What Really Determines Whether a Manufacturing Firm Locates and Remains in California

Abstract

Manufacturing provides high paying jobs for nearly 10 percent of working Californians. Compared to the 2004 California median income of slightly more than $37,000, the average annual income earned in manufacturing was $57,000. Based upon a complex, but well accepted method of shift-share analysis for the periods 1999 to 2001 and 2002 to 2005, we find that much of these losses in California's manufacturing activity are tied to national and international economic trends that are beyond the control of the State's policymakers. So there is statistically based evidence that although things still remain bad in many manufacturing sectors in California, they are not as bad as in these same sectors in the United States as a whole. Nevertheless, some (especially many in the business community) believe that a significant portion of California's loss in manufacturing base is attributable to statewide public policies that raise the cost of doing business in the State. This paper explores this concern in detail by examining: (1) Is It in California's Best Interest to Pursue Manufacturing Jobs? (2) Factors Cited in Policy and Business Discussions as Being Important to Why California is Losing Manufacturing. (3) What Previous Empirical Studies Have Found As Important Determinants of Intra-State Manufacturing Location. (4) The Effect of Current California Business Climate on Manufacturing Investment. (5) Suggested Policies to Retain/Increase Manufacturing Investment.

Keywords: Manufacturing Investment, State and Local Fiscal Climate, Incentives, California

JEL Classification: H25, H71, H73, R12, R53