Manufacturing, tech jobs slipping away from Springs

At the end of 2000, the manufacturing and technology industries in Colorado Springs were booming, local incomes had nearly reached the national average and Intel Corp. had announced plans to open a semiconductor manufacturing plant here.

The economic landscape in Colorado Springs has changed dramatically since then. Manufacturing employment declined nearly 40 percent from its January 2001 peak to the lowest level since the end of 1979. The local information technology industry has lost nearly half of its jobs since January 2001 and is at its lowest level in more than a decade. And this year, Intel closed its Springs chip plant and is laying off most of its 1,000 local employees.

In all, nearly 15,000 jobs in manufacturing and information technology have disappeared during the past 7½ years. Many were replaced by mostly lower-paying jobs in government, call centers and health care. As a result, wages earned by workers in the Springs aren't keeping up with inflation, forcing them to dig into their savings, put less away for their retirement and other goals or reduce their spending on things such as eating out, entertainment and vacations.

The losses reach far beyond the factory door and office cubicle to merchants, mechanics and others who now have fewer well-heeled customers buying groceries, oil changes and other products and services than in 2000. Manufacturing and information technology jobs can support as many as two additional workers in other industries as the wages they earn - 35 percent to 55 percent more than the county's average - circulate through the local economy.

Most of the local manufacturing and information technology jobs didn't vanish, but rather moved to Latin America, China and the rest of Asia as businesses sought lower costs and often massive subsidies offered by Asian governments to lure jobs and spur economic growth. As a result, economic development officials are about to launch a $150,000 study to determine what is needed to attract well-paying jobs that include benefits such as health insurance.

Kelly Parker, who has been laid off five times in 22 years by electronics manufacturers, said he hopes local economic development officials find that answer soon. After losing his technician job at Intel in December, Parker looked for five months before landing a job repairing electronic equipment for two-thirds of what he made at Intel without benefits. He ended up spending about 25 percent of his retirement savings to pay his bills while he was unemployed.

"I applied for 75 jobs, but I only had three interviews," Parker said. "I find myself more judicious about eating out and buying groceries. My dogs are still eating well, but I am not contributing at all to my retirement right now."

Shift in industries

Much of the growth of the Colorado Springs economy during the 1970s, 1980s and 1990s was fueled by a huge influx of electronics manufacturers ranging from semiconductor manufacturers such as Honeywell, Inmos and NCR to computer manufacturers such as Digital and software development operations such as MCI. All offered good-paying jobs with benefits that helped make the local economy less dependent on the Defense Department.

Along with the manufacturers, more jobs came from suppliers and service vendors providing everything from sheet metal to the "bunny suits" worn by workers in chip plants to keep dust and other contamination away from the delicate circuits.

By the mid-1990s, manufacturing jobs were starting to move overseas, starting with Quantum Corp. moving disk-drive manufacturing operations it acquired from Digital to Malaysia, followed by Agilent Technologies sending much of its production work to Asia. In 2001 and 2002, more than 8,000 technology jobs evaporated amid an industry meltdown, including chip plant closures by LSI Logic and Vitesse and nearly 2,000 layoffs by WorldCom and MCI.

Even after the local and national economies were growing again, manufacturers continued to lay off workers in Springs, including those at Hewlett-Packard, Sanmina-SCI and eventually Intel, which closed its Springs plant after selling off the product line made there to a company that outsourced production to Taiwan. The layoffs trimmed nearly $500 million from local payrolls - jobs paying average yearly wages between $55,000 and $80,000 that came with benefits.

At the same time, the city was adding thousands of jobs at call centers for insurance companies, mutual funds and cell phone firms, two new hospitals and dozens of new public schools. Those jobs pay between $30,000 and $40,000 a year and sometimes don't come with benefits. As a result, local incomes aren't keeping up with inflation and are falling behind the rest of the nation, as measured by a statistic called per capita personal income.

That number was at its lowest level last year in 13 years when compared with the national average. Local incomes are now 8 percent below the national average and have fallen further behind the national average every year but one since 2000 as a result of growing more slowly than the rest of the nation.

"As measured by our purchasing power, our quality of life has not kept up with the cost of living. As a result, our standard of living has and will continue to diminish. We are falling further and further behind," said Fred Crowley, senior economist for the Southern Colorado Economic Forum. "Eventually the cost of doing business here will drop low enough to make the area more attractive for employers who provide high-way jobs."

