A few days ago, NPR lead into its coverage of the State of the Union Address by putting up a retrospective on President Obama’s visit six years ago to my high school in Elkhart, IN. It was January, 2009, and Obama chose Elkhart as the first destination of his term in office because the town served as the begrudging poster-boy of the Great Recession. When Obama visited, the unemployment rate in Elkhart was 19.1% and it would go as high as 20.2% a few months later. The title of “Recreational Vehicle Capital of the World” did not do the town much good in an economic climate in which RVs were completely undesirable. Six years later, as NPR chronicles, the economy of Elkhart has rebounded substantially, but is it any less susceptible to economic shocks than it was in 2007?
If you read the NPR article, you might think that, apart from some issues with part-time employment, things in Elkhart are pretty rosy, and you might be right. The town has recovered rather quickly: main street is more lively than it’s been in years and the unemployment rate is below the national average. But the top-rated comment on the article reveals that Americans aren’t buying this article, and I don’t think Elkhart should either. Says Richard Freeze, “I find it disturbing that Elkhart Co. considers the RV industry as hopeful. In fact, it seems to be exactly the sort of industry that depends far too much on fickle economics,” and then James Jay in response, “You are right. There is nothing in this article that suggests that Elkhart is being prudent by trying to diversify their economy.” So, that is the question: is Elkhart simply hitching itself to the waves of the RV market, or has it learned from its mistakes and insulated itself from future shocks?
Has Elkhart Diversified?
A quick look at the data seems to support the former. There are a few different ways to analyze whether Elkhart has diversified it’s economy since the recession. The first way is to use a modified version of the Herfindahl index, a tool for measuring how diversified market share is within an industry. It works by adding together the sum of squares of each firm’s market share to give a number between 0 and 1 (where 1 would be total monopoly, and 0 would be an infinite number of equally distributed firms). We can use this method at the sector level to analyze Elkhart’s employment characteristics. Another way to think about it is this: it is the probability that two people, chosen at random from the Elkhart County workforce, work in the same economic sector. With the unemployment rate from above overlaid, the results of this calculation look like this:
So what can we draw from this? First, the level of diversity among the county’s economic sectors actually rises at the height of the recession. Second, while it hasn’t decreased to the level it was at in 2007 yet, it seems to be trending back in that direction. While maybe not a good sign for the Elkhart economy, it actually makes a lot of sense. The sector which took the biggest hit during the recession, manufacturing, also represented the largest portion of the county’s employment (it fell from 41% in 2007 to only 33% in 2013). Thus, while other sectors lost employment too, their lessened impacts served to make the economy appear more diverse. Note: if there’s any idea I don’t want you to take out of this blog post, it would be that loss of jobs in manufacturing in 2008 and 2009 was a good thing because it diversified Elkhart’s economy. It clearly negatively impacted many people, including my own father. However, as Elkhart’s leaders look to the future, they might be well-served to direct their efforts toward cultivating new economic development into areas which might be less susceptible to economic tides.
Perhaps this simple analysis doesn’t satisfy you. Well, let’s look at this a few other ways. First, Elkhart County’s Herfindahl index can be compared to other counties throughout the state. For viewing ease, this graph corresponds to the yellow portion of the bars in the graph above. It measures the odds of two workers chosen at random within the county being from the same sector (so if diversity is good, higher numbers are bad). Here’s how Elkhart stacks up:
It seems that, by this measure, Elkhart is the least economically diverse of all four counties, and it’s getting less diverse at a faster rate than any of them.
How about another angle? How about focusing on durable goods in particular? Remember, these are the goods whose sales drop dramatically during recessions, and they drive the Elkhart economy. Let’s bring back the four counties from the graph above, and preview this discussion with a graph of their metro area unemployment rates from 2007-2013:
As you can see, Kokomo and Elkhart were hit the worst, but all four MSAs suffered worse than the United States as a whole. Additionally, three of the four cities have rebounded quite substantially compared to the U.S. average, considering where they were during the height of the recession. This is especially noticeable for Elkhart and Kokomo, but Columbus’s unemployment rate has had a striking decrease as well. The common ground between these three MSAs? They lead the country in durable goods production as a percentage of GDP. Take a look at the following graph:
This tells the whole story right here. While the U.S.’s percentage of GDP coming from durable goods production decreased slightly during the recession, that of each of these Indiana cities decreased dramatically. The Elkhart Percentage has not only recovered to its pre-recession levels, but surpassed them. Columbus, the city which, despite its volatility, fared reasonably well in the recession, didn’t feel quite as much impact in its durable goods production, jumping into first place among U.S. metro areas in 2009:
These cities are pacing the nation in durable goods manufacturing and are currently recovering well because of it. Muncie, the most diversified of all four, has neither experienced as severe of a spike in unemployment nor recovered quite as ably. The other three cities may be able to gloat about their success right now, but their ever-increasing dependence on durable goods manufacturing means they will be just as susceptible the next time we face economic shocks (if you don’t believe me, check out this chart. Kokomo’s unemployment rate history is a roller coaster).
Maybe Elkhart Has Learned?
Fortunately, Elkhart’s leaders seem to be aware of their predicament. The Elkhart Truth has recently posted two fantastic articles highlighting the need for economic diversification. The first is essentially a series of charts that are very revealing about the dominance of the RV industry. The second takes a more in-depth look at what the county’s leaders are planning to do about it. They clearly recognize that diversity is an issue, but talk is cheap, and so far the data demonstrate the recognition without action is useless. Furthermore, they seem to be stuck on the tired economic development models of tax breaks and business attraction that I was dismissive of in my post last week (although they do recognize the importance of an educated workforce). I encourage you to take a look at that second article, paying particular attention to the words of Ball State economics Mike Hicks. Says Hicks, “Perhaps 90 percent of [new jobs] develop organically in a community based on specific local needs, not because of recruiting efforts,” and, “Developing the amenities a community has to offer, things like schools, parks and cultural offerings… will lure people, which will in turn lure business.” Sound familiar? Economic development is about people, not taxes.
I stood in that gym as our nation’s President invited a laid-off RV worker to introduce himself to the nation. My hometown was, for once, in the news, but it was in the news for all of the wrong reasons. Six years later, the city is just as susceptible to economic shocks as it was in 2007. Elkhart’s leaders seem to be aware of this, but I’m afraid that awareness without strategic adjustments will not be enough. Please, Elkhart, let’s flip the script. Let’s make the next Presidential visit be about celebrating our success.
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