Pethokoukis, Economics, U.S. Economy

Study: What happened to US job growth in the 2000s? China happened

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Even before the Great Recession, there was a problem with the US jobs machine. Between 1991 and 2000, the share of the adult population working rose by nearly two percentage points to a high of 64.7%. The jobs growth rate averaged 1.4% a year.

Then something bad happened.

Between 2001 and 2007, the employment-population ratio gave back all those gains. And while the growth rate of the US working age population was virtually identical during the 1990s and the 2000s, averaging 1.1 to 1.2% in both decades, the growth rate of employment averaged only 0.9% between 2000 and 2007.

Was it just mean reversion, a cooling off after a too-hot decade? Maybe. But perhaps there was something else at play. From “Import Competition and the Great US Employment Sag of the 2000s”  (via Marginal Revolution) by Daron Acemoglu, David Autor, David Dorn, Gordon Hanson, and Brendan Price explains why the US lost 4 million factory jobs in less than a decade:

Our results suggest that rising import competition from China has contributed significantly to the decline in U.S. manufacturing employment since 1991, with most of the adverse employment effects occurring between 1999 and 2007. The employment decline in trade-exposed industries stems both from a reduction in the number of firms and a reduction in employees per firm, and consists of declines in both production and non-production employment.

Taking into account input-output linkages between sectors, our estimates suggest that import competition in manufacturing has also contributed to a slowdown of employment growth in non-manufacturing industries that supply services to trade-exposed manufacturing firms.

The implied quantitative magnitudes are large. Our baseline estimates imply that of the substantial decline in US manufacturing employment between 1999 and 2007, 16% is due to the direct effect of Chinese import competition. Our preliminary estimates incorporating input-output linkages further indicate that over half of this 1999-2007 manufacturing employment decline could be due to Chinese import competition.

Importantly, however, this computation ignores any employment gains that would occur through other general equilibrium channels, such as further expansion in employment in manufacturing or service industries experiencing an increase in relative price (because the prices of industries competing with Chinese imports are declining). With this strong caveat, our results nevertheless suggest that the direct and indirect effects of Chinese import competition could be a key factor in the US employment sag of the last decade.

Kinda wow, particularly the negative spillover. Now, how exactly this sorts out with automation impacts, which clearly had a major impact on manufacturing, I’m not sure. The paper is preliminary and lacks policy recommendations, which I would be eager to see.

3 thoughts on “Study: What happened to US job growth in the 2000s? China happened

  1. Not sure about this one.

    We pay for imports by printing money, btw. In general, foreigners send us goods, and we sent them IOUs (paper), as the dollar is an international reserve currency.

    If an imported good, displaces US workers, we should be able to put those workers to work in another field, and have even higher living standards.

    Automation leads to higher living standards, for the whole group. If you have an island with 10 workers, 3 of whom make goods, and then discover a way to make those goods with just 2 workers, then that third worker is freed up to do other productive work. Now you have a guy painting houses where before they weathered away…

    So in the USA factory hands became waiters and waitresses.

    Probably the reason for lousy job growth since 2000 has been a too-tightmonetary policy, not only at the Fed, but the ECB and the BoJ.

    Check out long-term sovereign debt yields. Trending down for the last 30 years. Fighting inflation has been the war of central banks since the early 1980s. And they won.

    But as public agencies, central banks became ossified. They are never run out of business by better competition. They develop insular icons and cloistered exalted virtues. For the last 30 years, every central banker has had to pettifog against the perils of inflation. It was a moral crusade, nearly.

    If it is HUD, the USDA, Defense or the Fed, they all become ossified, this is hardly an exotic notion. Why should central banks be any different from HUD or the VA?

    The Fed is ossified into the inflation-fighting stance, consistent with its exalted (but obsolete) mission.The Fed became less effective in the 2000s, and was a disaster in 2008 to present. But market forces do not get rid of the Fed, as they did floppy disks. The ECB is worse. The BoJ has been a disaster and we have to see what happens next.

    This is not to say inflation cannot become a problem. Someday we might actually need to help impoverished farmers again, or facedown a Cold War giant. But those days are over now, and fighting inflation is over now.

    Right now we have the opposite problem—too tight money.

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