There has been considerable acclaim and excitement associated with Airbus Industries' recent opening of a final assembly facility in Mobile, Alabama.
Recently, RAND published a report entitled The Economic Consequences of Investing in Shipbuilding that, coincidentally, evaluated the impact Austal USA Shipbuilding has had on the Mobile region. Indeed, Austal USA's current employment level of about 4,200 is approximately four times as large as projected Airbus employment in Mobile.
While the arrival of a new employer in a community is typically viewed as good news, a new employer's net impact is not always clear. If an area already has full employment (i.e., there are relatively few unemployed or under-employed individuals), the new employer's net impact may be small-to-none. Individuals hired by the new firm are simply poached away from other employers, resulting in no net change in local employment.
Bureau of Labor Statistics data for Mobile are more sanguine about the net effect of a surge in Austal USA hiring between 2010 and 2014. As shown in Figure 1, total Mobile manufacturing employment over the period increased by more than the net increase in Austal USA employment. If Austal USA had simply displaced other manufacturing employment, there might have been no net change in Mobile manufacturing employment during the period Austal USA was hiring.
There are specific characteristics of Austal USA's operations in Mobile that have redounded to the broader region's advantage. The State of Alabama has provided an Austal USA-designed six-week pre-employment course to qualified individuals who aspire to work for Austal USA.
However, Austal USA has only hired about 60 percent of these trainees so the remainder of these newly trained individuals has been available to be hired by other employers in the region. Further, Austal USA has experienced considerable annual turnover (on the order of 20 percent per year) so there is a considerable pool of Austal USA alumni available to other employers. We strongly suspect that Airbus will end up hiring a fair number of Austal USA alumni.
There can be a difference between what is preferred by a given employer like Austal USA (e.g., low employee turnover) and what is preferred by local economic development authorities (e.g., a number of well-trained alumni available to be hired by other employers).
One drawback of Austal USA as a regional economic catalyst is that the low-volume nature of shipbuilding implies that relatively few local suppliers provide parts to Austal USA.
By contrast, high-volume automobile manufacturers in central Alabama have induced their various suppliers to build plants near the manufacturers' facilities. A car manufacturer building hundreds of thousands of vehicles per year needs a commensurable number of seats, headlights, doors, and other parts from suppliers. It is highly advantageous for those suppliers to be located proximate to the automobile manufacturing plant. In that Airbus's operation in Mobile will be undertaking aircraft final assembly, one might expect its impact on local suppliers to be limited, akin to Austal USA's impact.
If Austal USA's experiences are any guide, we expect Airbus to have a net favorable impact on the Mobile region's economy. The region does not appear to be at or near full employment so we would expect Airbus's hiring to have net positive effects.
Ideally, for the region (if not for the firm itself), Airbus would provide training to a number of workers who would bring their skills to other employers. We would not, however, expect the type of substantial supplier clustering that has occurred in Alabama's automobile industry.
Edward G. Keating is a senior economist and Irina Danescu is a research assistant at the nonprofit, nonpartisan RAND Corporation.
This commentary originally appeared on AL.com on October 6, 2015. Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.