Oregon Office of Economic Analysis

Earlier this summer we highlighted the ongoing challenges prime working age Oregonians without college degrees face. The decline of middle-wage jobs has significantly impacted both men and women alike. While some have found work in either high- or low-wage jobs, the vast majority of the adjustment has been an increase in nonemployment with most not even looking for work. It is true, however, that the stronger economy today is pulling some of these workers back into the labor force. Not all, and not even most, but some, which is still good news.

One item that got left on the cutting room floor of the previous work but is still very important is how the housing boom masked the longer-term structural decline in manufacturing. Kerwin Kofi Charles and Erik Hurst of the University of Chicago and Matthew Notowidigdo of Northwestern University have had a working paper along these lines for a number of years now. However they recently published an article in the Journal of Economic Perspectives that furthers their research.

The upshot of the work shows that the temporary boom in construction jobs helped to offset the loss in manufacturing jobs for prime working age males without college degrees. However the housing boom was a bubble and temporary. Once the bubble burst, the lack of employment opportunities for such workers became starker with the longer-term trends “unmasked” to a greater degree. From a broader perspective, the author’s discuss how this fits into the framework of reallocating workers and resources away from industries in structural declines. This process is not very well understood today. However the temporary housing boom was not all bad news. It did provide jobs for some workers, even if just for a few years, and did allow regional economies some time to try and diversify and invest in other sectors to support future growth. Obviously this did not happen everywhere or nearly enough, but is an interesting and important point the authors make.

The graph below is an Oregon version of the author’s national work, that shows the share of prime working age Oregon males employed in construction or manufacturing. There was a slow erosion from the 1970s through the 2000s, but not a big change overall. However since the Great Recession employment has fallen considerably in these occupations and nonparticipation has increased.

Four items of note relating to the outlook.

1. Job polarization and the changing landscape of job opportunities is more structural than cyclical, or more permanent than temporary. Economists (rightfully) continue to call for higher levels of educational attainment in response. This goes beyond college degrees to include training programs, certificates, apprentices and the like.
2. The best news for discouraged workers and those who do want a job is the tightening labor market. Businesses can be choosy when unemployment is high and they are flooded with applicants. Today they must broaden their hiring patterns to include the long-term unemployed or those without the perfect skills or training already.
3. Middle-wage jobs are on the upswing today. They are unlikely to full regain their share of the economy overall but they are growing in absolute terms. This is particularly the case for construction workers and teachers which were hit disproportionately hard this business cycle.
4. Unfortunately, some of the damage done is permanent. This is one reason our office’s baseline outlook for labor force participation never gets all the way back to where it was, even after controlling for the aging population.