|
|
|
|
America’s Peace Dividend, by Ann Markusen (ed.)
Post Cold War Conversion:
Gains, Losses and Hidden Changes in the U.S. Economy
Michael Oden, Laura Wolf-Powers and Ann Markusen
I. Introduction
The Cold War grew out of the aftermath of a conflict that that decimated major European and Asian powers and involved a very real confrontation between large nations representing opposing political and economic systems. As the U.S. assumed a of world leadership in the late 1940s, the federal government launched an unprecedented international assistance effort and systematically mobilized the nation's industrial, technological and human capital to meet the military challenges of the cold war. In contrast, the 45-year Cold War era ended with a remarkable absence of violence, crisis, or conflict among the major parties. The dissolution of the Warsaw Pact and the Soviet Union failed to generate the sense of national purpose, solidarity and sacrifice that forged foreign and domestic policy in the late 1940s. The end of the Cold War spawned no Marshall Plans or Committees for Economic Development, no GI Bills or Endless Frontiers, no fundamental re-orientations of military, industrial or technology policies.
In the relatively calm post-Cold War atmosphere, key institutions and insiders coalesced around "muddling through" and "satisficing" policies to reshape security strategy and restructure the military-industrial complex. Perhaps avoiding major revisions in security strategy and relying upon firms and financial institutions to reorganize defense industries was the right approach for the times. Advocates for bolder policies of disarmament, non-proliferation and defense industry conversion failed to mobilize support or interest among the broader populace in the absence of intense external or domestic pressures. Yet while the post-cold war conversion story is not one of new directions or innovative national policies, the one-third reduction in military spending over the 1990s did alter the fates of critical national industries, leading regions and hundreds of thousands of skilled personnel.
The main issue addressed in this paper is what happened to the assets --- the technologies, the human capital, and the organizational capacities -- built up by the enormous 45-year cold war investment in national defense. One allegory of post-cold war conversion gives the leading (and only) role to that ever- popular abstraction, market forces. Defense demand was reduced, assets and resources were freed up, and the market, with the able assistance of financial institutions, reallocated these resources to more productive and profitable uses.
While surprisingly strong economic growth after 1994 reduced adjustment costs, the rest of the market allegory obscures as much as it reveals. The first gap in the market story is that government policy and decision-making inevitably influence the defense economy, shaping the investment, location, R&D and personnel decisions made by private firms. New and revised government policies were put in place in the early 1990s that strongly influenced defense industry restructuring. The most important included: a slightly amended national security strategy; a more restricted set of defense budget priorities; a return to more permissive arms export policies; defense industry policies promoting the merger and consolidation of major contractors; and a grab bag of programs to facilitate company, worker and regional conversion to non-defense activity. While these policy initiatives had a certain ad hoc character and often operated at cross-purposes, in many ways they overrode market signals in determining how assets were re-deployed as defense demand declined.
In addition, market failures were prominent in the defense downsizing process in the form of involuntary unemployment and underemployment, information failures in markets, and under investment in research and development and human capital. If government actions implemented to mitigate these market failures generated economic benefits in excess of their costs, then an overall increase in social welfare could have resulted. In this context, successful conversion of defense related assets to alternative productive uses, guided by the market but aided by cost effective government intervention, becomes a crucial measure of the real efficiency of the post-cold war adjustment process.
In this paper, we evaluate how the ensemble of government policies associated with post cold war defense cuts shaped the behavior of firms, workers and defense-oriented communities and speculate about the effectiveness and efficiency of the resulting restructuring process in terms of conversion outcomes. The success of the downsizing and adjustment process of the 1990s is specifically measured along four coordinates. First, did the U.S. end up with a research and industrial base capable of meeting our immediate and future defense requirements in a cost-effective manner ? Second, to what extent did defense-oriented firms succeed in transferring organizational strengths, know how, and technology to alternative markets as defense sales declined? Third, were the skills, training and knowledge embodied in the defense workforce effectively reallocated within and outside defense sectors? Finally, to what degree did defense-oriented regions succeed in stabilizing their industrial bases, retaining skilled labor and diversifying their economies?
In addressing these questions, we not only attempt to document what happened, but evaluate outcomes relative to implicit counterfactuals -- how the outcomes of defense conversion in the 1990s might have been different with an alternative mix of policies and incentives. We argue that the historic record of conversion and adjustment was generally poor over the 1990s. Policies encouraging the fast -paced merger and consolidation of large contractors undercut dual use policies and commercial-military integration resulting in a more segregated, technologically sluggish defense industrial base dominated by four financially vulnerable firms. This model of restructuring also choked off relatively successful conversion and diversification efforts by some large contractors as well as technology transfer that could have benefited defense dependant regions. The quick shock of large firm consolidation led to massive layoffs concentrated in major defense complexes resulting in long periods of un -and underemployment for defense workers and an inefficient reuse of skills and know-how. Defense restructuring over the 1990s produced highly uneven outcomes across defense dependant regions, but a number of prominent defense centers experienced relatively high rates of unemployment, losses of major manufacturing and research facilities and out-migration of talent.
Some of these costs were unavoidable as defense spending was ratcheted down at the end of the cold war. But we argue that an alternative or even more neutral set of policies could have reduced adjustment costs, led to a more integrated commercial-military industrial base, and increased the conversion of technologies and human and physical capital to growth-enhancing activities. On close inspection, the defense conversion record of the 1990s is full of paths not taken, surprising successes, and lessons learned. Even if defense planning and spending are currently enjoying an "Indian summer" of budget surpluses, hard choices may yet be on the horizon if economic and revenue growth falter or the geopolitical environment changes. The history of defense restructuring of the 1990s may, therefore, provide valuable insights for managing change in the future.
II. Firm Conversion
The Cold War bred an impressive complex of technology, manpower, and capital equipment, largely managed by private-sector institutions that designed and produced the weaponry required for nuclear and conventional warfare. This complex and its government-underwritten activities generated a set of new technologies – radar, computers, semiconductors, satellite communications, nuclear power – that radically shaped the trajectory of society at large. What happened to these capabilities in the face of a 1990s American cut in procurement in excess of 60% in real terms? Were they speedily downsized? Were the resources released effectively moved into new, non-military productive activities? Have we managed to craft an efficient, flexible military industrial capability appropriate to post-Cold War challenges?
The answers to these questions vary with the institutional context. The 1990s cuts in procurement budgets were steep and difficult for firms to absorb. Smaller firms (and larger firms concentrating on sub-systems and defense services) have been relatively more successful in weaning themselves from defense dependency and moving talent and technology between civil and military activities. The largest firms, however, were caught up in the mid-decade flurry of mergers and divestitures that, while profitable in the short term, left them boxed into flat defense markets and shorn of civilian prospects. This led to relatively poor financial and technical performance in the longer run and thus to intense political lobbying efforts for higher defense budgets, NATO-expansion, liberalized arms export policies, and relaxed anti-trust that would permit trans-Atlantic mergers and privatization. The DoD is now more vulnerable to these pressures because preservation of weapons production and development capacities is more dependent on the health of the four remaining defense giants. The most disheartening performance has been logged in the nuclear sector, where the huge government-owned, contractor-operated nuclear weapons design and stockpiling facilities remain largely intact despite a sea change in the nature of the nuclear threat. Although this nuclear complex remains a formidable $30 billion a year operation and absorbs a major slice of American scientific manpower and our public research budget, we do not address it in this paper.
A. Large Military Industrial ContractorsAs the Cold War waned, large American defense contractors faced plummeting budgets, not just at home but abroad (Table 1). They each confronted a major strategic choice: redeploy financial and physical assets, know-how and manpower into civilian-oriented activities, or stick to defense markets and attempt to enlarge both the market and their market shares. Most analysts in the early 1990s expected them to do the former, downsizing but simultaneously moving personnel and cash built up during the Reagan defense spending boom into new product and service lines (Markusen, 1998). In the early Clinton years the federal government committed itself to playing an active role in this process through the Defense Reinvestment and Conversion Initiative, a set of programs in the Departments of Defense, Energy, Commerce and Labor whose combined funding amounted to more than $16.5 billion over the years 1993-7 (Table 2). This investment program included significant funding through the Technology Reinvestment Project (TRP) and other programs to stimulate commercial-military integration through defense diversification and commercial spin-on. This path was further reinforced by strong, positive Pentagon signals favoring civil/military integration, not just within a firm but right down to the shop floor.
To some extent, large firms did aggressively move in this direction. TRW and Raytheon, and before their mid-1990s divestitures, Rockwell and Hughes, were able to lower their defense dependency significantly by applying defense-aerospace and electronics expertise to commercial satellites, telecommunications markets and automotive projects such urban traffic management and intelligent vehicle information systems (Oden, Markusen et al, 1996; Oden, 1999a). To do so, they became more entrepreneurial internally, creating new groups to facilitate cross-over of expertise. Boeing has consistently excelled in both civilian and military markets, aided by internal mobility practices that allow personnel to move easily between civilian and military work. Evidence from the early and mid-1990s suggested that firms with robust diversification strategies were enjoying higher profits, greater productivity growth, and healthier rates of R&D investment than contractors more entrenched in defense markets (Oden, 1998).
But in the mid-1990s, a dramatic reversal occurred. A rash of mergers, initiated by Wall Street investment banking firms and encouraged by a remarkable shift in Pentagon policy, imploded the ranks of the largest defense contractors to four and split apart civilian from military divisions in a series of related divestitures (Figure 1; Markusen, 1997b, 1998). Firms divesting themselves of defense ventures included Ford (Aerospace), Honeywell, General Electric, IBM, Unisys, Westinghouse, Chrysler, Tenneco, Texas Instruments, AT&T, General Motors (Hughes), and Rockwell. Excess corporate cash was dedicated to acquisitions, stock buy–backs and debt paydowns, and the managerial will to invest in conversion withered under the purported superiority of "pure play" defense firms.
