0 C T 9 1979
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THE METALWORKING MACHINERY INDUSTRY IN NEW ENGLAND: AN ANALYSIS OF INVESTMENT BEHAVIOR by GLYNNIS ANNE TRAINER B. A., Clark University (1975) SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER IN CITY PLANNING at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY (AUGUST , 1979) Signature of Author. ........ ............... \piDtment of U..rban Studes and Planning, June 20, 1979 ,1/4 A II Certified by ....... Thesis Supervisor Accepted by................................................................ Chairman, Department Committee MASSACHUSETTS INSTITUTE OF TECHNOLOGY 0 CT 9 1979 LIBRARIES - 2 - THE METALWORKING MACHINERY INDUSTRY IN NEW ENGLAND: AN ANALYSIS OF INVESTMENT BEHAVIOR by GLYNNIS ANNE TRAINER Submitted to the Department of Urban Studies and Planning on June 20, 1979 in partial fulfillment of the requirements for the Degree of Master in City Planning ABSTRACT This thesis is a case study of the metalworking machinery industry in the New England region. The major purpose of the analysis is to determine what factors influence the health of firms in this industry, and how firms in New England fare, relative to those in other parts of the country. The thesis is based on information gathered in interviews of a sample of metalworking machinery firms in the region. To the extent possible, secondary data sources were utilized to substantiate the opinions expressed in the interviews. The thesis is organized into five chapters. The first chapter presents a description of the metalworking machinery industry, the methodology of the analysis, and the organization of the study. Chapter Two is a brief history of the industry. Important characteristics of the metalworking machinery industry are examined in Chapter Three, with emphasis on its cyclical sensitivity and labor problems. An analysis of investment behavior is presented in Chapter Four. Factors which are thought to influence both short and long term investment decisions are discussed, with particular reference to firms in the New England region. The study concludes, in Chapter Five, with a brief review of the principal findings of the analysis. Finally, the implications of these results for the metalworking machinery industry in New England are examined. Thesis Supervisor: Bennett Harrison Title: Associate Professor of Urban Studies and Planning - 3 - TABLE OF CONTENTS Page Title Page 1 Abstract 2 Table of Contents 3 List of Tables 5 List of Figures 7 Chapter One: Introduction 8 Description of the Metalworking Machinery Industry 9 The Machine Tool Industry 9 The Tool and Die Industry 14 The "Other" Met'alworking Machinery Industry 18 Methodology of the Study 20 Organization of the Study 22 Chapter Two: History of the Metalworking Machinery Industry 26 The Development of Metalworking Machinery as an Industry 26 Shifting Customers and Geographical Location of the Industry 30 Relationship to the Government 33 Technological Developments in the Metalworking Machinery Industry 42 Chapter Three: Important Characteristics of the Metalworking Machinery Industry 56 Cyclical Volatility of the Metalworking Machinery Industry 56 Cyclical Volatility and the New England Region 63 Active Responses to Instability 74 Diversification 74 Lobbying 83 Reactive Responses to Instability 85 Causes of Labor Shortage 86 Responses to Unstable Demand Under the Constraint of Labor Shortage 94 Chapter Four: Investment Behavior 117 Short Term Investment Behavior 117 Cyclical Behavior 118 Ownership Status 126 Firm Size 126 Labor 134 Government 140 - 4 - Long Term Investment Behavior 147 Labor Situation 147 Firm Size 151 Ownership Status 160 Other Factors 169 Government Policies 169 Costs of Doing Business 174 Agglomeration Economies 174 Idiosyncratic Factors 175 Chapter Five: Conclusions 178 Principal Findings 178 Volatility 178 Labor 178 Firm Size 181 Ownership Status 182 Government 182 Agglomeration Economies 183 Regional Attachment 184 Implications for the Metalworking Machinery Industry in New England 185 Bibliography 188 Appendix: Products of the Metalworking Machinery Industry 191 - 5 - LIST OF TABLES Table Page 1 Machine Tool Consumption and Capital Investment 11 2 Major Customers of the Machine Tool Industry 13 3 Major Customers of the Tool and Die Industry 17 4 Variability in the Metalworking Machinery Industry and its Component Sectors 60 5 Variability in the Metalworking Machinery Industry United States and the New England Region 71 6 Specialization Ratios 75 7 Average Hourly Earnings and Supplemental Labor Costs in the Machine Tool Industry 79 8 Age of Machine Tool Stock in Seven Countries 81 9 Average Hourly Wages of Production Workers 91 10 Weekly Overtime Hours of Production Workers 94 11 Source of New Entrants to the Metalworking