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'Masking' the Loss of U.S. Manufacturing Jobs

Housing bubble that preceded the Great Recession hid decline

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The housing boom "masked" a loss in manufacturing jobs, according to a new study.

Without the housing boom of the early 2000s, unemployment would have spiked years before the start of the Great Recession, according to a recent study by IPR economist Matthew Notowidigdo and his colleagues. Instead, the housing boom—and the related increase in construction jobs—concealed a substantial loss in manufacturing jobs between 2000 and 2007.

“Things were happening before the recession in the labor market,” Notowidigdo explained. “There were structural changes that we might have noticed but were masked by the housing boom.”

Matthew Notowidigdo
Matthew Notowidigdo

Published in the Journal of Economic Perspectives, the article details how the U.S. economy lost about one-third of its manufacturing jobs between 2000 and 2015. Despite this large decline, the employment rate for men aged 25–54 without a college degree only fell about 3 percentage points between 2000 and 2007.

This smaller decrease is due to the housing boom pushing employment rates for less-educated workers upwards, the researchers found. Between the mid-1990s and mid-2000s, construction jobs surged by 3 million, peaking at almost 8 million jobs in 2006. Notowidigdo explains that the housing boom almost exactly made up for the lost manufacturing employment for non-college men, “masking” the labor market effects of that sector’s decline.

When the housing market collapsed in 2007, it brought down the construction sector, and there was a sharp decline in employment among male workers without a college education. These men faced the disappearance of jobs related to the housing boom, as well as fewer opportunities in the manufacturing sector. Many of the men who had been employed in construction ended up leaving the labor force entirely. 

Beyond increasing understanding of the unemployment rate, Notowidigdo’s study also illustrates how the decline in manufacturing has added to inequality.

“Our results account for some portion of the increased earnings inequality between higher- and lower-skilled workers that has occurred since the early 2000s,” the researchers wrote.

Matthew Notowidigdo is associate professor of economics and an IPR fellow.

Published: October 27, 2016.