Spill-overs from Good Jobs.


This paper from Beaudry and Green seems highly relevant to the currently hot issue of community economic impacts from manufacturing job losses.  Manufacturing jobs generally pay above average wages, and recent research suggests displaced industrial workers experience average wage losses in the range of 25%.



NBER Working Paper No. 13006
Issued in April 2007
NBER Program(s):   LS 

Does attracting or losing jobs in high paying sectors have important spill-over effects on wages in other sectors? The answer to this question is central to a proper assessment of many trade and industrial policies. In this paper, we explore this question by examining how predictable changes in industrial composition in favor of high paying sectors affect wage determination at the industry-city level. In particular, we use US Census data over the years 1970 to 2000 to quantify the relationship between changes in industry-specific city-level wages and changes in industrial composition. Our finding is that the spill-over (i.e., general equilibrium) effects associated with changes in the fraction of jobs in high paying sectors are very substantial and persistent. Our point estimates indicate that the total effect on average wages of a change in industrial composition that favors high paying sectors is about 3.5 times greater than that obtained from a commonly used composition-adjustment approach which neglects general equilibrium effects. We interpret our results as being most likely driven by a variant of the mechanism recently emphasized in the heterogenous firm literature whereby changes in competitive pressure cause a reallocation of employment toward the most efficient firms.

One comment

  • Y’know, I saw that article as well, and reached the opposite conclusion. To the extent that the shift has been out of manufacturing towards higher-paying oil/gas and high-skill service jobs, then this is a process that should be applauded.

    Every time I check the counterfactual – what would average wages be if we had kept the same composition of employment across sectors – I find that average wages would be lower without these shifts.

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