Layoffs at Whirlpool:

Costs to the Evansville Metro Area and Indiana Taxpayers

by Good Jobs First Greg LeRoy Executive Director

Commissioned by IUE-CWA Local 808 and AFL-CIO Industrial Union Council Washington, DC

April 2010

Acknowledgments and Background This study was performed by Good Jobs First (www.goodjobsfirst.org), a non-profit, non-partisan research center based in Washington, DC which promotes corporate and government accountability in economic development and smart growth for working families. It was commissioned by IUE-CWA Local 808 of Evansville, Indiana and by the AFL-CIO Industrial Union Council. Good Jobs First is directed by Greg LeRoy, who also authored this study. He performed dozens of similar studies while directing a national non-profit consulting practice from Chicago between the mid-1980s and the mid-1990s. Thanks to Tommy Cafcas and Ian Squires for research assistance and to Leigh McIlvaine for mapping. Input-output analysis of the Indiana job losses and other ripple effects were performed under subcontract to Good Jobs First by the Regional Economic Applications Laboratory of the University of Illinois. The Laboratory was founded in 1989 as a cooperative venture of the Federal Reserve Bank of Chicago and the University of Illinois. It is directed by Dr. Geoffrey J.D. Hewings, Professor of Geography and Regional Science, of Economics, and of Urban and Regional Planning at the University of Illinois at UrbanaChampaign. The Laboratory used IMPLAN, one of the nations leading proprietary input-output software products, to derive its ripple-effect estimates.

Executive Summary An analysis of the projected ripple effects of a facility shutdown and mass layoffs now beginning at Whirlpool Corporations Evansville, Indiana refrigerator factory reveal that the job loss will create enormous costs for the Indiana economy and its taxpayers and for homeowners, merchants and local institutions of every kind in the metro area spanning four Indiana counties and two in Kentucky. An input-output analysis was performed by the Regional Economic Applications Laboratory of the University of Illinois, examining the announced loss of 1,100 union jobs as well as 108 non-bargaining unit jobs. It discounts for the fact that 80 percent of IUE-CWA members live in Indiana (18 percent live in Kentucky and 2 percent reside in Illinois) and assumes the same share of non-union employees live in Indiana. It estimates that those 966 Indiana residents losing their jobs will cost the state of Indiana: An additional 1,536 ripple effect jobs, for a total loss of 2,502 jobs; The loss of $138 million in income, including about 90 cents in additional income lost for every dollar lost by a Whirlpool employee; and A decline in tax revenues of $17.7 million, especially property, sales and both personal and corporate income taxes. This taxpayer-cost estimate is incomplete because it does not include substantial lost federal revenues (in the form of federal income and payroll taxes for Social Security and Medicare). Nor does it include social safety-net programs to assist the dislocated workers. However, for one such program alone we conservatively estimate that: Unemployment Insurance Benefits for the dislocated Indiana Whirlpool workers will cost more than $4.15 million. This does not include other assistance such as retraining programs, Trade Adjustment Assistance, food stamps or Medicaid. Combining tax losses with Unemployment Insurance costs generates a conservative taxpayer-cost estimate of more than $21.8 millionor $22,588 per worker dislocated in Indiana. It is reasonable to assume that Kentucky, with an estimated 18 percent of the affected workers, will suffer job, income, and taxpayer losses of almost one fourth more, above and beyond those experienced by Indiana. In addition to the ripple-effect output analysis and the Unemployment Insurance estimate, a survey of IUE-CWA Local 808 members was conducted to discover in more detail those specific areas and institutions that will suffer the most from the Whirlpool layoffs.

