Des Moines Business Record 05-22-06

No blueprint for resurgence after massive job losses

By Jason Hancock [email protected]

Few communities have faced job losses on the scale Newton will face with the closures of Maytag Corp.’s factory and administrative offices, experts said, making the town’s future unclear.

“Nothing in recent memory seems to compare to how much Maytag leaving will affect Newton,” said Dennis Schwartz, a labor market research economist with Iowa Workforce Development. “The proportion of job loss is just so big.”

Though many communities have faced mass layoffs in recent years, Newton stands out due to its scale and proportion of workers. About 1,800 jobs will be lost in Newton with the Maytag closure out of the town’s nearly 16,000 citizens, said Tim Borich, director of Iowa State University Extensions to communities and economic development division and an associate professor of community and regional planning at ISU.

“That town and that company were so tied to each other, it’s almost like Newton lost its identity,” Borich said. “You almost have to go to the auto industry leaving certain Michigan towns to find something proportional.”

The communities that have lost jobs in recent years had more diversified economies, Borich said, which helped to soften the blow. Newton was a “one- company town,” leaving many wondering where it will go next.

“I’m not sure if they can step out of this,” Schwartz said. “It’s a really perplexing time for them.”

Having the appliance-maker based in Newton was a double-edged sword: the company’s payroll was the town’s lifeblood, but the presence of a large manufacturer paying high wages tended to discourage other employers from locating there. It is this lack of diversification that will cause the most pain for Newton in the long run.

Some are looking at Mount Pleasant, which lost Blue Bird Corp. and its 350 jobs in 2002 then this winter lost Celestica Inc. and the 325 full-time and 90 part-time jobs it provided to the town of 8,700 people. Mount Pleasant City Administrator Brent Schleisman said you have to try whatever you can to ease the pain caused by mass layoffs, and he feels his town has done a good job of bouncing back. “We’re just at the beginning, but I think we are definitely making progress,” he said. “But it is tough. And even though we’ve brought in some new business, there is no way we can replace the wages we lost. So, we will never be back where we were; we have to just keep looking toward the future.”

This is not uncommon, Borich said, and Newton will most likely face a similar problem.

“Newton is twice as dependent on manufacturing as the rest of Iowa,” he said. “It is unlikely even if they can draw in new business that the wage scale would be the same. For the past decade, that has been the trend.”

For every $1 Iowans made in their old factory jobs, they made 62 cents in their new jobs, according to a federal study of the Trade Adjustment Assistance program. Laid-off factory workers often have 20 years or more of experience, and have received periodic raises over many years. Even with further education, workers must often take entry-level positions with a new employer.

Many experts are saying that even with retraining and government help, Maytag workers won’t find jobs that pay as well as the jobs they are losing.

“Newton really has to reinvent itself,” Schleisman said. “And it won’t be easy, but I think they are on the right track. You have to diversify your economy to avoid something like this happening again, and it seems like they are already doing what they have to do.”

The steps communities should take to recover after mass layoffs isn’t an exact science, Schleisman said. There is no blueprint to go by, and each community is different.

When John Morrell closed two plants in Estherville in the early 1980s, the city’s overall employment fell 28 percent and has never recovered, said Peter Orazem, professor of economics at Iowa State. Ottumwa had a number of layoffs in the early 1980s with wage employment falling almost 20 percent. However, the Hormel Foods Corp. meatpacking plant was sold and reopened and the Deere & Co. plant resumed operations, he said.

The Minneapolis Federal Reserve Bank recently examined similarities and differences in how communities recover from mass job loss, and what it discovered was though communities who bounced back strongly had slightly higher incomes and education levels on average, the difference was negligible. For example, Buffalo County, S.D., and Jefferson County, Mont., both had very strong employment recoveries after layoffs, but Buffalo had a low education level (4.2 percent with college degrees) while Jefferson had a high education level (20.8 percent with college degrees). Newton and surrounding Jasper County have 21.6 percent of residents with a college degree, according to the Office of Social and Economic Trends Analysis at Iowa State University.

This same argument holds for the age and industry composition.

“Every town is different, each with a unique experience with this type of thing,” Schleisman said. “That is what makes something like this so difficult. You can’t really look to what others have done and copy them, because what worked for them may not work for you.”

One factor that does seem to help a town, the study said, is proximity to a larger urban center.

“Being close to Des Moines will help Newton,” Borich said. “That will give the workers an option to commute, so I don’t think we’re talking about the creation of a ghost town.”

Swartz said his biggest concern isn’t for Newton, but for the smaller “bedroom” communities that have sprung up around the city. However, with a growing economy in Greater Des Moines, the short commute could be what helps the town the most.

Nothing will happen overnight, Borich said, but the sooner Newton attracts new businesses, the better.

“The facilities and infrastructure is there, and they have a quality labor force, so it is possible for a new company to move in,” he said. “But if that factory lies empty for a while, it will get harder and harder to bring a new company in. If things don’t start happening soon, it will be a very bad sign.”

Schleisman agrees, saying a town must move quickly to ease the pain of job loss.

“Every day that goes by where you haven’t been able to bring in some jobs is a day you don’t have back,” he said. “You can’t sit on your hands and wait for something to happen. You really have to get going.”