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The Masking of the Decline in Manufacturing Employment by the Housing Bubble

Author

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  • Kerwin Kofi Charles
  • Erik Hurst
  • Matthew J. Notowidigdo

Abstract

The employment-to-population ratio among prime-aged adults aged 25–54 has fallen substantially since 2000. The explanations proposed for the decline in the employment-to-population ratio have been of two broad types. One set of explanations emphasizes cyclical factors associated with the recession; the second set of explanations focuses on the role of longer-run structural factors. In this paper, we argue that while the decline in manufacturing and the consequent reduction in demand for less-educated workers put downward pressure on their employment rates in the pre-recession 2000–2006 period, the increased demand for less-educated workers because of the housing boom was simultaneously pushing their employment rates upwards. For a few years, the housing boom served to "mask" the labor market effects of manufacturing decline for less-educated workers. When the housing market collapsed in 2007, there was a large, immediate decline in employment among these workers, who faced not only the sudden disappearance of jobs related to the housing boom, but also the fact that manufacturing's steady decline during the early 2000s left them with many fewer opportunities in that sector than had existed at the start of the decade.

Suggested Citation

  • Kerwin Kofi Charles & Erik Hurst & Matthew J. Notowidigdo, 2016. "The Masking of the Decline in Manufacturing Employment by the Housing Bubble," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 179-200, Spring.
  • Handle: RePEc:aea:jecper:v:30:y:2016:i:2:p:179-200
    Note: DOI: 10.1257/jep.30.2.179
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    References listed on IDEAS

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    1. Kory Kroft & Fabian Lange & Matthew J. Notowidigdo & Lawrence F. Katz, 2016. "Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Nonparticipation," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 7-54.
    2. Henry S. Farber & Robert G. Valletta, 2015. "Do Extended Unemployment Benefits Lengthen Unemployment Spells?: Evidence from Recent Cycles in the U.S. Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 50(4), pages 873-909.
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    4. David Autor & Nicole Maestas & Kathleen Mullen & Alexander Strand, 2011. "Does Delay Cause Decay? The Effect of Administrative Decision Time on the Labor Force Participation and Earnings of Disability Applicants," Working Papers wp258, University of Michigan, Michigan Retirement Research Center.
    5. Nicole Maestas & Kathleen J. Mullen & Alexander Strand, 2013. "Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt," American Economic Review, American Economic Association, vol. 103(5), pages 1797-1829, August.
    6. Andrew C. Johnston & Alexandre Mas, 2015. "Potential Unemployment Insurance Duration and Labor Supply: The Individual and Market-Level Response to a Benefit Cut," Working Papers 590, Princeton University, Department of Economics, Industrial Relations Section..
    7. Mulligan, Casey B., 2012. "The Redistribution Recession: How Labor Market Distortions Contracted the Economy," OUP Catalogue, Oxford University Press, number 9780199942213.
    8. David Autor & Nicole Maestas & Kathleen Mullen & Alexander Strand, 2011. "Does Delay Cause Decay? The Effect of Administrative Decision Time on the Labor Force Participation and Earnings of Disability Applicants," Working Papers wp258, University of Michigan, Michigan Retirement Research Center.
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    Citations

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    Cited by:

    1. Giovanni Dosi & Marcelo C. Pereira & Andrea Roventini & Maria Enrica Virgillito, 2018. "What if supply-side policies are not enough ? The perverse interaction of flexibility and austerity," Sciences Po publications 2018-04, Sciences Po.
    2. Andrew C. Johnston & Alexandre Mas, 2015. "Potential Unemployment Insurance Duration and Labor Supply: The Individual and Market-Level Response to a Benefit Cut," Working Papers 590, Princeton University, Department of Economics, Industrial Relations Section..
    3. Kaveh Majlesi & Gaia Narciso, 2015. "International Import Competition and the Decision to Migrate: Evidence from Mexico," CReAM Discussion Paper Series 1511, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
    4. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of U.S. Manufacturing Employment," Finance and Economics Discussion Series 2018-023, Board of Governors of the Federal Reserve System (U.S.).
    5. Green, David & Morissette, Rene & Sand, Benjamin M., 2017. "Economy Wide Spillovers From Booms: Long Distance Commuting and the Spread of Wage Effects," Microeconomics.ca working papers -2017-7, Vancouver School of Economics, revised 21 Jun 2017.
    6. repec:eee:deveco:v:132:y:2018:i:c:p:75-87 is not listed on IDEAS
    7. Erik Hurst & Benjamin J. Keys & Amit Seru & Joseph Vavra, 2016. "Regional Redistribution through the US Mortgage Market," American Economic Review, American Economic Association, vol. 106(10), pages 2982-3028, October.
    8. Susan N. Houseman & Brad J. Hershbein, 2018. "Understanding the Decline of U.S. Manufacturing Employment," Upjohn Working Papers and Journal Articles 18-287, W.E. Upjohn Institute for Employment Research.
    9. Danny Yagan, 2017. "Employment Hysteresis from the Great Recession," NBER Working Papers 23844, National Bureau of Economic Research, Inc.
    10. Katharine G. Abraham & Melissa S. Kearney, 2018. "Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence," NBER Working Papers 24333, National Bureau of Economic Research, Inc.
    11. Robert Plant & Manuel S. Santos & Tarek Sayed, 2017. "Computerization, Composition of Employment, and Structure of Wages," Working Papers 2017-09, University of Miami, Department of Economics.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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