Affected Homeowners and Dependents: More than three-fourths (78 percent) of Local 808 members report they are homeowners; we assume engineers and managers are at least as likely to own their homes as well. That indicates the Whirlpool layoffs will cause the loss of a breadwinners paycheck in about 936 homeowner-households. Given that 60 percent of homeowners typically have mortgage debt, the risk of increased mortgage foreclosures and home abandonment will be increased by the Whirlpool shutdown. In turn, that means downward pressure on home prices, home equity, and employment in residential construction activity. Downward pressure on home prices also means pressure on property tax assessments and therefore revenue for local public services. Public education is the largest such service and would be the most affected. As well, more than two-thirds of those being laid off report having dependents, with almost half claiming two dependents or more. With an average of almost 1.5 dependents per union household (and assuming similar rates for white-collar employees), the Whirlpool layoffs will also affect an estimated 1,776 children, spouses, disabled and elderly residents who have benefited from the paychecks now being lost.

Buying Power, Banking and Charities: Regarding specific institutions likely to be affected, the survey of Local 808 members indicates that: Four banksespecially Diamond Valley Federal Credit Union, as well as Fifth Third, Integra and Old National have the greatest shares of affected clients; Expressway and Kenny Kent auto dealerships could lose the most customers; United Way will suffer by far the most charitable donors laid off; Walmart and Buehler's Buy-Low will be the grocers most affected; More than 75 area churches will have members affected; Lowes will be especially affected within the hardware sector, with Home Depot and Menards less so; Walmart and to lesser extents Kohls, Target, Penney and Sears are most likely to lose department store sales; and McDonalds, Texas Roadhouse, Golden Corral, Logans and dozens of other restaurants patrons will lose disposable income.

Layoffs at Whirlpool: Ripple Effects on Jobs, Incomes and Taxes

Direct Job Loss Whirlpool has announced two sets of 2010 layoffs in Evansville: 500 bargaining unit members plus 30 non-unit employees in late March; and 600 union members plus 78 others in late June. IUE-CWA Local 808 reports that 80 percent of its members reside in Indiana, 18 percent live in Kentucky and 2 percent commute from Illinois. Union wages average $17.40 an hour (exclusive of benefits). Bureau of Labor Statistics salary data for manufacturing engineers and supervisors in the Evansville Metropolitan Statistical Area were used to estimate their incomes.

Indirect Job Loss and Other Ripple Effects These data on direct job loss were provided to the Regional Economic Applications Laboratory of the University of Illinois so that the Laboratory could calculate the economic ripple effects (the additional loss of jobs, incomes and tax revenues) resulting from the layoffs.1 These calculations were done under subcontract to Good Jobs First. The Laboratory was founded in 1989 as a cooperative venture of the Federal Reserve Bank of Chicago and the University of Illinois. It is directed by Dr. Geoffrey J.D. Hewings, Professor of Geography and Regional Science, of Economics, and of Urban and Regional Planning at the University of Illinois at Urbana-Champaign. The Laboratory uses IMPLAN, one of the nations leading proprietary input-output software products used by many public agencies and private firms, to derive its ripple-effect numbers. The IMPLAN ripple effect computations only cover Indiana: they are based upon an estimated 966 Indiana residents being dislocated (80 percent of 1,208; the same geographic splits were assumed for managers and engineers being laid off). The computations do not cover the Kentucky or Illinois residents, but it reasonable to assume that Kentucky, with an estimated 18 percent of the affected workers, will suffer costs about one fourth those of Indiana.

Impact of the Closure of Whirlpool plant on the Indiana Economy, Regional Economic Applications Laboratory, Institute of Government and Public Affairs, University of Illinois, March 29, 2010.