The longer-run consequences of this particular form of consolidation for the defense industry, the Pentagon and the economy as a whole have been largely negative. The industry is now led by a handful of very large, debt–laden firms who remain heavily dependent upon defense markets (Table 3). Both at home and abroad, defense markets are more or less stagnant, so that firms’ options for growth are quite truncated. With support from Departments of Defense and Commerce, the industry successfully captured a larger share of the world arms trade, up from 30% to 45% between 1989 and 1996, but exports are still fell 10% (Table 4). In recent years, these firms’ military sales have increased modestly with upticks in the US defense budget and the privatization of defense research, service and maintenance functions. An aggressive effort to forge transnational mergers, another route to growth, has been thwarted by European reluctance and inconsistent American policy (Markusen, 1999, 2000; Markusen and Costigan, 1999).
Elsewhere, we have argued that the mergers were driven chiefly by the anticipation of short term gains from the profitable backlog orders of acquired firms, stock speculation, the ability to lay off unionized workers and move to lower cost locations, one–time sell–offs of valuable land, and generous merger cost reimbursements from the government, and not, as proponents claimed, by true efficiency gains (Markusen, 1998; Oden, 1999a). The financial performance of these firms over the decade tends to support this view. Stock prices, which had moved in lock–step with falling defense budgets from 1990 to 1994, skyrocketed 55% in 1994, slowed dramatically thereafter and began to decline in absolute terms in 1997. Debt–to–equity ratios rose from 28% in 1994 to 34% in 1999 (Merrill Lynch, 2000: 47, 53). Profit rates have remained well below the economy-wide average. Although firms have diversified in closely related product lines, conspicuously in space-based communications, diminished access to commercial market expertise within their corporate organizations may be cutting deeply into their growth potential.
From the Pentagon point of view, the mergers have produced new problems. Despite verifiable cost savings on existing systems, the services now face fewer competitors bidding on future systems, which may raise future prices and depress innovation. Defense firms’ R&D spending as a share of sales has fallen from 4.7% in 1986 to 2.5% in 1998 (Merrill Lynch, 2000: 47), a trend at odds with the rest of the high tech economy. One Wall Street firm argues that there is a substantial brain drain in the defense industry, towards commercial high tech firms with more robust growth rates (Merrill Lynch, 2000: 51). An effort to open American markets to European competitors, which could counteract the negative effects of concentration, is in disarray, in part because the Pentagon fears the failure of any of the few remaining systems integrators in its stable.
In short, then, the transformation of large military industrial firms into more diversified high tech organizations was arrested by the short, sharp shock of the merger era. The task of re–allocating technologies, physical plant and engineering, managerial and blue collar talent into new activities was given over to the market at large, and it is likely that a modicum of this capital was squandered in the process, as confirmed in our analysis of regional concentrations, addressed below. Long terms gains in both civilian and defense markets from the cross-fertilization of talent and technologies have been truncated, leaving hundreds of thousands of scientists, engineers and skilled workers tied up in defense work and distanced from the heady pace of innovation in the high tech world. Their managers are now more likely to pursue lobbying for permissive export arrangements and subsidies, higher defense budgets, more privatization and continued "buy American" practices as ways of maintaining profitability, all of which are questionable for American national security and affordability.
B. Smaller Military FirmsIn contrast to large firms, successful conversion was surprisingly common among small to medium–sized defense contractors, from suppliers of generic goods and services to highly specialized manufacturers and research service providers. Depending upon their defense dependence, technical specialization, and the degree of integration between defense and non-defense production, smaller firms were often quite vulnerable to defense cuts.
Surveys of smaller companies have found that defense downsizing caused no major shakeout in the lower tiers of the supply chain. In a survey of 600 small– to medium–sized contractors, Feldman found that over the immediate post-Cold War period real sales and employment changed very little, and defense dependency in the overall sample declined marginally from 31% to 29% of total sales 1 . Since procurement spending plummeted over this period, it appears that major prime contractors were subcontracting more rather than taking work back in–house. A RAND survey of 465 subcontractors over the 1992-1995 period found low failure rates (only 3% between 1992 and 1995) and some evidence of conversion and diversification (Vernez et al., 1995).
Perhaps more surprising is the conversion performance of more specialized defense–dependent firms. In face–to–face interviews with 41 smaller companies in 1993-1994, we found significant sales and employment losses in the early phase of defense downsizing (Oden, 1999) (Table 5). Average defense dependency in this group fell from 69% in 1989 to 50% by 1994, much of it due to lost defense sales. But a number of firms posted a real increase in non–DoD sales. Contrary to naysayer accounts of defense conversion, the majority of the companies were conducting new product development, and 72% were selling new products or services in non–DoD markets. We also found that many companies had participated in, and benefited from, federal research and development support and technical assistance partnerships with state and local governments (Oden, 1999).
In a follow–up survey of this group of firms conducted in the summer of 1998 34 of the original 41 firms responded (Table 6). It was found that these firms enjoyed positive sales growth over the 1994–1997 years. Employment stabilized, falling 2.5 percent over this period, with the majority of firms in the sample actually adding jobs. Defense dependency continued to decline through expansion of commercial sales. The vast majority of these successful firms had utilized publicly funded technical assistance, worker training, and marketing assistance and most reported that their participation was somewhat or very important to their success. These results may be somewhat biased in that the firms responding to the follow-up survey were likely to be more successful. However, the survey revealed that only two of the original 41 firms had actually gone out of business (Oden, 1999b) 2
As limited as public conversion assistance has been, this research indicates that it has been effective in specific cases in helping small and medium sized firms survive and diversify. It is finally noteworthy that most of the surveyed firms continued to serve defense markets even as they succeeded in expanding their commercial sales.
III. Worker Conversion
The elimination of more than a million defense-related jobs in the private sector was a significant labor market phenomenon of the 1990s. Between 1987 and 1996, defense–related private sector employment in the United States declined from 3.5 million to 2.1 million, a 40 percent drop (Thomson 1998). While those who lost jobs during this period represent a relatively small fraction of the U.S. labor force, the economic and political significance of defense industry job loss is out of proportion to its numerical importance: nearly one million of those who lost defense–related jobs in the 1990s worked in the manufacturing sector, as engineers, technicians, and skilled blue–collar employees. Net manufacturing job loss in the defense sector between 1987 and 1996 amounted to 922,000 workers; nearly 5% of the entire manufacturing labor force in 1987 (Bureau of Labor Statistics). Moreover, defense industry workers have traditionally been better paid, higher–skilled, and more likely to be represented by unions than their non-defense counterparts.
The federal government acknowledged a special responsibility for the unemployment associated with the end of the Cold War. The Clinton administration in particular committed itself to playing an active role through the aforementioned Defense Reinvestment and Conversion Initiative (Table 2). One core goal of this investment program was to redirect resources that had been dedicated to U.S. military superiority toward critical national priorities including health care and infrastructure. According to President Clinton, a key part of that re-dedication of resources involved the re–deployment of the defense skill base.
Did defense worker policy in the 1990s fulfill its original promise? This section argues that the record is mixed. Federal efforts to assist displaced uniformed personnel and DoD civilian personnel have been fairly successful, and aggressive experimentation in programs at the U.S. Department of Labor (through the Defense Conversion Adjustment Demonstration) and among numerous local innovators have shown impressive results in re–deploying talent shed by private firms. In many cases, however, the transition policy failed to effectively reallocate skills, training and knowledge embodied in the defense workforce. Although a strong economy in this period kept aggregate unemployment rates low, our research indicates that private sector defense workers did not, on average, experience rapid re–employment at wages comparable or better to those they had received in their former defense-related occupations. On the basis of several samples of displaced defense workers taken between 1987 and 1997, we argue that many, perhaps most, workers displaced from defense firms during this period found jobs that paid them less than their former wages and that failed to take advantage of their defense–bred skills, A sizable minority experienced a drop in earnings of 50% or more in their first job after becoming re–employed.
There are, we contend, two major reasons for this. First, despite a strong initial commitment to address defense workers’ situations, and despite the opportunity to make the defense conversion initiative a showcase for new training, re–employment and job creation policies, the main hallmark of federal transition policy has been acquiescence in defense industry consolidation and restructuring (see Section II). This process has viewed employees largely as impediments to cheaper weapons production. Second, private sector defense employees who were laid off often did not find the assistance necessary to make satisfactory job and career changes. Local displaced-worker programs, while they varied considerably from place to place, were frequently unprepared – in terms of financial resources or administrative capacity – to serve this population. On both of these levels – defense industry policy and worker adjustment policy – a different kind of transition might have reduced unemployment and underemployment of defense workers and led to a more efficient reuse of human capital.
A. Impacts of Defense Industrial Policy on Human CapitalFor those working in steel, autos, consumer electronics and other durable goods industries during the 1970s and 80s, mounting international competition and the gradual breakdown of a New Deal-era détente between workers and employers ushered in enormous changes. The financial restructuring of U.S. manufacturing entailed consolidations, buy-outs and mergers in many industries, while at the micro level, firms introduced sophisticated computer–driven production equipment, adopted "lean business practices," laid workers off, and reorganized those who remained for higher productivity. Many of these same secular changes took hold in defense sectors during the post Cold War drawdown – downsizing, substitution of capital for labor, layoffs, a shift from goods to services, a decline in union coverage, and a shift of industrial activity from the Northeast to the South and West. 3 It is plausible that an overall restructuring of America’s labor markets simply "caught up" to defense workers after the Cold War’s end.
