Image: Wikimedia

Few things are certain about the Puget Sound Economy in the next year, but one thing is guaranteed: large employment reductions at Boeing. These reductions will hurt the regional economy, but not nearly as much as past Boeing job cuts. Boeing is still the region’s biggest employer, but accounts for a gradually diminishing share of all jobs.

As happened in 2001, in the wake of the 9-11 attacks, air traffic has fallen dramatically. Airlines have seen their revenue plummet and have no real idea how long it will take to for passengers to return. To preserve cash in this uncertain environment, airlines will cancel orders for new aircraft or push out delivery dates. Boeing will respond by reducing production rates and cutting employment. This is a well-trod path, and specific production cuts should be announced on April 29. The company is hoping to accomplish much of its force reduction through voluntary programs.

The infamous Boeing Bust of 1969 devastated the regional economy. At that time, about one out of every six jobs in King and Snohomish counties was at Boeing itself. The job cuts that started in 1969 totaled about 60,000, or 10 percent of the two-county workforce. Fast forward to 2001: Boeing employed less than 6 percent of the two-county workforce, and cut 25,000 jobs, or less than 2 percent of the total workforce.

At the beginning of 2020, Boeing employed about 4.5 percent of the two-county workforce, having dropped from nearly 20 percent at its peak in the late 1960s. The employment multiplier for Boeing has been around 3.9, so Boeing supports, directly or indirectly, about 18 percent of the total workforce. This is still a large impact for one firm to have on a metro area of Seattle’s size, but we are much less of a Boeing town than we were a few decades ago.

The drop in Boeing’s economic impact follows the general drop in manufacturing employment as a share of all employment. Figure 1 shows the change in the share of total employment for four sectors of the economy from 1969 to 2018.

We see that in 1969, just before the major Boeing layoffs hit, manufacturing constituted about 22 percent of total employment in the three-county region. Manufacturing employment has fallen steadily and now makes up just 7 percent of three-county employment. Of that remaining manufacturing employment, aerospace makes up about half.

We have more disaggregated data on manufacturing employment for the King-Snohomish County area beginning in 1990 (Pierce County is listed separately, with no breakout for manufacturing). Figure 2 shows the trend in manufacturing employment in broad sectors for the two counties since 1990.

Aerospace employment shows considerable variation. In the late 1980s, Boeing was working on two major programs—474-400 and 777—and once those programs settled down, employment was reduced. Boeing employment picked back up in the late 1990s, but then dropped significantly after 9-11. Aerospace peaked again in 2013, at 92,000, and has fallen since.

Other manufacturing sectors have seen variation and have fallen as well. Figure 3 shows the sectors in Figure 2, but without aerospace. These sectors generally follow the same peaks and dips as aerospace, but have done better since 2010.

As manufacturing employment has been falling in absolute terms, the region has seen steady employment growth, nearly all of which has been in services sectors. Figure 4 shows employment composition for King and Snohomish counties with major service sectors broken out.

The green band at the bottom is the entire goods producing sector, including manufacturing, construction and natural resources. In all, it is flat for the period. All of the service sectors show growth. The software industry is included in third band from the bottom, information, and Amazon is embedded in the trade, information and business sectors.

The shift in the economy toward services is due to uneven improvements in productivity. Nationally, since 1990, employment in goods producing sectors has fallen 35 percent, dropping from 23 percent to 15 percent of total employment. But the output of the goods producing sector, as a share of GDP, has declined only 16 percent, from 25 percent to 21 percent. Employment falling faster than production means that each remaining employee is producing more goods, and the price of those goods will decline.

But we have a limited capacity to use physical goods, so just because something becomes less expensive, does not mean we buy more of it. We just shift the savings from less expensive goods into the purchase of services. There is only so much room in our houses for goods, but there is almost unlimited capacity in our lives to consume services, with most of this new service spending going to healthcare.

The good news is that the manufacturing activity that remains in the Seattle region is quite strong. Boeing, for all its troubles, is part of a duopoly that is under no immediate threat. Seattle’s position in the outer edge of the country has always meant that manufacturing activity in the region would be concentrated in high value added products for which transportation costs are not a factor. Hence, the strong position of the region in durable goods manufacturing, versus non-durable goods.

Manufacturing operations should be among the earlier worksites to reopen after the coronavirus becomes less of a threat. All manufacturers will struggle with big unknowns around global supply chains and customer bases. The degree to which manufacturing patterns that have evolved over the past few decades change permanently is a large and important question not just for the Seattle economy, but for the global economy.

This story is from our partner Puget Sound Indexer

1 COMMENT

  1. Here’s a Washington Post story on Boeing’s looming cuts in employment. The darling of Wall Street has had a great fall, and the Seattle area will be among the most impacted. https://www.washingtonpost.com/business/2020/04/29/boeing-plans-slash-staff-reports-17-billion-loss-amid-pandemic-fallout-max-grounding/

    “The company, which reported a loss of $1.7 billion, employs more than 150,000 people globally and said it plans to cut approximately 10 percent of its total workforce. The report did not provide details on where those job cuts would come from or give a total number of jobs Boeing plans to cut, but the figure would equal more than 14,000 of its U.S. employees.
    The 737 Max crisis amplified by the pandemic has cost Boeing, once a Wall Street favorite, a total of $5 billion, the company reported Wednesday.”

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.