Key Findings The analysis projects: that an additional 1,536 ripple effect jobs will be lost (on top of the 966 lost directly), for a total loss of 2,502 jobs in Indiana; the loss of $138 million in income, including about 90 cents in additional income lost for every dollar lost by a Whirlpool employee; A decline in tax revenues of $17.7 million, especially property, sales and both personal and corporate income taxes. First, the itemized job-loss ripple effects on various Indiana economic sectors: Projected Impacts on Employment
Industry 11 Ag, Forestry, Fish & Hunting 21 Mining 22 Utilities 23 Construction 31-33 Manufacturing 42 Wholesale Trade 44-45 Retail trade 48-49 Transportation & Warehousing 51 Information 52 Finance & insurance 53 Real estate & rental 54 Professional-scientific & tech services 55 Management of companies 56 Administrative & waste services 61 Educational services 62 Health & social services 71 Arts- entertainment & recreation 72 Accommodation & food services 81 Other services 92 Government & non NAICs Total Direct 0.0 0.0 0.0 0.0 -966.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -966.4 Indirect -0.5 -0.9 -6.4 -17.1 -211.5 -161.4 -10.2 -71.3 -10.6 -17.1 -16.4 -49.2 -38.1 -61.3 -0.4 0.0 -4.0 -18.4 -21.0 -15.5 -731.4 Induced -5.5 -0.7 -4.0 -6.4 -25.5 -26.8 -192.0 -19.3 -10.6 -38.1 -40.1 -24.3 -3.3 -23.9 -22.6 -156.8 -21.5 -98.1 -75.1 -9.8 -804.5 Total -6.0 -1.6 -10.4 -23.5 -1,203.4 -188.2 -202.2 -90.6 -21.2 -55.2 -56.5 -73.5 -41.4 -85.2 -23.0 -156.8 -25.5 -116.5 -96.1 -25.3 -2,502.2

An estimated 1.59 additional jobs will be lost elsewhere in the Indiana economy for every 1 Whirlpool job. That is a large ratio and reflects the fact that Whirlpool is a significant and high-value part of the regional economy. Job loss is heavily concentrated in manufacturing, reflecting both the direct Whirlpool jobs as well as parts suppliers. These supplier ripple effects are often called upstream, because they refer to jobs creating goods and services that feed into the affected workplace. (In the IMPLAN tables

here, these are called Indirect ripple effects.) For example, Temple-Inland's Evansville factory makes corrugated boxes to package Whirlpool products (among other customers); the company announced on March 30 that the plant will close, dislocating 97 workers.2 The Evansville Association for the Blind, another Whirlpool supplier, has issued a plea seeking replacement business.3 Downstream ripple effects (those labeled Induced in these tables) are those jobs that depend on the buying power of those who work at Whirlpool. Examples include many of the almost 400 jobs that will also be lost in the retail and wholesale trade sectors and more than 150 to be lost in health and social services. (See more below on specific merchants and services likely to be most affected.) As a share of total employment, Evansville has enjoyed more manufacturing jobs than Indiana or the United States, but the loss of 1,208 jobs will be a major blow to an MSA with approximately 180,000 total jobs (about 18 percent of those in manufacturing). The projected losses of income generally mirror job loss by sector, with especially heavy losses in manufacturing (reflecting both the large factory share of affected jobs and the fact that manufacturing pays better than many service-sector jobs). Projected Impacts on Income
Industry 11 Ag, Forestry, Fish & Hunting 21 Mining 22 Utilities 23 Construction 31-33 Manufacturing 42 Wholesale Trade 44-45 Retail trade 48-49 Transportation & Warehousing 51 Information 52 Finance & insurance 53 Real estate & rental 54 Professional-scientific & tech servs. 55 Management of companies 56 Administrative & waste services 61 Educational services 62 Health & social services 71 Arts- entertainment & recreation 72 Accommodation & food services 81 Other services 92 Government & non NAICs Total Direct $0 $0 $0 $0 -$72,429,791 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 -$72,429,791 Indirect -$6,411 -$71,484 -$791,974 -$757,034 -$12,350,065 -$9,942,256 -$248,704 -$3,363,387 -$522,281 -$871,910 -$414,930 -$2,656,531 -$3,175,855 -$1,537,738 -$7,067 -$414 -$79,502 -$304,135 -$652,964 -$1,238,520 -$38,993,162 Induced -$70,400 -$39,659 -$464,073 -$320,460 -$1,720,941 -$1,647,584 -$4,539,908 -$806,616 -$481,656 -$1,962,933 -$762,825 -$1,246,683 -$268,063 -$621,570 -$532,403 -$6,949,169 -$493,048 -$1,556,433 -$1,432,172 -$640,105 -$26,556,701 Total -$76,811 -$111,143 -$1,256,046 -$1,077,494 -$86,500,797 -$11,589,840 -$4,788,612 -$4,170,003 -$1,003,936 -$2,834,843 -$1,177,755 -$3,903,215 -$3,443,918 -$2,159,308 -$539,470 -$6,949,583 -$572,550 -$1,860,568 -$2,085,136 -$1,878,625 -$137,979,655

Box making halting production, putting 97 out of work, Indiana Business Journal, March 30, 2010. See worker comments at: http://www.courierpress.com/news/2010/mar/29/temple-inland-closing-costing-97-jobs/. 3 Whirlpool to outsource refrigerator manufacturing to Mexico, Michigan Messenger, February 22, 2010.

