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Housing Booms, Manufacturing Decline, and Labor Market Outcomes

Kerwin Kofi Charles, Erik Hurst () and Matthew Notowidigdo

No 18949, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E24 E32 J21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-ure
Date: 2013-04
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