In another sense, however, military industrial policy played a powerful role in the defense labor market changes of the 1990s. While defense workers became more exposed in the 1990s to market forces operating in the civilian economy, they remained tied to federal priorities, defense industry policies and demand flows in a way that was highly unusual. Federal officials, because of their monopsonistic relationship to the defense industry, had an opportunity to manage post-Cold War downsizing more carefully, undertaking strategic planning as they did with the buildup of the military sector and promulgating policies that reallocated human capital and catalyzed new employment opportunities. By and large, however, they chose to manage the transition in a way that privileged defense company managers and shareholders over the planned conservation and reallocation of skills and talent. While the policies in the left column of Table 7 were clearly not the only factors influencing the labor market trends in the right column, the table underscores the point that federal policy-makers made little use of the means at their disposal to ensure that the skills and experience of the defense industry’s human assets would be effectively re–utilized.
Pentagon-led industry consolidation resulted in massive layoffs and inhibited the expected move toward civil–military integration and market diversification that would have led to increased labor retention and conversion (Markusen, 1997b, 1998). In their drive to lower procurement costs through "lean production," defense officials typically encouraged downsizing, geographic re–location and outsourcing, while rejecting productivity strategies compatible with job retention, such incumbent worker re–training (Powers and Markusen 1999). Finally, by abandoning its initial agenda to invest a significant portion of the "peace dividend" in the creation of incentives for civilian technology development, the Clinton Administration dashed the hopes of many defense employees that their skills might be reabsorbed in the production of electric vehicles, high–speed trains and alternative energy technologies 4 . To some extent, this was an unrealistic hope – the links between civilian investment/technology development and defense firm capacities were not in many cases strong. Nevertheless, if the decrease in the military procurement budget had been offset by spending that had stimulated markets for advanced civilian technologies, the resulting demand-side pull would have helped to offset the disruption of defense layoffs by generating increased demand for skilled workers, particularly production workers. Small, targeted initiatives such as the Inter-modal Surface Transportation Efficiency Act (ISTEA), have drawn on the procurement stimulus to a limited extent, but much of the potential for an effective "demand pull" job generation strategy is still unrealized.
B. Worker re–employment outcomes: the role of adjustment programsAnother major ingredient in assessing conversion outcomes for defense workers in the 1990s involves looking at the terms of their transition from defense to civilian work. Here we find that a significant subset of laid–off defense workers had not become re–employed after as long as a year after layoff and that the drop in wages at re-employment was typically substantial, (see Tables 8 & 9). 5 As might be expected, older workers, clerical and sales workers, and production workers typically had a harder time becoming re-employed and recovering their former wages than younger workers and workers in service and professional occupations. Some of the results are more surprising, however. Kodrzycki (1995) found that the median unemployment spell among re-employed defense workers in New England was eleven months, and that 25% of the re-employed workers took at least 17 months to find a new job. She also found that new employers tended to discount the skills and experience of defense workers: workers recalled to their former jobs had wage replacement rates about 21 percentage points higher than those who accepted a job with a new employer.
It is true that displaced workers in general, particularly those who had been employed in the manufacturing sector, had re–employment difficulties during this period, and often took pay cuts when they moved to new jobs. Schoeni et al. (1996) cite a RAND Corporation research finding that the wages of displaced aerospace workers did not decline any more than the wages of workers displaced from non-aerospace industries. A 1993 Congressional Budget Office study also found that the share of people who exhausted their unemployment benefits was no higher for defense-related workers than for non-defense-related workers (CBO 1993). It is also the case that the workers in the samples in Table 8 and 9 are skewed toward groups that might be expected to have particular re-employment difficulties; most of the samples, for example, are of workers who sought help from company or government-sponsored relocation assistance centers. Nevertheless, as compared with all displaced workers and with displaced manufacturing workers in the 1989–96 period, defense industry workers fared quite poorly (Table 10)
Conditions in the national economy and specific regional economies were a strong determinant of the rapidity with which laid- off defense workers found jobs. In Kodrzycki’s New England study, the number of months workers remained unemployed was highly sensitive to the overall unemployment rates in both their states and counties of residence (Kodrzycki, 1995). As the economy came out of recession in the mid-1990s, it absorbed defense workers more quickly than it had in the early years of the drawdown.
Also important, however –particularly to the quality of the "match" between a laid off worker’s skills and the job he or she eventually found – was the quality of government–sponsored worker adjustment programs. Here, through innovative demonstration programs delivered locally with funding from the Departments of Labor and/or Commerce, federal conversion policy made a difference. In the Groton/New London, CT area, where General Dynamics-owned Electric Boat submarine shipyard laid off more than 6,000 people in the course of the decade, local organizations collaborated to implement a DOL-funded demonstration whose goal was to help laid-off shipyard employees leverage their specialized trade skills to respond to a shortage of skilled construction and manufacturing workers in the area. Some were certified as construction trades workers, while others took short courses in computer-numeric machining and fiber optics installation (both in local demand) that built on the metal-working and electrical skills they had used in the Electric Boat shipyard (Hedding, 1998). The Strategic Skills Program in Massachusetts, part of the Department of Labor’s "dislocation aversion" demonstration project, worked with small defense manufacturers to help them combine strategic planning efforts in the wake of defense cuts with intensive, customized training for incumbent workers, thus helping to decrease the likelihood that these firms would need to lay workers off. Participating companies successfully committed themselves to incumbent worker training as a tool for furthering market diversification and other modernization objectives, prompting the Department of Labor to conclude that:
by encouraging firms to invest in training incumbent workers as a readjustment strategy, the public sector can simultaneously help
companies stabilize and increase their sales and help workers retain their jobs and enhance their skills (Department of Labor 1997: 4-6).
But innovative federal demonstration programs reached comparatively few private sector workers (see Table 2) 6 , and most displaced defense workers who sought assistance used the standard services of Title III of the Job Training Partnership Act, the Economically Dislocated Worker Assistance Act (EDWAA). The quality of these services varied considerably from place to place; programs were helpful for people with good prospects for immediate re-employment, but did not provide structurally unemployed workers (such as craft production workers with specialized skills) with many options, because they were focused on and funded for quick labor market re-entry. Due to strict funding limits, little attention was given to assessing individual defense workers’ existing technical capacities and identifying occupations that built on them; rather, participants were shown boilerplate lists of growing occupations and asked to base re-training decisions on this information (see Mueller et al. 1993, Mueller and Gray 1994). Funding scarcity also constrained retraining options; according to Kodrzycki, "retraining for positions that would allow defense workers to recoup their former pay would require considerably greater per-worker funding than has been available." 7 A final factor limiting EDWAA’s effectiveness was a lack of linkages to economic development agencies responsible for employment generation. Job training officials worked within a structure aimed at lowering short-term, frictional unemployment Except in a few cases, such as the Groton example mentioned above, worker adjustment was perceived by state and local officials as a social service, unconnected with business attraction and job creation efforts.
Overall, then, defense-bred human capital might have been more efficiently allocated not only in the context of a different defense industrial policy but also in the context bolder, better funded worker adjustment programs. Local innovators crafted particular programs that that offered the flexible and sometimes unusually extensive financial resources necessary to prepare skilled but economically "mismatched" workers for new occupations, building on their existing skill sets where possible. But because responsibility for worker adjustment remained substantially local, and substantially under-funded, opportunities to undertake worker conversion on a more ambitious scale never bore fruit.
How might things have been different? For example, policy makers could have made a significant contribution to worker adjustment by taking greater responsibility for identifying the transferability of skills from declining to growing occupations, and then investing in defense workers as they transitioned into growing fields that called on their skills. High-demand occupations like software design, programming and systems integration in many cases would not have been far out of reach of the skilled machinists and technical workers being displaced from the defense industry, especially if the resources for intensive skills upgrading had been present. 8 Though it would have required longer term training and more spending per participant than was permitted under EDWAA, a major federal commitment to defense worker retraining, combined with a stronger federal, state and local coordination (resembling a level of commitment in the GI Bill), would have likely yielded benefits significantly exceeding costs. Such a bold initiative could have alleviated the skill shortages that by the late 1990s had firms scrambling to import technical labor from abroad.
IV. Regional Conversion
The effects of post-Cold War cuts on defense-serving regions in the 1990s were highly uneven. Leading defense complexes such as Los Angeles, Long Island, and Boston experienced scores of major plant closures, huge layoffs, and negative or sluggish rates of economic growth through the late 1990s, while Seattle, Northern Virginia, and lab-dependent northern New Mexico gained shares in defense contracting and enjoyed healthy economic growth. These differential outcomes were part of a broad geographic reconfiguration of U.S. defense activity related to three interconnected processes: changing defense priorities and spending patterns; the declining number of major new weapons development projects; and the adjustment strategies of major prime contractors.