Machinery Industry - 1964 to 1967 101 12 Destination of Workers Displaced from Metalworking Machinery Industry - 1967 to 1971 104 13 Source of New Entrants to the Metalworking Machinery Industry - 1971 to 1974 105 14 Destination of Workers Displaced from Metalworking Machinery Industry - 1974 to 1975 106 15 Age Distribution of Displaced Workers - New England 108 16 Inter-Industry Mobility over the Business Cycle 111 17 Inter-Regional Mobility over the Business Cycle 113 18 Net Income After Taxes 119 19 Average Costs of Machine Tools 129 - 6 - LIST OF TABLES (continued) Table Page 20 Age of Machine Tools Owned by Firm Size 132 21 Net Value of Capital Stock Per Production Worker 136 22 Percentage of New Machine Tool Purchases that are for Numerically Controlled Machine Tools 138 23 Cost Recovery Allowable for Tax Purposes on Machinery and Equipment 141 24 Hourly Wages of Production Workers - Metalworking Machinery Industry 150 25 Concentration Ratios 152 26 Changes in the Distribution of Firms by Size Class over Business Cycles 155 27 Components of Change in the Number of Firms by Size Class 156 28 Components of Employment by Size Class of Firm 158 29 Components of Change in the Number of Firms by Owner- ship Status of Firm 164 30 Components of Employment Change by Onwership Status of Firm 166 31 Average Firm Size by Ownership Status of Firms 165 32 Net Changes in Employment in Recessionary Periods 167 33 Capital Expenditures by Majority Owned Foreign Affiliates of U.S. Companies and all U.S. Companies 171 34 Estimates of Capital Expenditures by Majority Owned Foreign Affiliates of U.S. Companies in Selected Areas 173 - 7 - LIST OF FIGURES Figure Page 1 Employment in Metalworking Machinery, Machine Tools, Tools and Dies and "Other" Metalworking Machinery - 61 United States 2 Value of Shipments in Metalworking Machinery, Machine Tools, Tools and Dies, and "Other" Metalworking Machinery - United States 62 3 United States - Value of Shipments and Employment 65 4 New England - Value of Shipments and Employment 66 5 Connecticut - Value of Shipments and Employment 67 6 Massachusetts - Value of Shipments and Employment 68 7 Vermont - Value of Shipments and Employment 69 8 Rhode Island - Value of Shipments and Employment 70 9 Value of Shipments and Exports as a Percentage of Total Sales - Machine Tool Industry 77 10 United States - Value of Shipments and Value of Shipments Per Production Worker 96 11 New England - Value of Shipments and Value of Shipments Per Production Worker 97 12 United States - Gross Investment, Value of Shipments and Employment 121 13 New England - Gross Investment, Value of Shipments and Employment 122 14 United States - Gross Investment, Net Investment and Net Value of Capital Stock 123 15 Gross Investment - New England and the United States 125 - 8 - Chapter 1 Introduction This analysis is a case study of the metalworking machinery industry in the New England region. The major purpose of the analysis is to determine what factors influence the health of firms in this industry, and how firms in the New England region fare, relative to those in other parts of the country. The principal issues of interest concern invest- ment behavior in this industry. An attempt is made to determine what factors influence the investment decisions of metalworking machinery firms, and how these factors influence decision making. Then, by looking at the differential incidence of these factors in New England relative to other concentrations of the industry, it is possible to see if location within New England has a beneficial, detrimental, or neutral impact on metalworking machinery firms. It should be noted at the outset, however, that this study does not presume to provide definitive answers to the question raised above. The study is exploratory in nature and, given the paucity of data available with which to empirically test specific hypotheses, the findings and conclusions of the analysis are somewhat speculative. This chapter will present a very brief description of the primary products and markets of firms in the metalworking machinery industry and its component sub-industries, followed by a discussion of the methodology of the study. Finally, a brief description of the subse- quent chapters will be presented. - 9 - Description of the Metalworking Machinery Industry The metalworking machinery industry, although small in absolute terms, is a very important sector in any industrialized economy. The industry produces the machinery and equipment used by the manufacturers of mass production goods like automobiles, refrigerators, appliances, etc. Metalworking machinery is sold primarily to industrial customers; the equipment is not a consumer (or final demand) product. The metalworking machinery industry (SIC 354) is divided into seven sectors: