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Introduction

By most indications, the Maine economy is currently doing well -- especially compared with the 1991 recession. The unemployment rate has declined to approximately 3.5% from well over 7.0%, employment has increased to about 571,000 workers from 508,000, and average hourly earnings have climbed to $13 from just $11. Furthermore, the average weekly hours of work have risen from 39 to 41, and nearly 220 new businesses are incorporated each month as opposed to only 190.

One indicator of the Maine economy that has been overlooked recently is labor productivity. Labor productivity is important because it plays a vital role in Maine's ability to compete in national and global markets. Generally, an increase in labor productivity allows firms to lower costs and raise quality. To be competitive in national and global markets, Maine's labor productivity must at least keep pace with that of its competitors. Unfortunately, this has not occurred.

This study begins by examining the historical trends in the underlying components of labor productivity in Maine, namely employment and output. This is followed by the calculation of Maine's labor productivity at the state level (aggregate) from 1977 to 1996 (the latest available data). These numbers are displayed historically and compared with the nation and with other New England states. Finally, labor productivity is calculated for Maine's industries and used to identify those industries that have gained or lost the most over the past twenty years.
 

Historical Trends in Employment and Output

Since 1977, the Maine economy has experienced two growth spurts and one recession. Currently, the Maine economy is experiencing growth, although at a pace that is lagging behind the rest of the nation. We now examine how employment and output -- the two components of labor productivity -- have performed over the business cycle.
 

Employment

Fig. 1 plots total employment in Maine, the nation, and New England over time.⁽²⁾ An employment index is used as a convenience for plotting multiple data series of various magnitudes on one diagram.⁽³⁾ As the figure indicates, prior to 1985 the index for employment in Maine closely matched the index for the nation. This indicates that employment in Maine grew at approximately the national growth rate. At the same time, however, employment in the rest of New England out-paced the growth in national employment. Most of this growth was in the Boston area and was labeled the "Massachusetts Miracle." During the late 1980s, the significant economic growth in the Boston area reached out to neighboring areas and caused Maine's employment growth to surge ahead of the national rate. The resulting economic swell in Maine was referred to as the "bubble economy." The "bubble economy" was not sustainable and burst during the 1990-1991 recession. This recession was severe enough that it took nearly four years for employment in Maine to reach its pre-recession peak level. Currently, employment in New England and in Maine is growing, but below the national growth rate.

Gross State Product

Fig. 2 plots real gross state product for Maine, the nation, and New England over time. Again, an index is used for convenience. Real GSP is the value of goods and services that a state produces after accounting for inflation. In other words, growth in real GSP signifies a higher level of production. Similar to employment, Maine's output level prior to 1985 grew at approximately the national growth rate. The significant growth in New England's GSP during this time illustrates the "Massachusetts Miracle." Maine's "bubble economy" during the late 1980s significantly increased Maine's GSP. Unfortunately, Maine's growth in GSP was not sustainable during the 1990-1991 recession. Currently, GSP in Maine is growing slower than the growth rate nationally and in the rest of New England.

Labor Productivity

Labor productivity is simply a measure of the output per worker over a given time period. At the state level, labor productivity is calculated by dividing annual real gross state product (GSP) by the annual average number of workers. Gross state product is a measure of the total output (goods and services) that a state produces. This is akin to gross domestic product (GDP) for the nation.⁽⁴⁾

Fig. 3 plots labor productivity for Maine, the nation, and New England over time. Between 1977 and 1996, national productivity has continually increased, rising from 40 thousand to almost 46 thousand. This indicates that output grew faster than employment, which reflects new "value-added" jobs. In New England, productivity rose significantly from about 37 thousand to well over 48 thousand. In Maine, productivity also grew, rising from 32 thousand to almost 36 thousand.

Since Maine's productivity levels are well below those of New England and the nation, it is clear that Maine is a small boat in the economic harbor. This is not necessarily bad as long as Maine's productivity gains keep pace with the gains in New England and the nation. In other words, Maine's boat must rise with the incoming tide of productivity at the same pace as the other boats in the harbor.

One way to assess if productivity in Maine has kept pace with the nation and New England is to measure productivity as a percentage of national productivity. A constant productivity ratio would indicate that productivity in Maine has kept pace with national productivity gains. Fig. 4 plots the productivity ratios for Maine and New England over time. As the figure shows, the productivity ratio for New England rose significantly from about 93% to well over 107%. In other words, New England switched from following the nation to leading it in terms of productivity.

The picture is not so rosy for Maine. Maine scored just over 80% in 1977 and remained relatively stable until the "bubble economy" of the late 1980s, when it slightly rose to about 83%. Peaking in 1989, it has been on a downward slide ever since. Over the long term, Maine has roughly kept pace with national productivity gains. Over the past seven years, however, Maine has not kept pace with national productivity gains, and in fact it has significantly fallen behind the rest of New England.

