On November 30, President-elect Trump announced that a deal had been reached with Carrier to retain about 1,000 jobs in its Indiana plant. The news was greeted with much appreciation by the workers and their families. However, as Paul Harvey said in his radio broadcasts for more than 60 years ... here’s the rest of the story.
Impact of factory closings
One scholar wrote about the impact of the recession on small businesses. She noted that when the Maytag factory in Newton, Iowa, shut down, 1,800 people lost their jobs, the unemployment rate climbed to 8.8%, and many people lost their homes and moved away. Small businesses in Newton depended on these people to shop in their stores, buy their products, and use their services.
Here are some of the consequences that resulted for small businesses there:
- Small businesses, such as dry cleaners, dentists, and others, lost a good portion of their customer base.
- Many small businesses were also forced to close, adding to the unemployment rate.
- Those who were able to stay in business often struggled with cash flow, as customers payments were delayed.
- Others were forced to slash prices or offer discounts to attract customers and stay afloat.
- Still others cut pay to employees or laid off workers, and reduced compensation to themselves, the owners.
I suspect that these consequences occurred in other cities and towns where big companies drastically cut their payroll, closed entirely, or simply moved away.
Impact of keeping big companies in the U.S.
It seems axiomatic that when factories do not close and older ones are revitalized, small businesses in the area benefit as well. Workers at these factories have money to spend. With money in circulation, small businesses can pay their bills on time, hire more employees, and also expand their operations.
Looking ahead to a new administration, tax and regulatory reform as well as other incentives designed to keep U.S. companies on shore and to bring back those that moved offshore are bound to have a ripple effect on small business. I’m going to keep my eye on this activity.