Wisconsin Receives Mixed Grades on Manufacturing Climate

Recently, Ball State University’s Center for Business and Economic Research and Conexus Indiana, a private sector led initiative to capitalize on opportunities in advanced manufacturing, released their 2015 Manufacturing & Logistics Report Card. This report ranks states on several different sectors of the economy that contribute to the success of manufacturing. The rankings are assessed an A-F grading scale. Nine different categories were graded: manufacturing industry health, logistics industry health, human capital, worker benefit costs, tax climate, expected fiscal liability gap, global reach, sector diversification, and productivity and innovation.

Wisconsin has regressed in three areas compared to the last year’s report:

In the area of human capital which the report describes as “the most important factor in firm location decisions” Wisconsin receives a B+, down from an A last year. The report takes into account educational attainment at the high school and collegiate level, first-year retention rates of adults in community and technical colleges and the number of associates degrees awarded annually on a per capita basis.

In the area of worker benefit costs (non-wage labor costs), Wisconsin receives a D, down from a C last year. The report grades this category by benefit costs, health care premiums and long-term health care costs, workers’ compensation costs and fringe benefits.

The third area where Wisconsin has backslid is expected fiscal liability gap. Where last year the state received an A, Wisconsin now received a C+. This category is used to represent underfunded liabilities which the report deems as a “good indicator of the direction of future taxes and public services.” The data compiled to grade the states are underfunded public liability per capita and percentage of GDP, average benefits and bond rankings.

The report is not all bad news for Wisconsin. The state’s rankings remained the same in manufacturing industry health, global reach and sector diversification.

Wisconsin’s manufacturing industry health is graded at a B+ (lower than just six states). This category is measured by the share of total income earned by manufactured employees in each state, the wage premium paid to manufacturing workers relative to the other 49 states’ employees and the share of manufacturing employment per capita.

Wisconsin earned a C for global reach which represents the level of international trade in the state. To measure global reach exported manufacturing goods exported per capital and the growth of manufacturing exports, manufacturing income received from foreign-owned firms in the state, the level of adaptability of the state’s exporters to changing demand and the reach of foreign direct investment.

Wisconsin received a B in sector diversification in manufacturing measured by using the Herfindahl-Hirschman Index. The report notes that there are risks and rewards to manufacturing diversification. Only seven states have more manufacturing diversification than Wisconsin.

The report also highlights some bright spots where Wisconsin has improved in the last year.

Wisconsin’s logistics industry health improved from a B- in 2014 to a B this year. The health of the logistics industry is essential to manufacture goods as the industry is responsible for the transportation of inputs and outputs necessary for all other manufacturing production to occur. The health of the logistics industry is measured by the total income of the industry as a share of totals state income and employment per capita.

Wisconsin’s tax climate has also improved from a D to a D+. This area was measured by data on corporate taxes, income and sales and sue taxes, property and tax and unemployment insurance tax data collected by the Tax Foundation.

Finally, Wisconsin improved its grade in productivity and innovation from a D to a D+. The report defines productivity and innovation as the value of manufactured goods per worker and access to inventions and innovations that increase long-term performance of firms. The report measures this area by industry research and development expenditures on a per capita basis, the per capita number of patents issued annually and manufacturing productivity growth.