An additional 90 cents in income will be lost in the state for every dollar lost directly by dislocated Whirlpool employees. The fact that the income ripple effect is smaller than that for jobs reflects the fact that most of the affected service-sector jobs pay less than manufacturing. Finally, the impact on tax revenues within Indiana is projected. When people earn and spend and occupy less, when businesses supply and occupy and earn less, all of those changes mean fewer tax revenues generated by income, property, sales and other economic activities. Summary of State Tax Impacts
Corporate Profits Tax Dividends Indirect Bus Tax: Motor Vehicle Licenses Indirect Bus Tax: Other Taxes Indirect Bus Tax: Property Tax Indirect Bus Tax: S/L NonTaxes Indirect Bus Tax: Sales Tax Indirect Bus Tax: Severance Tax Personal Tax: Estate and Gift Tax Personal Tax: Income Tax Personal Tax: Motor Vehicle License Personal Tax: NonTaxes (Fines-Fees) Personal Tax: Other Tax (Fish/Hunt) Personal Tax: Property Taxes Social Ins Tax- Employee Contribution Social Ins Tax- Employer Contribution Total -$1,142,600 -$933,232 -$104,433 -$144,867 -$5,803,648 -$360,132 -$5,436,926 -$671 $0 -$2,782,506 -$152,099 -$504,045 -$39,030 -$81,736 -$34,367 -$147,859 -$17,668,151

Tax revenues will decline by $17.7 million. The largest tax-revenue losses will be in property, sales, and income taxes (both personal and corporate). The decline in property tax revenues is significant, especially for local public services that rely most upon them. Public schools are the biggest use of local tax revenue, and Evansville-area schools are already struggling with the state's recently announced $300 million cutback in state aid to school districts. These IMPLAN-generated tax revenue loss estimates are incomplete because they do not include lost federal payroll-generated taxes (income tax, Social Security and Medicare) which will also be substantial. On the other hand, Prof. Hewings cautions that no attempt has been made to estimate the probability of laid-off workers finding other positions; hence, the impacts may be seen in some sense as an upper bound on the potential negative impacts of the plant closure.

Increased Social Safety-Net Costs We conservatively estimate that one form of assistance alone to dislocated Indiana residentsUnemployment Insurancewill cost more than $4.15 million. Besides federal taxes, the other major taxpayer cost that IMPLAN omits is the increased need for social safety-net programs to assist the dislocated workers and their families. These safety-net costs take several forms, including retraining programs, and for some long-term unemployed, other programs such as food stamps, Medicaid, and the State Children's Health Insurance Program will also be needed. However, the most heavily used and therefore costliest safety-net expense is Unemployment Insurance and the related Trade Adjustment Assistance. (TAA extends Unemployment Compensation for workers whose job loss is attributed to offshore job flight or displacement by imports; it gives them time to undergo substantial retraining.) With most of the Evansville jobs being transferred to Whirlpool's facility in Monterrey, Mexico (a small share are going to Amana, Iowa), the Evansville layoffs have already been certified for TAA. According to the U.S. Employment and Training Administration and the Indiana Department of Workforce Development, 71 percent of unemployed Indiana workers currently claim Unemployment Insurance, the average duration of support is 17.1 weeks, and a worker making $17.40 an hour would receive $354 per week. Applying those rates to the 966 Indiana residents (again acknowledging but not estimating costs for the other 242 dislocated workers who reside mostly in Kentucky), we get a projected cost of $4,151,785. This is a conservative estimate because older dislocated workers tend to suffer longer periods of unemployment and the same is true of dislocated factory workers. Our survey of workers to be laid off revealed that many workers have worked at the Whirlpool plant for ten years or more (163 out of 205 responding). It is also conservative because Whirlpool managers, with their higher incomes, will qualify for somewhat larger benefit checks.