Examining the other New England states individually provides additional insight into the situation. Fig. 5 plots the productivity ratios for each New England state. This figure displays the strength of the Connecticut economy that has consistently led the nation and New England in terms of productivity. This graph also demonstrates the changeover of the Massachusetts economy from lagging the United States to leading it in terms of productivity. Finally, the figure shows that every New England state except Maine and Vermont significantly increased their productivity ratios between 1977 and 1996. Over the past seven years, Maine, Vermont, and Rhode Island have lost ground in terms of their productivity ratios.

Clearly, over the past twenty years the incoming tide of productivity has not raised all boats equally in New England. In fact, Maine's boat seems to be sitting low in the water. Let us now investigate how the incoming tide of productivity has affected Maine industries.
 

Labor Productivity in Maine's Industries

Labor productivity and productivity ratios were calculated for most industrial categories in Maine for 1977 and 1996 and are displayed in the appendix.⁽⁵⁾ Productivity is the dollar (in thousand) amount that each worker produces on average. Furthermore, to show true comparative advantages (or disadvantages) with national counterparts, productivity ratios were calculated on industry-to-industry bases. Table 1 presents a measure of productivity and productivity ratios for major industrial groups. Three industrial groups exhibited significant gains in their productivity ratios between 1977 and 1996: agricultural services, mining, and the manufacturing of nondurable goods. Not only did these industries improve their productivity, but also their gains outpaced their national counterparts. Collectively, these three industrial groups contribute approximately eleven percent of Maine's GSP. All other industrial groups experienced a decline in their productivity ratios.
 

Table 1:
Maine Productivity and National Percentages
by Industrial Category
	1977		1996
	Productivity	National	Productivity	National
	($1,000 / worker)	%	($1,000 / worker)	%
Ag. services, forestry, fishing & other	28.19	37%	29.61	50%
Mining	10.99	13%	43.21	35%
Construction	30.09	72%	23.98	73%
Manufacturing	28.85	73%	49.87	72%
Durable goods	27.59	75%	44.40	63%
Nondurable goods	29.84	68%	55.50	82%
Transportation and public utilities	61.58	92%	68.33	82%
Wholesale trade	32.31	83%	57.35	81%
Retail trade	20.55	93%	22.20	89%
Finance, insurance, and real estate	99.45	107%	108.64	98%
Services	26.15	80%	21.55	75%

Tables 2 and 3 display detailed industrial groupings that experienced significant changes (gain or loss) in their productivity as compared to their national counterparts. Table 2 displays those industries that gained at least ten points in their productivity ratios between 1977 and 1996. Notice that five of these industries in 1996 have productivity ratios over 100 -- indicating that they are industry leaders. The industries presented in Table 2 collectively contribute about 15% of Maine's GSP. Of these, paper and allied products contribute 5% of GSP and transportation equipment and insurance carriers contribute another 5% of GSP.

Table 3 displays those industries that lost at least ten points in their productivity ratios between 1977 and 1996. Although some of these industries have increased productivity, their gains have lagged behind their national counterparts. Collectively, these industries represent about 18% of Maine's GSP.
 

Table 2:
Maine Industries That Gained at Least Ten Percentage Points
					Gain in
	1977		1996		Percentage
	Productivity	National	Productivity	National	Points
	($1,000 / worker)	%	($1,000 / worker)	%	(1977-1996)
Furniture and fixtures	22.45	84%	90.74	260%	176
Nonmetallic minerals, except fuels	18.99	38%	92.11	105%	66
Rubber and misc. plastics products	13.82	59%	52.02	100%	41
Paper and allied products	55.19	102%	95.06	138%	36
Other transportation equipment	38.78	71%	51.10	95%	24
Insurance carriers	61.60	96%	85.95	117%	22
Motor vehicles and equipment	37.46	45%	46.07	59%	14
Ag. services, forestry, fishing & other	28.19	37%	29.61	50%	14
Fabricated metal products	30.11	82%	59.98	95%	13
Food and kindred products	21.92	57%	44.26	67%	11

 
 

Table 3:
Maine Industries That Lost at Least Ten Percentage Points
					Decrease in
	1977		1996		Percentage
	Productivity	National	Productivity	National	Points
	($1,000 / worker)	%	($1,000 / worker)	%	(1977-1996)
Hotels and other lodging places	25.53	71%	17.91	61%	-10
Transportation by air	36.48	87%	37.58	72%	-15
Industrial machinery and equipment	18.91	88%	61.31	71%	-17
Petroleum and coal products	48.91	43%	62.69	26%	-17
Communications	64.21	96%	98.59	79%	-17
Real estate	196.46	126%	209.32	104%	-23
Railroad transportation	23.89	89%	87.44	63%	-26
Leather and leather products	19.83	90%	29.41	63%	-27
Miscellaneous manufacturing industries	21.56	68%	18.54	38%	-30
Primary metal industries	35.80	73%	44.44	34%	-39
Apparel and other textile products	19.41	124%	19.55	67%	-57

Clearly Maine has its shining stars of productive leaders. But Maine also has industries that simply are not maintaining their productive capabilities. Unfortunately, the shining stars do not have enough buoyancy to offset the rest and keep Maine's boat from sitting low in the water with the incoming tide.
 

