the 30-year decline of manufacturing employment. This recession hastens that: We'll come out of this more automated, and union bargaining strength will be diminished even further."