The Transformation of Manufacturing and the Decline in U.S. Employment

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1 The Transfrmatin f Manufacturing and the Decline in U.S. Emplyment Kerwin Charles, Erik Hurst and Mariel Schwartz April NBER Macr Annual Cnference

2 2,000 Annual Hurs Wrked, Male 21-55, Ed = All March CPS, ,950 1,900 1,850 1,800 1,750 1,700 1,650 1,600

3 2,000 1,950 Annual Hurs Wrked, Male 21-55, Ed = All March CPS, Δ Annual Hurs 00-16: -185 (9.5%) 1,900 1,850 1,800 1,750 1,700 1,650 1,600

4 2,000 1,950 Annual Hurs Wrked, Male 21-55, Ed = All March CPS, Δ Annual Hurs 00-16: -185 (9.5%) 1,900 1,850 1,800 1,750 1,700 1,650 1,600 Δ Emp. Rate 00-17: -4.6 percentage pints

5 Examine the link between the transfrmatin f the manufacturing sectr and declining emplyment rates. Parts: This Paper Dcument facts abut changes in manufacturing sectr Explit reginal variatin t assess manufacturing effect n lcal emplyment changes. Explit reginal variatin t assess brader measures f well-being (wages, drug use, etc.) Cmpare and cntrast variatin due t trade vs. ther surces. Assess ptential reasns fr sluggish emplyment respnse during the 2000s.

6 Why Fcus n Manufacturing Just anther labr demand shck? Manufacturing: Very large sectr (ne-fifth f all jbs in 1980) Very imprtant fr less educated wrkers (ne-third f such men wrked in this sectr in 1980) Very spatially cncentrated Given the abve, has becme a large fcus f recent plicy discussins.

7 Part A: The Transfrmatin f Manufacturing

8 U.S. Manufacturing Emplyment, BLS ~ -1.7 millin ~ -0.3 millin ~ -6.0 millin ~ millin

9 , , , , , , , , ,000 U.S. Manufacturing Establishments - 75,000 Establishments Manufacturing Establishments Firm/Establishment Cunt

10 U.S. Manufacturing Establishments 400, ,000-75,000 Establishments 350, , , , , , ,000 Firm/Establishment Cunt Manufacturing Establishments Despite falling emplyment and establishments, real manufacturing utput rse slightly during 2000s (~7%)

11 Labr Share Index (1987 = 100) Labr Share Index (Year 1987 = 100) Nn Farm Business Sectr Labr Share Index Manufacturing Labr Share Index Year

12 Capital Intensity Index (1987 = 100) Manufacturing Capital Intensity Index Nn Farm Business Sectr Capital Intensity Index Capital Intensity Index (Year 2000 = 100) Rati f capital services t hurs wrked in the prductin prcess.

13 Share f Prductin Wrkers in Manufacturing Industry: Age 21-55, CPS

14 0.35 Manufacturing Share f Ppulatin Men Aged 21-55, By Educatin, March CPS Ed 16 Ed 12 Ed =

15 Bachelr Share f Manufacturing Wrkers

16 Key Take Aways #1 Manufacturing emplyment and firms plummeted during the early 2000s. Declines where large relative t recent histrical levels. Manufacturing is becming mre physical capital intensive during the 2000s (even relative t ther sectrs). Manufacturing is becming mre skill intensive during the 2000s (even relative t ther histrically lw skilled sectrs).

17 Part B: Expliting Reginal Variatin

18 Next Steps Can we use reginal variatin t get causal estimates f the effects f lcal manufacturing declines n lcal labr market utcmes? Is such variatin useful fr thinking abut aggregate trends? Unit f reginal bservatin: Cmmuting zne Time perids: Data Surce U.S. Censuses 1980, 1990, 2000 American Cmmunity Survey Sample Age Nn-Military Nn-Institutinalized

19 Change in Manufacturing Share vs Change in Emplyment Rate, Prime Age Men

20 Specificatin L Man X gk, g g g g k gk, t 1 t 1 t t 1 Why Instrument? Lcal labr supply shcks? Other lcal labr demand shcks? Shift Share Instrument J k k k k t 1 j,2000 j,2016 j,2000 n 1 S Man Man