A number of major defense serving regions were confronted with both the contraction of employment at existing facilities due to declining defense demand and losses from the transfer of work to other locales. In such hard-hit regions, efforts to convert capital, labor and technology freed up due to reduced defense activity were commonly organized and led by public sector organizations or public-private partnerships. In the early 1990s, organizations formed to carry out region-wide planning and programming typically focused on four aspects of the regional conversion problem: 1) the conversion of large contractor facilities or assets through diversification, spin-off of commercial activities locally or by transferring technology to other firms or entrepreneurs within the region; 2) assistance for small and medium-sized defense firms to improve their competitiveness and help them diversify into civilian markets; 3) support of local employment and training institutions in efforts to re-employ displaced workers and retain skilled labor in the region; 4) activities to increase growth in the region’s non–defense sectors by stimulating business start-ups or technology transfer among local firms and research institutions. Did defense-serving regions, especially the major complexes deeply affected by cutbacks, mange to recover successfully, converting and repositioning their industrial and technological strengths and skilled workforces? Despite a number of bright spots, regional conversion has been limited and leading defense centers such as Los Angeles, Long Island, Boston and Central and Northern Connecticut suffered deep losses to their research bases and high-tech manufacturing and service sectors throughout the 1990s. Locally organized programs to encourage conversion at small and medium-sized firms and innovative region-wide economic development and diversification initiatives registered impressive results in a number of places. But the scale and scope of federal funding and uneven capacity at the local level limited these successes. On balance regional adjustment to defense downsizing was a slow and arduous process for many defense regions, made more difficult by federal policies that encouraged a hyperactive consolidation and relocation of assets and offered paltry assistance to local communities to build meaningful conversion initiatives. An alternative set of policies would not have made post -Cold War restructuring painless for defense- dependant communities. However, bolder, more consistent national policies could have potentially reduced the costs of lost productivity, wages and income in a host of regions.
A. Realignment of the Gunbelt.To evaluate the regional conversion process, it is first crucial to understand how national contextual factors shaped the timing and intensity of defense related employment and income shocks in particular defense-oriented regions. Shifts in defense strategy and related budget priorities were one important factor explaining uneven regional impacts. The priorities embodied in the 1993 Bottom-Up Review (BUR) and subsequent QDR ensured that overall procurement spending and that large development programs for next generation weapons would be extremely limited in the 1990s (General Accounting Office -GAO, 1994; 1995b). These spending/demand changes not only reduced sales and employment across defense regions, but also combined to dramatically alter the regional distribution of remaining defense purchases. Areas specializing in troop provisioning, ongoing tactical aircraft programs, maintenance, and engineering and information services generally fared better than advanced weapons research and production centers. Regional complexes specializing in strategic systems such as missiles and space and related communication and electronics were particularly disfavored under the new spending priorities.
The relative dearth of major systems development projects undertaken in the 1990s had an additional effect on the regional distribution of defense activity. The long term decline in procurement and new weapons development devalued specific positive externalities in regions specializing in technology-intensive, high-end systems. Firms no longer had the ongoing contract volume or the need to hold together capabilities for numerous major weapons development competitions to justify sustaining large, integrated or co-located research and production facilities in high cost regions.
Finally, the specific investment and location strategies defense firms implemented to adjust to falling sales, influenced by the DoD policies and financial market pressures previously noted, strongly shaped the regional reconfiguration of defense activity and the regional impacts of defense cutbacks in the 1990s. Merged companies used new corporate structures to rapidly reconfigure their operations geographically to operate more profitably in the new market environment. As companies merged, many moved mature production facilities to lower cost regions and shut down smaller support or supplier facilities co-located with their major plants. While some companies retained core management and R&D activity in regional centers such as Los Angeles or Boston, many large contractors relocated headquarters and high-tech service operations from Cold War centers to the Washington D.C. region (Oden et al, 1996, Oden, 2000).
A longitudinal analysis of state contract data over the 1990s shows a distinct shift from high cost centers in the Northeast and California to Southern and Mountain States and states proximate to the Washington DC CMSA (Oden, 2000, Table 11). Provisional results from longitudinal analysis of 194 CMSA-MSA regions suggest that the change in regional defense employment over the 1988-1997 period was negatively associated with a region's share of total defense contracts in 1988, regional cost of living indicators for 1990, and directly associated with the procurement share of total defense spending (Oden, forthcoming). These results confirm the trend toward moving production out of the high cost urban defense complexes that formed the backbone of the Cold War weapons development and procurement system. A detailed study of five major defense aerospace regions underscored the uneven outcomes of contract cuts and locational shifts as well as the dramatic declines in regional centers such as LA, Boston and Long Island) (Oden 1999b, Table 12).
B. Regional Efforts to Encourage Large Company ConversionAgainst strong tides favoring closure and downsizing in established defense complexes detailed above, local initiatives stimulated little local conversion or diversification in large firms. An argument can be made that the federal policy mix, with strong incentives for merger, relocation and consolidation and limited funding for regional conversion and diversification efforts (in the neighborhood of $800 million to $1.1 billion over the 1992-1995 period) had some dampening effect on large firm conversion and restructuring in place.
Would a more supportive set of policies or incentives, or even a neutral policy stance that did not subsidize merger costs, have led to significantly more regional conversion by large firms? Given deep procurement cuts and limited new development projects, major plant closures and downsizing would have occurred, especially at facilities producing weapons platforms. Again, a major civilian investment initiative was one measure that could have made a difference. Significant reuse at large contractor facilities might have occurred under a large-scale government investment program that included orders for mass transit equipment, alternative transportation vehicles or other capital equipment that could draw upon the specific systems integration and manufacturing skills of the platform makers. Civilian government investment for the major upgrade of the air traffic control systems did stimulate facility conversion at electronics divisions of several major primes including Martin Marietta (now Lockheed Martin) Hughes (now Raytheon) and Raytheon (OTA, 1992; Oden 1999a). A number of major contractors also converted more dual use electronics and information systems service facilities to serve expanding civilian government markets for computer and telecom system upgrades (Oden, 1999a, IEEE Spectrum, 1992).
The encouragement of pure play defense mergers and government subsidies for downsizing costs did have a negative impact on other forms of regional conversion. Mergers between large contractors led to downsizing or closure of smaller divisions or facilities co-located with their major defense operations. Many smaller contractor-owned plants producing dual use electronic componentry, communications equipment or information services were shuttered as merging firms rationalized and shed non-core units. Many of these satellite operations would have downsized without merger pressures, but there would have been more restructuring in place, or sell-offs to other firms who would have retained some production and jobs in these local establishments.
In addition, locally based diversification and technology transfer efforts like those of Grumman on Long Island, and Hughes, Northrop, and Textron in Los Angeles were abandoned after these firms were taken over. (Oden, 1999; Oden et al., 1994; Oden 1999b). While most of these efforts were not generating large sales and employment gains in the short term, several firm diversification and tech transfer projects showed potential for longer- term growth and limited conversion of local technology and manpower.
In sum, government policies added a certain "hyperactivity" to the process of large company consolidation and relocation that damaged regional conversion efforts. The quick shutdown and downsizing of multiple large defense facilities swelled the stream of unemployed workers who swamped undermanned local employment and training institutions, cut off local suppliers, and rendered-down regional technology strengths. More neutral or supportive policies would not have dramatically reduced layoffs and facility closures in major defense regions. However, such policies could have slowed the process down and contributed to more diversification, opened up more opportunities for spin-off, and modestly increased the reuse of labor, capital and technology.
C. Regional Assistance to Small and Medium-Sized FirmsPerhaps the most successful regional conversion strategy involved supporting small defense firm conversion with technical, marketing and product development assistance. As noted above, conversion was a common and relatively successful strategy among small and medium-sized defense firms. Many smaller contractors in defense regions were dual use or had some prior experience in non-defense markets. Targeting smaller defense firms was an effective way to stimulate regional conversion because these firms were less apt to merge or move and were more willing to invest in conversion which was often less risky than remaining stuck in unstable defense niches.
As the information in Section II showed, smaller contractors were surprisingly successful in stabilizing sales and employment by supplying alternative markets with existing or newly developed products. Even many more specialized defense dependant firms gained from locally supplied technical assistance and successfully retained or expanded sales and employment in local facilities. (Feldman, 1996; Oden, 1999a, 1999b). Much of this expansion was classic facility conversion, which in the regional context stabilized the manufacturing base and sustained employment for skilled workers formerly engaged in defense work. A large number of the firms surveyed in the four region study received assistance from regional conversion programs with many reporting that their participation was very important to their success (Oden, 1999b).
The conversion of small and medium sized contractors was a clear and somewhat surprising success that was definitely aided by very modest public subsidy and innovative local support organizations. Would a different set of federal policies increased conversion of smaller contractors ? Ironically the dramatic loss of local subcontracting business due to the rapid consolidation and relocation of major primes may have helped push smaller firms into risky conversion and diversification efforts. On the other hand an alternative policy and incentive structure that encouraged more conversion and diversification at large firms may have opened opportunities to enter into new localized supplier networks in higher growth civilian markets. A higher level of federal conversion assistance to regional and local levels especially in early years (1990-1994) when orders were plummeting at smaller firms, with less emphasis on technology development, would likely have stimulated greater conversion by small to medium-sized firms.
D. Regional Displaced Worker Assistance EffortsEmployment retention through facility and firm conversion is the most effective form of worker conversion at the regional level. However, under any post-Cold War downsizing scenario, large layoffs in defense dependant regions would have presented a serious challenge for the effective conversion of workers to skilled jobs paying wages equivalent to their former defense jobs. The broader process of worker conversion was detailed in Section III, but some regional dimensions of the problem should be highlighted. Despite textbook renditions of labor markets, laid off workers, especially those not in high-end professional occupations, are not highly mobile. Because they have fixed assets and local ties, most displaced workers will tend to seek new work in their local labor market. In areas experiencing massive defense layoffs, there were few opportunities for individuals to find local work in their former occupations and/or at equivalent wage levels. The resulting industrial and occupational concentrations of unemployment added to the long spells of unemployment and underemployment shown in the studies summarized above.
