Working Paper: NBER ID: w18949
Authors: Kerwin Kofi Charles; Erik Hurst; Matthew J. Notowidigdo
Abstract: We study the extent to which manufacturing decline and local housing booms contributed to changes in labor market outcomes during the 2000s, focusing primarily on the distributional consequences across geographical areas and demographic groups. Using a local labor markets design, we estimate that manufacturing decline significantly reduced employment between 2000 and 2006, while local housing booms increased employment by roughly the same magnitude. The effects of manufacturing decline persist through 2012, but we find no persistent employment effects of local housing booms, likely because housing booms were associated with subsequent busts of similar magnitude. These results suggest that housing booms “masked” negative employment growth that would have otherwise occurred earlier in the absence of the booms. This “masking” occurred both within and between cities and demographic groups. For example, manufacturing decline disproportionately affected older men without a college education, while the housing boom disproportionately affected younger men and women, as well as immigrants. Applying our local labor market estimates to the national labor market, we find that roughly 40 percent of the reduction in employment during the 2000s can be attributed to manufacturing decline and that these negative effects would have appeared in aggregate employment statistics earlier had it not been for the large, temporary increases in housing demand.
Keywords: Labor Market Outcomes; Manufacturing Decline; Housing Booms
JEL Codes: E24; E32; J21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Manufacturing decline (L69) | Employment rate (J63) |
| Manufacturing decline (L69) | Wages (J31) |
| Housing boom (R31) | Employment rate (J63) |
| Housing boom (R31) | Wages (J31) |
| Manufacturing decline (L69) | Overall reduction in employment (J63) |
| Housing boom masks negative employment growth (J69) | Overall reduction in employment (J63) |