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The Rust Belt, Still a Bit Rusty


The economy may be recovering but many, if not most, Americans don’t seem to have noticed. A story by Michael Fletcher, from Wednesday’s Washington Post, helps explain why.

The article focuses on manufacturing jobs in the Midwest--i.e., the Rust Belt. The manufacturing sector was in decline even before the recession began; during the downturn, that decline continued.

Now, though, factory jobs are starting to come back and, as noted in this space previously, the unemployment rate across the Midwest fell at a reasonably quick pace over the last year. Michigan’s unemployment declined has fallen most precipitously, from a little over 13 percent to a little over 10 percent. The rates in Indiana, Illinois, and Ohio have also fallen by significant amounts, to levels that are now below the national average.

But there’s a catch. The old manufacturing jobs provided good pay and benefits even to workers without college degrees. The new manufacturing jobs don’t. From Fletcher’s story in the Post:

Economists say the recovery in manufacturing work is also crucial to the fortunes of the vast majority of American workers who are not college graduates. As a group, factory jobs pay about 10 percent more on average than other jobs in the economy. But even as manufacturers have been prospering and jobs have begun to trickle back, some analysts and union leaders worry that workers are not sharing fully in the bounty.
General Motors and Ford recently reported their highest earnings in more than a decade. Goodyear set a sales record in the first quarter of this year. Other manufacturers, including Caterpillar, which makes construction equipment, andTimken, a maker of specialized steel and bearings, reported healthy sales and earnings in the first three months of 2011.
Meanwhile, newly hired autoworkers are earning $14 an hour plus benefits, about half of a veteran autoworker’s wage. And many experts and labor leaders worry that the wage premium that factory workers enjoy is eroding.

Of course, there’s another reason more Americans aren’t feeling the effects of economic growth. The growth isn’t as quick as it could be. And one reason for that is the downsizing of government.

You can see this very clearly in the graph above, which shows Michigan employment (measured in thousands of jobs) by sector over the last twelve months, according to official data from the Bureau of Labor Statistics. Thanks in part to the auto industry bailout, both manufacturing and business service jobs have steadily increased. But, at the same time, state and local governments have been compressing their workforces, because their tax bases are shrinking and supplemental aid from Washington has stopped coming. 

By my back-of-the-envelope calculation, if the number of government workers had merely held steady, not adjusting for population changes, the unemployment rate in Michigan would be a full half percentage point lower. A similar pattern has played out nationally.*

I’m hardly the first person to make this point, but the idea that government enacted a stimulus package in 2009 is a bit misleading. Yes, the Recovery Act pumped a lot of money into the economy. But state and local governments were, simultaneously, pulling money out of the economy. The latter was not enough to offset the former fully, but it was surely enough to blunt its impact--in the Rust Belt and, by all accounts, in the rest of the country too. 

*For more on the national pattern, see this January post from Ezra Klein. Among other things, his graphs are much prettier than mine.