Overcoming these classic market failures of un- and underemployment through effective education and training schemes can yield clear net benefits at the regional level. But, as noted earlier, the federal employment and training architecture was not geared for longer term training or professional education -- exactly the services that many defense workers in hard-hit regions needed to covert to quality civilian jobs. There were a number of smaller scale regional experiments that had success, but they were not typically linked to broader regional development strategies. The economic benefits would have been substantial, at both the regional and national level, if a major federal initiative had been in place to support long term retraining. Tens of thousands could have undertaken training in the early 1990s to obtain new professional credentials, new college or graduate degrees or new skills in fast-growing technology service occupations. Newly trained personnel would have aided the expansion of high-technology manufacturing and service sectors in defense regions, decreased regional defense dependence, and reduced the skill shortages that emerged in some regions in the late 1990s. A comprehensive national retraining program would hence not only have contributed to national productivity and income growth but increased considerably the efficiency of the adjustment process in many regions.
E. Regional Diversification Initiatives.A final important component of regional conversion included broader economic development strategies to diversify the regional economy and reduce defense dependency. These efforts included measures to stimulate growth in local non-defense sectors, but also incorporated projects to encourage business startups by ex-defense personnel and spin-offs and technology transfer from larger defense companies.
In a number of regions, the shock of defense downsizing catalyzed, for the first time, region wide economic recovery initiatives. In regions such as St Louis, Long Island, Los Angeles, and Tucson energetic efforts at organizing technology transfer and broader regional diversification efforts were launched in the early 1990s. These initiatives employed various economic development tools including innovative manufacturing extension services, business incubation, tech transfer consortiums, and seed and venture capital pools as well as more classic tax abatement, convention and tourism development schemes (Oden et al., 1993; Oden et al., 1994; Oden et al.,1996; Oden, 2000; U.S. Department of Commerce, 1997). Some were more successful than others with outcomes dependent on regional capacities, experience with previous episodes of structural change, and success at overcoming jurisdictional fragmentation.
Successful examples include a Long Island project to increase technology transfer to local firms and through start-ups from major regional research centers including Brookhaven National Labs and Cold Spring Harbor Laboratory, and the State University of New York at Stony Brook. Most dealt with medical equipment, biotechnology, commercial electronics or software applications. State and regional authorities also sponsored two highly successful business incubators concentrating on software and biotechnology start-ups where there were a few cases of successful start-ups by ex aerospace engineers or technologists (Oden et al., 1994; Project Long Island, 1997). These efforts eventually culminated in a true strategic planning effort launched in 1994 by a newly formed business organization. This group built upon many of the earlier defense adjustment projects, adding venture capital funds and new technology and university partnerships in a long term drive to diversify the region’s manufacturing and high technology service sectors (Project Long Island, 1997).
Another interesting effort at technology transfer and regional diversification occurred in St Louis. Prompted by defense downsizing concerns, a local conversion task force launched a regional critical technology initiative assay the defense and civilian technology base in the region to find ways to improve technology transfer between firms, local universities and government research centers. Recommendations were made to improve links between commercial firms, local universities and locally- sited federal research programs in order to support diverse and emerging high-tech sectors outside of defense. Related efforts to encourage McDonnell-Douglas (now Boeing) to survey its patent files for possible commercial applications or invest in a modest technology transfer project were not successful. But the critical technologies project was effective at increasing collaborative research between public institutions such as Washington University, large commercial firms such as Monsanto, and a number of smaller high technology firms in materials, biotechnology and environmental engineering service sectors (Meyer, 1998). This effort eventually led to the establishment of a more permanent institution, the St Louis Regional Technology Alliance whose objective is to continue to build collaboration and capture research funding form public and private sources to stimulate non-defense high technology sectors.
In each example, there is some evidence that these activities are beginning to contribute to regional recovery and diversification, although it is impossible to tie larger regional trends to these particular programs. The Long Island Initiative corresponded with a modest revival of the region’s high tech manufacturing and service base. Long Island experienced significant job growth in 1996-1997 in computer services, electronics, medical equipment and biotechnology sectors (Johnson, 1997; Project Long Island, 1997). The economic recovery in St Louis has been steady since the mid-1990s, with manufacturing stabilizing and growth in high tech service sectors occurring through the defense slump. In the St. Louis MSA, computer related service, R&D services, and management services adding over 10,000 jobs over the 1989-1997 period (Meyer, 1998).
V. Conclusion
Our assessment of the post-Cold War conversion process is generally critical in two major respects: the actual outcomes of the process were not what were hoped for at the onset of the 1990s; and there is strong evidence that an alternative set of polices could have stimulated more conversion and yielded considerable efficiency gains for both the defense and broader industrial base.
Returning to the four questions posed at the outset, it is not clear that the defense restructuring process has produced a research and industrial base capable of meeting our immediate and future defense requirements in a cost-effective manner. To meet current and future security needs we must now rely on a highly concentrated industry that is more segregated from fast moving commercial technology and that must be eventually be fed with costly new weapons projects that may be out of line with real security needs. The defense merger movement, furthermore, combined with weak and contradictory federal policies to limit the transfer of defense-bred assets and capacities to civilian markets. Federal funds to encourage diversification and spin-off were squandered as consolidating firms rolled up their fledgling projects to hone in on mature defense businesses and raise cash to pay off debt. Companies that were successfully diversifying got little federal support and most were forced to sell off their defense divisions due to the high stock premiums that were offered in the mid-1990s.
The intensity and rapidity of shutdowns, downsizing, and relocations at the large primes, and the corresponding abandonment of diversification experiments, led to high levels of regionally concentrated worker displacement. Aside from a few illuminating examples of successfully designed programs, the national employment and training system was not capable of dealing with post-Cold War downsizing. Laid-off defense workers experienced long periods of unemployment, their skills and know-how in many cases wasted. Finally, while the impacts of defense cuts were uneven across regions, a number of major defense complexes experienced 1930s style economic downturns, while sometime bold locally led attempts to re-orient regional industries, technologies and talent were severely constrained.
But isn't this glum assessment out of sync with the bright economic record of the 1990s? Didn't incremental and piecemeal policy-making allow (perhaps inadvertently) the quick write off of excess defense capacity and make way for new burgeoning high tech development ? Would a different, bolder federal program really have made any difference ?
The initial success of certain large firm diversification efforts and the wide-spread conversion of smaller firms left out of the merger wave suggest that different policies could have yielded more conversion, diversification and technology transfer -- a greater payoff from the massive Cold War investment. A policy stance that did not add government subsidies and encouragement to the forces driving merger and consolidation would have contributed to this outcome.
Aggressive and strategic federal policies, including investment in civilian technology and procurement, more powerful incentives for commercial diversification and dual use development, and greater efforts to retain and reorient the defense labor force would have contributed to a more integrated and dynamic industrial and technology base. If properly designed and implemented, a more robust conversion policy could have left us with a more diverse vibrant manufacturing base, which despite the hot house expansion of "new economy' sectors, continues to erode across a number of sectors. Ironically, more efficient and widespread conversion could have also led to a more supple, dynamic defense industry comprised of healthy, more diversified large firms and flexible small contractors.
More firm conversion may have reduced, to some extent, the level and degree of un- and under employment experienced by defense workers. But the most glaring shortcoming of workforce conversion consisted in the limited attention and investment allocated to helping workers transition to jobs in which they could recoup or nearly recoup their former earnings and continue to use their core skills. Together with spending to stimulate markets for civilian technologies, a large-scale program for long term retraining and education, similar to the GI Bill in the 1950s, could have had substantial payoffs, particularly given the skill shortages of the late 1990s. Better coordination in the job training and placement system would also have produced better results. Going forward, the Department of Labor should continue to take a strong leadership role in applying the lessons learned in the Defense Conversion Demonstration program to other workers at risk of mass layoff or already displaced.
The end of the Cold War, like its beginning, offered a window for an imaginative and far-reaching revision of national priorities. After an initial, short-lived period of innovation, the effort to forge a robust conversion policy ran into a climate of derision about federal government initiatives both domestic and foreign. Giving into this cynicism left the process of post-Cold War adjustment adrift and generated costs and inefficiencies that may not yet be fully amortized.
References:
Bertelli, Domenick. 1997. "Restructuring the Defense Industry from the Ground Up: Roles for Regional Consortia, Unions and Workers." Paper presented at the Second Klein Symposium on the Management of Technology, Smeal College of Business Administration, Penn State University, September 17, 1997.
Bertelli, Domenick. 1998. Evaluating Employment Trends and Skill Needs in Connecticut Aerospace: Results of a Survey and Discussion of Action Steps. Washington, DC: Work and Technology Institute.
Bischak, Greg. 1997. US Conversion after the Cold War, 1990-97: Lessons for Forging a New Conversion Policy. Washington, DC: Bonn International Center for Conversion and National Commission for Economic Conversion and Disarmament.
Congressional Budget Office. 1993. Reemploying Defense Workers: Current Experiences and Policy Alternatives. Washington DC: CBO.
Defense News. 1998. "Defense News Top 100," Springfield, VA: Gannet Corporation.
Delacruz, Ken. 1998. President, Groton Metal Trades Council. At Groton Metal Trades Council, Groton, CT. In-person interview, February 25, 1998.
Economic Roundtable. 1992. Los Angeles county Economic Adjustment Strategy for Defense Reductions. Report to the Community Development Commission of Los Angeles County.
Evans-Klock, Christine and James Raffel. 1994. National Defense Industry Layoffs, 1993: Analysis and Policy Recommendations. Washington, DC: National Commission for Economic Conversion and Disarmament.
Evans-Klock, Christine. 1994. National Defense Industry Layoffs: 1994 Mid-Year Report. Washington, DC: National Commission for Economic Conversion and Disarmament.
Evans-Klock, Christine. 1995. National Defense Industry Layoffs: 1994 and Mid-Year 1995. Washington, DC: National Commission for Economic Conversion and Disarmament.
Feldman, Jonathan. 1996. The Successful Conversion of Defense Serving Firms to Commercial Activity. Ph.D. Dissertation, Rutgers University.
