CBR Briefing #6

How the housing boom masked a weak job market
The economic downturn exposed a secular, decades-old downward trend in manufacturing employment

A line chart plotting the share of men without four-year college degree who were working in the manufacturing and construction industries, with percentages on the y-axis and the years of 1976 to 2012 on the x-axis. One line tracks the two industries combined for a high of thirty-eight percent in 1980, declining to about twenty-three percent in 2012. A second line tracks just manufacturing, starting at about twenty-seven and declining to about twelve. And a third line tracks Construction, which starts at nine percent and ends at eleven.

Research suggests that housing contributed little to the aggregate increase in nonemployment in the 2000s, while manufacturing contributed about 40%.

  • The housing boom temporarily masked a long, steady decline in low-skill manufacturing jobs, and may have even diverted young workers away from the path to long-term employment, according to research by Chicago Booth’s Erik Hurst and Matthew J. Notowidigdo, with Kerwin Kofi Charles of the Harris School of Public Policy at the University of Chicago.
  • The researchers analyzed labor and housing market data for 237 large US metropolitan areas, focusing on prime-age workers without a four-year college degree.
  • During the 2000–07 housing boom, the share of men working in construction rose by about 5 percentage points. At the same time, there was a 5-percentage-point drop in the share of men working in manufacturing (see chart).
  • This masking effect, visible in the aggregate, is observable even on an individual level. In many cities, a man who had lost a job in manufacturing was likely to find a job related to the housing boom, often in construction.
  • The housing bust undid much of the employment gains from the boom, so housing actually explains little of the overall increase in nonemployment (those not employed who are actively seeking work and those who are not) in the 2000s, while manufacturing explains 40% of the increase, the authors find.
  • The authors’ ongoing research indicates that during the boom years, many recent high-school graduates chose work over community college, and did not resume their education when the boom ended. A college degree would have arguably raised their longer-term job prospects.

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