Appendix:
Maine Productivity and National Percentages
	1977		1996
	Productivity	National	Productivity	National
	($1,000 / worker)	%	($1,000 / worker)	%
Ag. services, forestry, fishing & other	28.19	37%	29.61	50%
Mining	10.99	13%	43.21	35%
Nonmetallic minerals, except fuels	18.99	38%	92.11	105%
Construction	30.09	72%	23.98	73%
Manufacturing	28.85	73%	49.87	72%
Durable goods	27.59	75%	44.40	63%
Lumber and wood products	27.65	79%	28.17	77%
Furniture and fixtures	22.45	84%	90.74	260%
Stone, clay, and glass products	19.88	55%	25.71	51%
Primary metal industries	35.80	73%	44.44	34%
Fabricated metal products	30.11	82%	59.98	95%
Industrial machinery and equipment	18.91	88%	61.31	71%
Motor vehicles and equipment	37.46	45%	46.07	59%
Other transportation equipment	38.78	71%	51.10	95%
Miscellaneous manufacturing industries	21.56	68%	18.54	38%
Nondurable goods	29.84	68%	55.50	82%
Food and kindred products	21.92	57%	44.26	67%
Textile mill products	18.54	95%	37.93	90%
Apparel and other textile products	19.41	124%	19.55	67%
Paper and allied products	55.19	102%	95.06	138%
Printing and publishing	35.11	63%	27.85	64%
Chemicals and allied products	50.08	67%	89.94	66%
Petroleum and coal products	48.91	43%	62.69	26%
Rubber and misc. plastics products	13.82	59%	52.02	100%
Leather and leather products	19.83	90%	29.41	63%
Transportation and public utilities	61.58	92%	68.33	82%
Railroad transportation	23.89	89%	87.44	63%
Trucking and warehousing	47.14	90%	31.36	88%
Local and interurban passenger transit	21.48	74%	16.61	73%
Transportation by air	36.48	87%	37.58	72%
Communications	64.21	96%	98.59	79%
Electric, gas, and sanitary services	140.43	83%	181.95	81%
Wholesale trade	32.31	83%	57.35	81%
Retail trade	20.55	93%	22.20	89%
Finance, insurance, and real estate	99.45	107%	108.64	98%
Depository and nondepository institutions	74.89	79%	55.74	63%
Security and commodity brokers	34.48	58%	84.89	63%
Insurance carriers	61.60	96%	85.95	117%
Real estate	196.46	126%	209.32	104%
Services	26.15	80%	21.55	75%
Hotels and other lodging places	25.53	71%	17.91	61%
Personal services	17.76	79%	11.20	74%
Private households	5.09	94%	7.23	89%
Auto repair, services, and parking	39.17	89%	28.72	88%
Miscellaneous repair services	21.45	76%	18.72	83%
Amusement and recreation services	11.69	55%	9.76	46%
Motion pictures	14.40	35%	16.23	41%
Health services	40.68	81%	30.47	87%
Legal services	72.86	76%	47.59	81%
Educational services	22.54	95%	16.87	90%
Social services	13.54	86%	16.56	93%
Membership organizations	13.62	74%	14.78	77%

Conclusion

While the Maine economy currently appears to be doing well, the underlying fundamentals of the economy are in question. Yes, productivity in Maine has improved over the past twenty years, but that improvement has not kept pace with the other New England states. In fact, recent gains in Maine's productivity have not kept pace with the nation. If this trend persists, Maine firms may find that they are not competitive in future national and global markets. Additional research is needed on this issue to help identify the causes for this situation. In the meantime, policy leaders in Maine must seek ways to create more "value-added" jobs. This may include increasing appropriations on R&D, assisting targeted industries, and improving the overall business climate to retain and attract more technology-based businesses.
 

Notes

1. The author can be reached at (207)581-1863, and by e-mail at Breece@maine.edu.

2. Data used for this study was obtained from the U.S. Department of Commerce, Bureau of Economic Analysis, State Personal Income (1929-1997) CD-ROM.

3. An index reveals relative growth, and its base year is arbitrarily set (in this case 1977).

4. Gross state product at the national level is simply the sum of the states' GSP and does not equal GDP since international linkages are excluded.

5. Missing or omitted data prevented the calculation of labor productivity for all industrial categories.

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