Hedding, Wayland. 1998. Electric Boat Dislocated Worker Assistance Coordinator. At Groton Metal Trades Council, Groton, CT. In-person interview, February 25, 1998.
Holl, Doug. 1998. Director, Office of Work-based Learning, Employment and Training Administration, U.S. Department of Labor. At DOL, Washington, DC. Telephone Interview, July 9, 1998.
Huth, Gary and Stephanie Burris 1994. "Long Islands Job Market 1993-1994," New York State Department of Labor.
Johnson, Kirk. 1997. "A Revived Long Island Finds Life After Military Contracts," New York Times, July 7, p. A-1.
Kodrzycki, Yolanda K. 1995. "The Costs of Defense-Related Layoffs in New England." New England Economic Review. March/April 1995: 4-24.
Markusen, Ann and Sean Costigan. 1999. "A Defense Industry for the Twenty-First Century."1999. With Sean Costigan. In Ann Markusen and Sean Costigan, eds. Arming the Future: A Defense Industry for the Twenty-First Century. New York: Council on Foreign Relations Press: 409-424.
Markusen, Ann. 1997a. "How We Lost the Peace Dividend." The American Prospect, July/August.
Markusen, Ann. 1997b. "The Economics of Defense Industry Mergers and Divestiture." Economic Affairs, Vol. 17, No. 4: 28-32.
Markusen, Ann. 1998. "The Post Cold War Persistence of Defense Specialized Firms." In Gerald Susman, ed. The Defense Industry in the Post-Cold War Era: Corporate Strategies and Public Policy Perspectives, Oxford: Elsevier: 121-146.
Markusen, Ann. 1999. "The Rise of World Weapons." Foreign Policy, No. 114: 40-51.
Markusen, Ann. 2000. "Should We Welcome a Transatlantic Defense Industry?" In Judith Reppy, ed. The Place of the Defense Industry in National Systems of Innovation, forthcoming.
Merrill Lynch, Pierce, Fenner &Smith Inc. 2000. Defense Primer: The ABCs of Investing in the Defense Sector, March 14.Meyer, Linda. 1998. Development of Critical Technologies in Greater St. Louis, 1990-1998. January, St Louis: St Louis Defense Adjustment Program.
Oden, Michael, Catherine Hill, Elizabeth Mueller, Jonathan Feldman and Ann Markusen. 1993. "Changing the Future: Converting the St. Louis Economy," Working Paper 59, Center for Urban Policy Research, Rutgers University.
Oden, Michael, Elizabeth Mueller, Judy Goldberg, 1994. "Life After Defense: Conversion and Economic Adjustment on Long Island," Working paper 82, Center for Urban Policy Research, Rutgers University.
Oden, Michael, Ann Markusen, Dan Flaming, Jonathan Feldman, James Raffel and Catherine Hill. 1996. From Managing Growth to Reversing Decline: Aerospace and the Southern California Economy in the Post Cold War Era. Project on Regional and Industrial Economics, Rutgers University.
Oden, Michael. 1998."Defense Mega-mergers and Alternative Strategies" in Susman, Gerald and Sean O'Keefe (eds.), The Defense Industry in the Post-Cold War Era Amsterdam; Pergamon Press, pp.147-171
Oden, Michael. 1999a. "Cashing-in, Cashing-out and Converting: Restructuring of the Defense Industrial Base in the 1990s." In Ann Markusen and Sean Costigan, eds. Arming the Future: A Defense Industry for the 21st Century, New York: Council on Foreign Relations Press: 74-105.
Oden, Michael 1999b. " The Post Cold War Adjustment of Defense Regions: The Role of Regional Planning in Mitigating The Effects of Structural Change," Paper presented to the ACSP Conference, Chicago, October 23 1999.
Oden, Michael, 2000. "Federal Defense Industrial Policy, Firm Strategy, and Regional Conversion Initiatives in Four American Aerospace Regions," International Regional Science Review, 23, No. 1, pp. 25-47.
Powers, Laura and Ann Markusen. 1999. A Just Transition? Lessons from Defense Worker Adjustment in the 1990s. Washington, DC: Economic Policy Institute: April.
Project Long Island. 1997. A Periodic Progress Report, Autumn.
Schoeni, Robert F. et al. 1996. Life After Cutbacks: Tracking California’s Aerospace Workers. Santa Monica, CA: RAND.
Sheehan, Joanne. 1998a. Executive Director, Community Coalition for Economic Conversion. At CCEC, Uncasville, CT. Telephone interview, January 27, 1998.
Sheehan, Joanne. 1998b. Executive Director, Community Coalition for Economic Conversion. At Groton Metal Trades Council, Groton, CT. In-person interview, February 25, 1998.
Stowsky, Jay. 1999. "Policy and Politics of the Pentagon’s Dual-Use Strategy." In Ann Markusen and Sean Costigan, eds., Arming the Future: A Defense Industry for the 21st Century. New York: Foreign Affairs Press.
Teegarden, Suzanne. 1997. Executive Director, State of Massachusetts Center for Business Work and Learning. At CBWL, Boston, MA. In-person interview, October 31, 1997.
Thomson, Allison. 1998. "Defense-related employment and spending, 1996-2006." Monthly Labor Review. July 1998: 14-33.
Uchitelle, Louis. 1995. "Long March of the Arms Contractors," New York Times, April 19, p. D-1.
U.S. Department of Commerce. 1997. Defense Adjustment Program-Performance Evaluation, Washington DC: Department of Commerce Economic Development Administration, November
U.S. Department of Labor, Employment and Training Administration. 1994. Evaluation of the Defense Conversion Adjustment Demonstration: Interim Report on Implementation. Washington, DC: DOL.
U.S. Department of Labor. 1997. Responses to Defense Cutbacks: The Dislocation Aversion Approach. Washington, DC: DOL.
U.S. Department of Labor, Employment and Training Administration. 1997. Responses to Defense Cutbacks: Demonstration Evaluation Findings. Washington, DC: DOL.
U.S. General Accounting Office (GAO). 1994. "Future Years Defense Program, Optimistic Estimates Lead to Billions in Overprogramming," July, GAO/NSAID-94-210.
U.S. General Accounting Office. 1995a. Defense Sector: Trends in Employment and Spending. Washington, DC: U.S. GAO.
U.S. General Accounting Office (GAO). 1995b. "Bottom-Up Review: Analysis of Key DOD Assumptions,"January, GAO/NSAID-95-56.
U.S. Office of Technology Assessment. 1992. After the Cold War: Living with Lower Defense Spending, Washington, DC: U.S. Government printing Office, February.
Vernez, George, Michael Dardia, Kevin McCarthy, Jesse Malkin and Robert Nordyke., 1996. California's Shrinking Defense Contractors: Effects on Small Suppliers. Santa Monica: RAND Corporation
Appendix
Back
Figure 1. U.S. Defense Merger in the 1990s
|
Contract awards, 1993, $millions
|
Contract Awards, 1996, $millions
|
|
|
Source: All data are from the Department of Defense publication (P01), 100 Companies Receiving the Largest Dollar Volume of Prime Contract Awards
form the Fiscal Year of 1993 and 1996.
Back
|
Table 1. Military Expenditures, 1985, 1990, 1996
|
|||
|
Selected countries (Index, 1996 = 100)
|
|||
|
Region
|
1985
|
1990
|
1996
|
|
United Kingdom
|
141
|
135
|
100
|
|
China
|
62
|
74
|
100
|
|
France
|
106
|
111
|
100
|
|
Germany
|
159
|
129
|
100
|
|
Russian/Soviet Union
|
783
|
584
|
100
|
|
United States
|
138
|
116
|
100
|
|
|
|||
|
Developing Countries
|
101
|
117
|
100
|
|
Industrialized Countries
|
161
|
138
|
100
|
|
World Total
|
146
|
133
|
100
|
|
Source: BICC Conversion Survey 1998, Appendix A1, page 259-262, etc.
|
|||
Back
Table 2: Defense reinvestment and conversion-related programs (less rescissions) and restructuring reimbursements to firms
(millions of current dollars)
|
Fiscal Year |
|
|
|
|
|
|
||
|
|
||||||||
|
Department of Defense (DoD) |
|
|
|
|
|
|
||
|
Technology Reinvestment Project |
472 |
397 |
220 |
195 |
85 |
1,369 |
||
|
Other Dual-Use Initiatives |
381 |
1,227 |
1,536 |
1,237 |
1,030 |
5,410 |
||
|
Maritech (shipbuilding) |
0 |
80 |
40 |
50 |
50 |
220 |
||
|
Military Personnel Assistance |
756 |
596 |
985 |
1,093 |
0 |
3,430 |
||
|
Office of Economic Adjustment |
80 |
39 |
39 |
61 |
53 |
272 |
||
|
|
||||||||
|
Department of Energy (DOE) |
|
|
|
|
|
|
||
|
Office of Worker and Community Assistance |
138 |
116 |
100 |
100 |
100 |
100 |
||
|
|
||||||||
|
Department of Commerce (DOC) |
|
|
|
|
|
|
||
|
Economic Development Administration |
138 |
116 |
100 |
100 |
100 |
100 |
||
|
National Institute for Standards and Technology (NIST) a |
138 |
116 |
100 |
100 |
100 |
100 |
||
|
|
||||||||
|
Department of Labor (DOL) |
|
|
|
|
|
|
||
|
Displaced Defense Worker Training b |
138 |
116 |
100 |
100 |
100 |
100 |
||
|
|
||||||||
|
Multi-Agency Programs |
|
|
|
|
|
|
||
|
Conversion-related High Technology Initiatives c |
0 |
1,072 |
827 |
744 |
730 |
3,373 |
||
|
|
||||||||
|
Restructuring Costs reimbursed |
|
|
|
|
|
179 d |
||
|
|
||||||||
|
Grand Total |
2,069 |
3,843 |
4,260 |
3,874 |
2,440 |
16,672 |
||
Source of all figures except data on restructuring cost reimbursements: Bischak (1997). Source of data on restructuring cost reimbursements: U.S. General Accounting Office (1997b).
