The Masking of the Decline in Manufacturing Employment by the Housing Bubble

The employment-to-population ratio among prime-aged adults aged 25–54 has fallen substantially since 2000. The explanations proposed for the decline in the employment-to-population ratio have been of two broad types. One set of explanations emphasizes cyclical factors associated with the recession; the second set of explanations focuses on the role of longer-run structural factors. In this paper, we argue that while the decline in manufacturing and the consequent reduction in demand for less-educated workers put downward pressure on their employment rates in the pre-recession 2000–2006 period, the increased demand for less-educated workers because of the housing boom was simultaneously pushing their employment rates upwards. For a few years, the housing boom served to "mask" the labor market effects of manufacturing decline for less-educated workers. When the housing market collapsed in 2007, there was a large, immediate decline in employment among these workers, who faced not only the sudden disappearance of jobs related to the housing boom, but also the fact that manufacturing's steady decline during the early 2000s left them with many fewer opportunities in that sector than had existed at the start of the decade.