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

Using data from a variety of sources, this paper comprehensively documents the dramatic changes in the manufacturing sector and the large decline in employment rates and hours worked among prime-aged Americans since 2000. We use cross-region variation to explore the link between declining manufacturing employment and labor market outcomes. We find that manufacturing decline in a local area in the 2000s had large and persistent negative effects on local employment rates, hours worked and wages. We also show that declining local manufacturing employment is related to rising local opioid use and deaths. These results suggest that some of the recent opioid epidemic is driven by demand factors in addition to increased opioid supply. We conclude the paper with a discussion of potential mediating factors associated with declining manufacturing labor demand including public and private transfer receipt, sectoral switching, and inter-region mobility. Overall, we conclude that the decline in manufacturing employment was a substantial cause of the decline in employment rates during the 2000s particularly for less educated prime age workers. Given the trends in both capital and skill deepening within this sector, we further conclude that many policies currently being discussed to promote the manufacturing sector will have only a modest labor market impact for less educated individuals.

Authors: 
Kerwin Kofi Charles, Edwin A. and Betty L. Bergman Distinguished Service Professor, Harris School of Public Policy
Erik Hurst, V. Duane Rath Professor of Economics, Booth School of Business; Deputy Director of BFI
Mariel Schwartz, University of Chicago
Publication Date: 
May, 2018
Publication Status: 
Document Number: 
2018-028
File Description: 
First version, May 15, 2018