Note a: Numbers for National Institute of Standards & Technology include Advanced Technology Program, Manufacturing Extension Partnership and in-house R&D. Back.
Note b: The National Economic Council in the White House estimated that about $178 million annually in general dislocated worker assistance funds (Job Training Partnership Act Title III) would go to defense workers, but subsequent experience failed to validate these estimates; about $20 million per year seems more reasonable based on actual grants made from the Title III National Reserve Account for 1994-96. Back.
Note c: Includes all new money over 1993 levels allocated for DOE CRADAs (Cooperative Research and Development Agreements), NASA Aeronautics Initiative, Department of Transportation Intelligent Vehicle Highway System, Multi-Agency High Performance Computing, Department of Commerce Information Highways and Environmental Protection Agency Environmental Technology. Back.
Note d: The U.S. General Accounting Office reports that DoD had reimbursed firms for $179.2 million in restructuring costs through September 1996. Back.
Back
|
|
||||
|
|
||||
|
|
|
|
|
Defense as % of Total Sales |
|
|
1,912.00 |
1,912.00 |
0.00 |
100%
|
|
|
1,079.00 |
921.00 |
158.00 |
85%
|
|
|
8,700.00 |
7,205.00 |
1,495.00 |
83%
|
|
|
1,875.00 |
1,406.00 |
469.00 |
75%
|
|
|
5,662.00 |
3,985.00 |
1,677.00 |
70%
|
|
|
25,488.00 |
17,745.00 |
7,743.00 |
70%
|
|
|
10,081.00 |
6,870.00 |
3,211.00 |
68%
|
|
|
20,323.00 |
13,120.00 |
7,203.00 |
65%
|
|
|
51,417.00 |
18,290.00 |
33,127.00 |
36%
|
Source: Global Securities Research and Economic Group, Merrill Lynch, Pierce,
Fenner & Smith Inc, Defense Primer: The ABCs of Investing in the Defense Sector, March 14, 2000: 4.
Back
|
Table 4. Arms Exports, Britain, France, U.S., Millions of 1990 $, 1989-1996 |
|||||||||||||
|
Nation |
Arms Exports |
Share of World Market |
Exports/Procurement |
||||||||||
|
|
|
|
|
||||||||||
|
|
1989 |
1996 |
% Change |
1989 |
1996 |
% Change |
1989 |
1996 |
% Change |
||||
|
Britain |
2541 |
1773 |
-30.2 |
6.8 |
7.7 |
14.2 |
28.32 |
25.49 |
-10.0 |
||||
|
France |
2788 |
2101 |
-24.6 |
7.4 |
9.1 |
23.4 |
15.26 |
15.80 |
3.5 |
||||
|
United States |
11366 |
10228 |
-10.0 |
30.2 |
44.5 |
47.3 |
14.02 |
17.44 |
24.4 |
||||
|
Sources: SIPRI Yearbook 1997 Armaments, Disarmament and International Security. Stockholm: SIPRI. |
|||||||||||||
|
and SIPRI Yearbook 1994 Armaments, Disarmament and International Security. Stockholm: SIPRI. |
|||||||||||||
|
1996 Arms Exports and World Share from 1997 Yearbook. Table 9.1. p. 268. |
|||||||||||||
|
1989 & 1996 Exports/Procurements from 1997 Yearbook. Table 13.8. p. 484. |
|||||||||||||
|
1989 & 1996 Exports/Procurements from 1997 Yearbook. Table 9.1. p. 268 and Table 6A.1 & Table 6A.2. p. 186-88. |
|||||||||||||
Back
Table 5: Performance Measures of 41 Small and Medium-Sized Defense Related Companies
| Change in Sales Revenue 1989-1994 (real 92$) | -26.9% |
| Change In Employment 1989-1994 | -36.8% |
| Defense Dependency - Sales Weighted Average 1989 | 69.3% |
| Defense Dependency - Sales Weighted Average 1994 | 49.6% |
| Percentage Reporting Sales From New Commercial Product N = 41 | 72% |
Source: Company Interviews Summer of 1994 and updated Fall of 1995.
Back
Table 6: Performance Measures of 34 Small and Medium-Sized Defense Related Companies
| Change in Sales Revenue 1984-1997 | 25.2% |
| Change In Employment 1989-1994 | -2.5% |
| Defense Dependency - Sales Weighted Average 1994 | 47.1% |
| Defense Dependency - Sales Weighted Average 1994 | 34.8% |
| Percentage Reporting Sales From New Commercial Product | 68% |
Source: Company Surveys Summer of 1998.
Back
Table 7: Post-Cold War Changes in Defense Industrial Policy and the Defense Labor Market Environment
| Federal Defense Industry Policy | Defense Labor Market Environment |
|
- Pentagon-encouraged consolidations and mergers have reduced the number of major defense contractors from 15 to 4. |
- Goods-producing industries have shed labor as a result of consolidation and the institution of new production technologies and lean business practices; defense-related services industries have experienced a sharp relative increase. |
| - Acquisition reform efforts have belatedly introduced the discipline of "lean production" to the defense industry. | - Skill requirements in defense manufacturing are changing as companies introduce computer-driven production technology and adopt new systems of job classification and work organization. |
| - Federal promotion and financing of arms exports has increased the U.S. share of the world arms market - a by-product of this is the negotiation of offset agreements that transfer weapons production to other parts of the world. | - Firms’ geographic preferences have changed, shifting a greater %age of defense-related employment to the southern and western parts of the U.S. and increasingly (because of offset agreements) to other countries. |
| - Federally sponsored research and development continues to be chiefly focused on military objectives, limiting the potential to jump-start job creation in cutting edge civilian sectors. | - Union representation in the defense industry has declined, and reliance on labor market intermediaries such as temporary help agencies has grown |
Back
Table 8: Characteristics of Displaced Defense Workers
|
% Production workers |
% |
Avg. or modal Job tenure at time of layoff (yrs.) |
Avg. or modal wage/salary at time of layoff |
% White |
% Male |
Avg. or Modal educ. (yrs.) |
Avg. or modal age |
|
|
CBO 1993 – Workers displaced from major defense contractors n= 132,500 |
55%
(23% skilled, 22% semi- skilled) |
30%
|
n.a.
|
$12.87 / hr
$37,037 / yr. |
n.a.
|
n.a.
|
13.5
|
40
|
|
Mueller and Gray 1994 – laid off workers from Unisys Corporation, Flemington, NJ n=132 |
52%
|
19%
|
12
|
$10 - 15 / hr
|
72%
|
46%
|
HS Grad
|
41-45
|
|
Mueller and Gray 1994 – laid off workers from McDonnell Douglas Corporation, St. Louis, MO |
37%
|
30%
|
6
|
$10 - 20 / hr
|
89%
|
75%
|
Some college
|
25-44
|
|
Kodrzycki 1995 – displaced defense workers from ME, MA and VT * N=5001 |
41%
|
41%
|
5 - 9
**
|
$12 - 15 / hr
|
92%
|
66%
|
HS Grad
|
35-44
|
Note*: Kodrzycki's sample included workers laid off from military facilities as well as private defense contractors. Back.
Note**: 80%of the workers in Kodrzycki¹s sample had been with their previous employer for at least five years, and 45 % for at least 10 years. Back.
Back
Table 9: Defense Worker Re-employment Outcomes
|
% re-employed |
% recalled |
% in retraining |
Avg. drop in wages |
% re-employed in production occupations |
|
|
Mueller and Gray 1994 – laid off workers from Unisys Corporation, Flemington, NJ n=132 |
26.7%
(after one year) |
0
|
50%
(after one year) |
46%
|
12.9%
|
|
Mueller and Gray 1994 – laid off workers from McDonnell Douglas Corporation, St. Louis, MO |
45%
(after one year) |
14%
|
n.a.
|
44%
|
n.a.
|
|
|
|
|
|
|
|
|
Kodrzycki 1995 – displaced defense workers from ME, MA and VT n=5001 |
49%
(after 18 months) |
n.a.
|
20-40%
(modal) |
42.5%
***
|
|
|
|
|
|
|
|
|
|
IAM&AW 1996 – union aerospace workers * from Lockheed Martin, Marietta, GA and Boeing, Seattle, WA n=715 |
64.9%
|
23%
|
n.a.
|
20%
|
41.9%
|
Note* an average 53% of aerospace industry revenues came from military sales between 1991-95 (Aerospace Industries Association 1998) Back
Note** unemployed or in training. Back
Note*** Massachusetts workers only Back
Back
Table 10: Employment status and earnings replacement rates of long-tenured displaced workers:
*
1992, 1994, 1996, and 1998 (full-time wage and salary workers)
|
Survey date, and reference period for job loss ** |
Percent re-employed after 2-3 years (full time, part time, self- employed or unpaid family workers) |
Percent unemployed |
Percent not in labor force |
Percent change in median weekly earnings *** |
Percent of workers with median earnings 20% or more below those in last job *** |
|
|
1992, 1989-90 |
||||||
| All displaced workers (n = 2,011) |
73.6
|
13.7
|
12.5
|
-6.6
|
31.1
|
|
| Displaced manufacturing workers (n=724) |
71.4
|
14.6
|
13.9
|
-14.6
|
32
|
|
|
1994, 1991-92 |
||||||
| ll displaced workers (n=2,563) |
76
|
11.5
|
12.5
|
-14.5
|
34.4
|
|
| Displaced manufacturing workers (n=927) |
71.7
|
12
|
16
|
-16.6
|
32.6
|
|
|
1996, 1993-94 |
||||||
| All displaced workers (n=2,167) |
79.5
|
7.2
|
13.3
|
-14.5
|
33.7
|
|
| Displaced manufacturing workers (n=729) |
75.6
|
8.5
|
15.9
|
-19.8
|
33.8
|
|
|
1998, 1995-96 |
||||||
| All displaced workers (n=2,011) |
82.9
|
5.1
|
11.9
|
-4.1
|
26.1
|
|
| Displaced manufacturing workers (n=674) |
77.6
|
6.7
|
15.7
|
-9.2
|
34.9
|
Source: Bureau of Labor Statistics Displaced Worker Survey, a biennial supplement to the Current Population Survey.