Geographic Impact within the Evansville Metro Area The Evansville Metropolitan Statistical Area (MSA) covers four Indiana counties and two Kentucky counties. The accompanying map shows the residential geographic distribution of IUE-CWA Local 808 members; they are heavily concentrated within the City of Evansville and in the ZIP codes just across the Ohio River in Kentucky.

Impact on Evansville-Area Retailers, Services, Churches and Charities To assess the impact of the layoffs on specific Evansville-area institutions, IUE-CWA Local 808 distributed a survey form among its members; 210 or almost one fifth of the 1,100 affected union members responded.

Banking: Besides the impact on specific banks, the decline in income of dislocated workers means fewer savings held by the banks, and therefore less money available for home, auto and business loans. Four financial institutions apparently have the greatest shares of affected clients: more than a third of respondents reported that they bank at Diamond Valley Federal Credit Union, while more than a sixth named Fifth Third, an eighth Old National, and a tenth Integra. (Diamond Valley began as Whirlpool's in-house credit union before broadening its clientele; hence its large share.) Diamond Valley Federal Credit Union Fifth Third Old National Bank Integra Heritage Federal Credit Union N = 204 70 35 26 20 11 34% 17% 13% 10% 5%

In a Fall 2009 analysis of the Evansville-area banking market, the Federal Reserve Bank of St. Louis found that 10 of the area's 12 banks were profitable, but that one bank (unnamed) was experiencing significant losses due to its high exposure to commercial real estate.4 To the extent a decline in retail sales and other economic activity is caused by the Whirlpool layoffs, it may affect commercial real estate occupancy rates, rents, and loan performance rates.

Auto Dealerships: As the largest consumer retail purchase, automobiles are also the most sensitive to economic cycles, to people's expectations about their income (especially if the buyer will need a loan and therefore have monthly payments). That's why auto sales plummeted in the 2007-2009 recession, far more deeply than, say, food sales. With new uncertainty about their prospects, many of the 1,208 people being laid off at Whirlpool will choose or be forced to postpone auto purchases that they otherwise would have made with a steady paycheck.
4

Rajeev R. Bhaskar and Gary S. Comer, Spotlight on Evansville Metro Bank Performance, Federal Reserve Bank of St. Louis, Central Banker, Fall 2009, at http://www.stlouisfed.org/publications/cb/articles/?id=1662.

Expressway and Kenny Kent auto dealerships will likely lose the most customers. Almost one in five IUE-CWA members listed Expressway as the auto dealer from which they had most recently purchased a car, and about one in seven named Kenny Kent. Expressway - various nameplates Kenny Kent - various nameplates Town + Country Ford D Patrick N = 167 32 25 11 10 19% 15% 7% 6%

Charitable Giving and Area Churches: At the same time there will be increased demand placed upon charities that provide assistance to the unemployed, there will be fewer donations from dislocated Whirlpool employees. United Way, which sponsors a drive in the Whirlpool plant, will suffer by far the most in terms of affected donors; more than a third of those surveyed said they give through that umbrella agency. United Way Red Cross Goodwill Salvation Army Albion Fellows Bacon Center Church St. Jude's N = 173 60 9 8 8 5 5 5 35% 5% 5% 5% 3% 3% 3%

To the extent some churches provide social assistance such as homeless shelters and food banks, they will also be affected by lower donations from dislocated Whirlpool employees. However, that impact will be very broadly distributed: Local 808 members reported 76 different places of worship, with most having only one member each and none having more than 4 attendees (N = 101).

Groceries, Dining Out, and Household Goods Whirlpool managers may have more upscale buying habits, but Local 808 members (with their modest annual incomes averaging about $36,000) report frugal shopping choices when it comes to groceries, restaurants and department stores. A third of those surveyed said Walmart is their grocery store most often patronized, with almost as many reporting Buehler's Buy-Low.

