Issues in Brief

Where Did All the Displaced Manufacturing Workers Go?

Vice President and Chief Economist
May 21, 2013

What happened to displaced manufacturing workers following the 2008-2009 recession? Did they find new jobs? If so, in what industries?

The Great Recession of 2008-2009 took an enormous toll on manufacturing workers. From December 2007 to December 2009, the total number of manufacturing jobs fell by 2.3 million, a 17 percent reduction. To put the job loss in perspective, non-manufacturing total employment declined only 5 percent in the recession.

On the upside of the cycle, the employment recovery has been similar in percent terms—4.5 percent growth in manufacturing and 4.7 percent growth in non-manufacturing jobs. Because the decline in manufacturing employment was many times worse than in the general economy, the manufacturing jobs recovery is less complete. Manufacturing employment has increased by 519,000 jobs since December 2009 and has recovered 23 percent of the 2.3 million jobs lost in the downturn. Non-manufacturing employment, however, is 87 percent recovered for the same time frame.

Figure 1 shows the unemployment rate for all workers and for manufacturing from 2007 to the present. The unemployment rate in manufacturing was a couple tenths of a percentage point below the overall rate in 2007 and 2008 but then rose above the total for all workers. The sector’s unemployment rate exceeded the falling total unemployment rate by an average 1.0 percentage point margin in 2010. The two rates converged in 2011, and by 2012, unemployment in manufacturing was consistently lower than in the general economy.

The sharper employment loss in manufacturing and the less complete jobs recovery both beg the question as to why the unemployment rate for manufacturing workers is so much lower than that of the general economy.

The Flow Determines the Level
The level of a lake is determined by the inflow and outflow, and the same is true with the level of employment. 2009 saw the worst of the manufacturing job reductions and is a good illustration of how quickly employment adjustments are made. That year, 2.9 percent of manufacturing workers separated from their employers each month (about one-third of workers quit and the other two-thirds were layoffs and discharges) and 1.9 percent of manufacturing workers were hired each month. The flows in and out were large relative to the size of the pond. In 2009, 4.17 million manufacturing workers were separated from their manufacturing jobs and 2.76 million were hired, leaving an average manufacturing jobs level of 11.8 million jobs. The outflow was 1.41 million greater than the inflow, so the employment level fell in 2009 compared with 2008. The reverse happened in 2010 through 2012 and into the early part of 2013. The inflow was slightly greater than the outflow, allowing manufacturing employment to rise.

The Re-Employment Rate
Every two years the U.S. Department of Labor collects additional information along with the survey that determines the unemployment rate, measuring the number of workers 20 years of age and older who were displaced from a job at least once in the previous three years. The definition of a displaced worker is rather strict in order to capture workers who are involuntarily separated from a job based on the operating decisions of employers.[1]

Losing a job imposes costs on individual workers. While most displaced workers are able to collect unemployment insurance payments and quickly find another job, some segments of the displaced worker population remain unemployed for a long time, and others simply stop looking for a job altogether. Figure 2 shows the percent of workers who lost a job for economic reasons over the previous three years but who were re-employed at the time of the survey. For example, the 2009-2011 worker displacement survey estimated the number of workers who lost a job for economic reasons during the period of January 2009 through December 2011 and determined the number re-employed in January 2012. The survey found that 59 percent of manufacturing workers who were displaced from a job in the previous three years had a job by January 2012. Among workers who lost a non-manufacturing job, 57 percent were re-employed. Since 2002, manufacturing workers had consistently lower re-employment rates, but this trend changed in the most recent survey. The severe decline in construction employment and the widespread nature of the 2008-2009 recession affected many services industries that had previously been relatively immune to downturns, and drove down the non-manufacturing re-employment rate.

What happened to the 41 percent of displaced workers in the latest survey who were not re-employed by January 2012? They were either unemployed or out of the labor market. That survey found that 25 percent of displaced manufacturing workers were unemployed and 16 percent stopped looking for a job and were out of the labor market.

Manufacturing Labor Resources Are Reallocated to Other Industries
The U.S. Department of Labor examined which industries displaced manufacturing workers found re-employment in. Of those workers who lost manufacturing jobs from January 2009 to December 2011 and were re-employed by January 2012, 58 percent found re-employment outside the manufacturing industry. As shown in Table 1, only 42 percent of workers who lost manufacturing jobs found another job in the sector. Structural change in manufacturing reallocated labor resources out of manufacturing and into many other sectors.

Earnings Loss as a Result of Displacement
The cost of job displacement is more than just lost wages during a job search; to many workers, it also means lower earnings at their new job when they are re-employed. Sixty-five percent of all displaced manufacturing workers who lost full-time jobs and were re-employed full-time in January 2012 earned less than at the previous job; 35 percent earned the same or more. Unfortunately, the amount of the lost earnings is skewed to the low end of the spectrum. Forty percent of displaced manufacturing workers found new full-time jobs that paid 20 percent less than their previous job; 15 percent found jobs paying 20 percent more.

Research on displaced workers’ outcomes has shown that there is a very strong link between the replacement of lost earnings and tenure at the lost job. The average earnings loss from the previous job to the new job becomes larger the more tenure the worker had in the lost job. Obviously, employers pay workers in large part for loyalty and job-specific knowledge that is accumulated in the position. Because manufacturing workers are more likely to have lost a high-tenure job and they are older in age, they generally experience somewhat larger wage declines than do non-manufacturing workers when they are displaced.


Footnotes

[1] Displaced workers are those workers who lost a job because a plant closed or moved, the position or shift was abolished, or there was insufficient work—or because of another similar economic reason. The definition of a displaced worker does not include job loss resulting from the actions of the worker, such as quitting or being fired for work performance or disciplinary problems. While workers may have had several job displacement spells in a three-year period, the individual is counted only once in the survey; the information collected about the job loss refers to the position held for the longest time.


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