Note a: Individuals who had held their jobs for three years or more prior to being displaced. Back.
Note b: Data excludes displacements that occurred in the year closest to the survey date. Individuals in this sample who were surveyed in 1992, for example, had lost their jobs during calendar years 1989 and 1990. Therefore, the period of time that had elapsed since each individual had been displaced ranged from two to three years. Back.
Note c: **Not all full-time wage and salary workers surveyed reported earnings. Back.
Back
Table 11: Changes in DoD Prime Contract Awards by Select States and Region (in the billions of real 1994 dollars)
|
Change in Average from 1986-87 to 1995-96
|
||||||
|
Average Contracts 1986-87
|
Average Contracts 1995-96
|
Total Loss in Real Contracts
|
Change Due to Decline National Contracts
|
Changes Due to Regional Shift
|
||
| Connecticut | 6.6 | 2.6 | -4.0 | -2.5 | -1.5 | |
| Massachusetts | 11.0 | 4.6 | -6.4 | -4.2 | -2.3 | |
| NEW ENGLAND | 20.0 | 9.0 | -10.8 | -7.5 | -3.3 | |
| New Jersey | 4.1 | 2.7 | -1.4 | -1.5 | 0.1 | |
| New York | 12.3 | 3.4 | -9.0 | -4.7 | -4.3 | |
| Pennsylvania | 5.1 | 3.2 | -1.8 | -1.9 | 0.1 | |
| MIDDLE ATLANTIC | 21.5 | 9.3 | -12.2 | -8.1 | -4.1 | |
| Illinois | 2.2 | 1.2 | -1.1 | -0.8 | -0.2 | |
| Michigan | 2.7 | 1.2 | -1.4 | -1.0 | -0.4 | |
| Ohio | 6.1 | 2.6 | -3.6 | -2.3 | -1.3 | |
| EAST NORTH CEN TRAL | 15.2 | 6.8 | -8.4 | -5.7 | -2.7 | |
| Minnesota | 3.0 | 1.0 | -2.0 | -1.1 | -0.9 | |
| Missouri | 7.3 | 6.2 | -1.0 | -2.7 | 1.7 | |
| WEST NORTH CENTRAL | 13.7 | 8.9 | -4.8 | -5.2 | 0.4 | |
| District of Columbia | 1.4 | 1.2 | -0.2 | -0.5 | 0.4 | |
| Florida | 7.2 | 5.8 | -1.4 | -2.7 | 1.3 | |
| Georgia | 4.6 | 3.6 | -1.0 | -1.7 | 0.8 | |
| Maryland | 5.9 | 4.2 | -1.7 | -2.2 | 0.5 | |
| Virginia | 8.3 | 10.5 | ||||
| SOUTH ATLANTIC | 29.9 | 27.9 | -1.9 | -11.3 | 9.4 | |
| Alabama | 2.0 | 1.8 | -0.2 | -0.8 | 0.5 | |
| Mississippi | 1.9 | 1.7 | -0.2 | -0.7 | 0.5 | |
| EAST SOUTH CENTRAL | 5.9 | 5.2 | -0.7 | -2.2 | 1.6 | |
| Louisiana | 1.9 | 1.0 | -0.8 | -0.7 | -0.1 | |
| Texas | 12.3 | 8.6 | -3.7 | -4.7 | 1.0 | |
| WEST SOUTH CENTRAL | 16.1 | 10.6 | -5.5 | -6.1 | 0.6 | |
| Arizona | 3.7 | 2.6 | -1.1 | -1.4 | 0.3 | |
| Colorado | 3.0 | 2.0 | -0.8 | -1.1 | 0.3 | |
| MOUNTAIN | 9.0 | 6.3 | -2.7 | -3.4 | 0.7 | |
| California | 33.0 | 17.6 | -15.4 | -12.5 | -3.0 | |
| Washington | 3.5 | 2.3 | -1.3 | -1.3 | 0.1 | |
| PACIFIC | 38.2 | 21.4 | -16.9 | -14.4 | -2.4 | |
| US TOTAL | 169.3 | 105.4 | -63.9 | -63.9 | 0.0 | |
Sources: Prime contract data from DoD Prime Contract Awards by Region and State (P06) Fiscal Years 1985, 1986, 1987and Fiscal Years 1994, 1995, 1996. Price deflators are from the National Defense BudgetEstimates for FY 1998, Table 5-8 Procurement Category.
|
Table 12: Employment in Defense-Related Manufacturing in Four Aerospace Regions, 1988-1996 |
||||||
|
|
||||||
|
|
Total Employment 1,988.00 |
Total Employment 1,996.00 |
Percent Change |
National Growth
|
Industry Mix
|
Regional Shift
|
|
|
|
|
||||
|
|
94,680 |
69,308 |
(26.90) |
13,003
|
(32,875)
|
(5,676)
|
|
|
|
|
|
|||
|
|
237,642 |
115,310 |
(49.40) |
32,585
|
(32,875)
|
(31,198)
|
|
|
|
|
|
|||
|
|
56,186 |
19,965 |
(64.50) |
7,699
|
(21,356)
|
(22,560)
|
|
|
|
|
|
|||
|
|
45,164 |
35,388 |
(21.60) |
6,186
|
(19,133)
|
3,171
|
|
|
|
|
||||
| Seattle-Bellevue-Everett |
92,333
|
96,317
|
4.30
|
12,647
|
(12,779)
|
4,116
|
| Total Five Regions |
526,185
|
336,288
|
(36.40)
|
72,120
|
(209,858)
|
(52,147)
|
| Total U.S.Defense Manufacturing |
2,212,485
|
1,657,151
|
(25.10)
|
|||
Source: Based on County Business Patterns data as compiled and estimated by Andrew Isserman, University of West
Virginia, Regional Research Institute.
Endnotes
Note 1: A survey of 600 defense companies which excluded the top 50 defense contractors was completed by Jonathan Feldman in 1995 (Feldman, 1996). The firms surveyed ranged from specialized makers of electronic components totally dependant on defense sales, to construction contractors with less than 5 percent of their sales to the DOD. The survey obtained information for the 1989-1993 period. Back.
Note 2: In the course of the follow-up survey we discovered from other respondents or sources that two of the non-responding firms had gone out of business. Four of the non-respondents replied to an initial contact, but refused to participate. One company apparently received the survey but all efforts to follow up were unsuccessful. Back.
Note 3: During the 1980s build-up, an estimated 815,000 manufacturing jobs were created; 923,000 defense-related manufacturing jobs were lost during the drawdown (Thomson 1998). Sales and employment statistics for a sample of nine major defense contractors show that employment declines have outstripped declines in sales. These nine contractors as a group underwent sales declines of 5.7% from 1989 to 1997 but laid off over 41% of their employees, Northrop Grumman’s sales declined by 15% in real terms between 1989 and 1997, but its workforce dropped by nearly double that, or 26%. Lockheed Martin saw sales increase by 35% but increased its workforce by just 8% during this period (see table B). Back.
Note 4: At his post-election Economic Summit, for instance, President Clinton proposed an aircraft industry policy to create civilian job opportunities for laid-off defense aerospace workers. Back.
Note 5: Defense workers might be divided into three groups in terms of their skills, experience and re-employment prospects (Economic Roundtable, 1992). One group, constituting about one-third of laid-off workers, was in "generic" occupations from which transition into new jobs could be expected to be relatively easy. A second group, again comprising roughly one-third of the work force, was concentrated in lower skilled, less specialized production and clerical jobs, workers whose ability to sustain a decent income was linked to the relatively generous pay offered by large defense companies rather than to specialized skills. The third group was comprised of specialized workers -- defense engineers, higher level managers, and precision production workers with specific know-how that is not in high demand outside the defense industry. For many in this group, the choice was between accepting major wage cuts and lower skilled work or undertaking long-term retraining for completely different occupations. The samples of workers in Tables D & E are skewed toward the second two groups. Back.
Note 6: With respect to displaced military personnel and DoD civilian personnel, the government had a better record. As Table 2 shows, the government dedicated many more resources to involuntarily discharged soldiers and civilian Department of Defense employees than it did to defense workers in the private sector. Comprehensive planning around military base closures, with federal funds for germinating economic development projects, has resulted in some job creation where transitions were well managed locally (Hill 1997). Displaced service personnel have also received intensive, long-term assistance through initiatives like the "troops to teachers" project. Unfortunately, no statistics were available with which to compare DoD civilian and military displaced worker outcomes with those of private sector displaced workers. Back.
Note 7: Kodrzycki, 1995, p. 14. EDWAA participants typically entered training courses that lasted 9-12 weeks. Back.
Note 8: JA 1997 white paper by the American Electronics Association identified severe unmet demand for skilled workers in high technology occupations, particularly in programming and systems integration areas (AEA, 1997. Back.
Email this citation