Walmart Buehler's Buy-Low Sureway Schnucks Save A Lot N = 210

69 64 14 14 11

33% 31% 7% 7% 5%

When it comes to eating out, chains with affordable family-oriented menus are the most frequently enjoyed by Local 808 members. McDonald's Golden Corral Texas Roadhouse Logan's Hacienda Cracker Barrel N = 193 21 14 14 12 8 7 11% 7% 7% 6% 4% 4%

And when shopping for clothes and household goods, Whirlpool workers favor discount chains. Walmart is the runaway favorite; almost half of the respondents list it as their primary department store. Walmart Kohl's Target JC Penny Sears Macy's N = 203 98 22 19 18 12 8 48% 11% 9% 9% 6% 4%

Impact on Evansville-area Families, Homeowners and the Region's Home Improvement Retailers

The survey of IUE-CWA members also covered family and home issues.

Dependents and Bankruptcy: More than two-thirds (69 percent) of Local 808 members being laid off report having dependents. Almost half (47 percent) claim 2 dependents or more (up to as many as 7), so that each union household reports an average of almost 1.5 dependents. Assuming similar rates for white-collar employees, the Whirlpool layoffs will affect an estimated 1,776 children, spouses, disabled and elderly residents (in all three states) who have benefited from the paychecks now being lost. There is no estimate available as to how many dislocated workers may experience personal bankruptcy as a result of their job loss, but nationally rates of bankruptcy follow increases in unemployment. As unemployment in the Evansville area fluctuated around 8 percent last year, the rate of personal bankruptcies was estimated to have risen from 5.1 per 1,000 persons in 2008 to 8.9 in 2009.5

The Housing Market, Home Prices, and Foreclosures: More than three-fourths (78 percent) of Local 808 members report they are homeowners. Own Rent N = 204 158 46 78% 22%

We conservatively assume that the engineers and managers, whose average salaries are higher than those of the production workers, are equally likely to own their homes as well. That indicates the Whirlpool layoffs will cause the loss of a breadwinners paycheck in about 936 homeowner-households throughout the three states (77.5% of 1,208). Given that most homeowners have mortgage debt (the national rate is 60 percent, with 40 percent owning their homes free and clear), the risk of mortgage foreclosures and home abandonment will be increased by the Whirlpool shutdown. Foreclosure.com, a website which claims to be the nation's largest online database of home foreclosures, listed 501 homes in foreclosure in Vanderburgh County as of April 1, 2010.6

5 6

Mohammed Khayum, Evansville Forecast 2010, Indiana Business Review, November 2009. http://www.foreclosure.com/search.html?st=IN&ci=Evansville&tab=c accessed on April 1, 2010.

More foreclosures will mean downward pressure on home prices, home equity, property tax assessments (and therefore local government revenue including school revenue), and employment in residential construction activity. Home prices in the Evansville metro area did not run up as high as those in the U.S. overall in the years 2002-2006, so they have since declined less than those in the average market.7 However, home construction activity has slowed greatly, with new-home permits plummeting 57 percent in 2009 over 2008.8 Although the unemployment rate in the Evansville metro area was somewhat lower than state and national averages during 2009, the Federal Reserve Bank of St. Louis noted in a Fall 2009 report that the region has not been immune to declining real estate values and elevated home foreclosures either. It attributed the lower unemployment rate to there being no unique economic shocks, such as large factory closings. Obviously, that has now changed.9 In the home improvement/hardware retail market, the survey of Local 808 members indicates that Lowes will be especially affected, with Home Depot and Menards far less so. Nationally, Lowe's has a smaller market share than Home Depot, however Lowe's may be especially popular among Local 808 members because it sells Whirlpool appliances. Lowes Home Depot Menards Ace Hardware N = 201 106 36 17 11 53% 18% 8% 5%

7 8

Moody's Economy.com Evansville Economic Outlook at www.economy.com accessed March 30, 2010. Khayum, op cit. 9 Bhaskar and Comer, op cit.