Moving overseas

The losses are likely to continue - Hewlett-Packard told nearly 1,000 of its local employees in recent months that they must agree to move as the operations where they work are consolidated in Fort Collins, Arkansas, New Mexico and Texas.

Small suppliers such as Finishes Ltd. were hit just as hard. The Colorado Springs-based company, which produces metal plating for the computer and telecommunications industries, lost half of its revenue and laid off 12 of its 21 employees after one of its largest customers moved production to Taiwan. The company has since restored four of the jobs, but still has not been able to recover the revenue it lost seven years ago.

"Every time we get a new order, the work eventually moves to China as the project matures," said Frank Shannon, president of Finishes Ltd., who used $250,000 of his savings to keep the company from failing in 2001.

A study published by the Economic Policy Institute, a Washington, D.C.-based think tank focused on low- and moderate-income workers, found that the growing U.S. trade deficit with China triggered nearly 44,000 job losses in Colorado and 2.3 million nationwide from March 2001 to June 2008. Most of the job losses came in manufacturing industries ranging from computers and electronic parts to aircraft, auto parts and machinery.

Dave Anderson, who heads the manufacturing task force the Colorado Springs Economic Development Corp., ran Skyline Electronics, a local printed circuit board maker that laid off all 250 of its employees in 2001-02 and shut down due to Chinese competition.

"The myth is that we are losing jobs because of China's low wage rates. But when you compare our wages and productivity rates with Chinese wages and productivity rates, the end result is not very far apart," Shannon of Finishes Ltd. said. "The reason we are losing jobs to China is manufactures there have an 80 percent cost advantages because of currency manipulation and the fact that they rebate all taxes paid by manufacturers as an incentive to come there."

Asian competition isn't the only reason manufacturing employment has declined. Automation also played a role - to cut costs and increase production, many manufacturers are substituting equipment for employees, said Crowley, the economist.

The shift of manufacturing to Asia has slowed in the past year or so, mostly because surging oil prices and the falling value of the U.S. dollar have made shipping cars, televisions and other consumer products much expensive.

That trend has helped Short Circuits, which makes printed circuit board prototypes in Palmer Lake, expand its staff from six to 10 in the past 18 months and prompted the company to begin construction on a 2,500-square-foot addition to its plant, said Paul Sloan, an employee who bought the company earlier this year.

Short Circuits nearly shut down in 2002, when sales had dropped by two-thirds as work went to overseas competitors, he said.
Many types of manufacturing likely will never return to the United States because suppliers and vendors that provide services to those industries have moved to Asia to be closer their manufacturing customers, so manufacturers would end up paying additional shipping costs if they returning production to the United States, said Charles McMillion, president and chief economist of MBG Information Services, a Washington, D.C.-based economic research firm.

Another reason many manufacturers likely will remain in Asia is that they will want to remain close to the biggest market for their products, said Jack Buffington, director of supply chain logistics for Molson Coors and author of "An Easy Out: Corporate America's Addiction to Outsourcing." The outsourcing trend is even beginning to spread to research and development operations that are relocating to Asia to be closer to manufacturing facilities, he said.

"The key to manufacturing is research and development. If you can control the product life cycle and process, you will get a much bigger piece of the pie, including the manufacturing part of the operation," Buffington said. "We need the type of federal research effort through NASA that followed the Soviet launch of Sputnik. The government will have to partner with the private sector so that we can own product development again."

Kazmierski said EDC has been informally studying the decline in local manufacturing employment for about a year and is looking at what types of employers it should help to relocate or expand here.

He said the group plans to hire a national consultant soon to launch by next month a formal $150,000 study to develop a new economic development strategy for the city. The study is scheduled to be completed early next year.

Part of the study will look at whether the Springs should offer more tax breaks and other incentives to keep or bring employers here, Kazmierski said. EDC has lost out on at least 8,000 jobs in the past 18 months because other cities have offered incentive packages that in some cases total more than $20 million, he said, including a pair of call centers Hewlett-Packard is opening in Arkansas and New Mexico.

Those centers will replace several call centers HP now operates in the Springs and other cities; the company has told about 800 local employees that they must move to New Mexico next year to keep their jobs.

"What is Colorado Springs going to look like in 2020? If this trend continues, we have to be realistic in what we replace these jobs with that pay a living wage with full benefits - the types of jobs the next generation will need and want," Kazmierski said. "It is time to determine what will give us the greatest chance of success. We cannot allow the community to continue in this trend of declining quality jobs."

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Contact the writer: 636-0234 or wayneh@gazette.com