21 First-Stage

22 Key Take Aways #2 A 5 percentage pint decline in manufacturing share (abut a 1 SD decline): Reduces annual hurs f bth prime age men and wmen by 2.7%. Reduces emplyment rate f prime age men and wmen by 1.9 percentage pints and 1.3 percentage pints, respectively. Effects are much larger fr individuals with a high schl degree r less. Naïve extraplatin frm crss-regin estimates: Abut half f aggregate declines in hurs and emplyment rates fr prime age wrkers can be attributed t manufacturing decline. Naïve extraplatin misses all general equilibrium effects (Beraja et al. 2016). But, des give a sense f ptential magnitudes.

23 Key Take Aways #3 Manufacturing decline als affected brader measures f well-being. Using ur shift share instrument, we als find: Manufacturing decline is assciated with lcal wages falling (cnsistent with a shift in f the labr demand curve). Manufacturing decline is assciated with increased piid use and piid deaths.

24 Part C: Manufacturing and Trade

25 Emplyment Grwth vs. Expsure t China Imprt Cmpetitin

26 Labr t Capital Rati vs. Expsure t China Imprt Cmpetitin

27 Our Shift Share Instrument vs. China Shck Instrument

28 Is the China Shck Inherently Different? Residualize ur Shift Share instrument with respect t Autr-Drn- Hansn China Shck instrument. Residualized Shift share instrument captures all predicted changes in manufacturing emplyment that are uncrrelated with China Shck. Include bth instruments t predict changes in manufacturing emplyment in ur lcal labr market regressins.

29 Is the China Shck Inherently Different? Residualize ur Shift Share instrument with respect t Autr-Drn- Hansn China Shck instrument. Residualized Shift share instrument captures all predicted changes in manufacturing emplyment that are uncrrelated with China Shck. Include bth instruments t predict changes in manufacturing emplyment in ur lcal labr market regressins. Key Take Aways #4 Nthing special abut the China shck with respect t lcal labr market utcmes. Estimated effect f manufacturing declines due t ur residualized shift share instrument n lcal emplyment utcmes was rughly the same as effect f declines due t China shck n lcal utcmes. Manufacturing decline is imprtant regardless f surce.

30 Part D: Why Nw?

31 Sectral Shcks and Labr Market Outcmes U.S. has gne thrugh sectral change during the past (agriculture t manufacturing). U.S. has gne thrugh manufacturing decline (t a smaller extent) during the 1980s. Factrs that mediate the labr market effects f sectral shcks Sectral switching Inter-reginal mbility Skill upgrading Public and private transfers

32 Key Take Aways #5 Mbility Mbility respnse is smaller in the 2000s than in the 1980s. Cause f large emplyment effects r a symptm f smething else? Skill mismatch Manufacturing is becming a higher skilled industry. Manufacturers reprt struggling t hire wrkers with sufficient skill. Questin: Will individuals start skill upgrading? Public and private transfers Sme evidence f increased disability take-up, but effects are small. N evidence f increased chabitatin amng the yung.

33 Cnclusins

34 Putting It All Tgether Manufacturing decline is an imprtant cntributr fr declining emplyment rates f prime age wrkers during the 2000s particularly fr less educated wrkers. Manufacturing is becming bth mre physical capital and human capital intensive ver time. Lcal effects are large. Hwever, exact aggregate magnitude depends n general equilibrium effects. May have had additinal effects n individual well-being (e.g., drug use). Is the 2000 manufacturing decline different? N and Yes. Results suggest that plicies t prmte the manufacturing sectr will have nly mdest effects n labr market utcmes f less educated wrkers.

35 Putting It All Tgether Manufacturing decline is an imprtant cntributr fr declining emplyment rates f prime age wrkers during the 2000s particularly fr less educated wrkers. Manufacturing is becming bth mre physical capital and human capital intensive ver time. Lcal effects are large. Hwever, exact aggregate magnitude depends n general equilibrium effects. May have had additinal effects n individual well-being (e.g., drug use). Is the 2000 manufacturing decline different? N and Yes. Results suggest that plicies t prmte the manufacturing sectr will have nly mdest effects n labr market utcmes f less educated wrkers.

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