Cleveland Fed researcher looks at recent trends in local job multipliers

A tradable good or service is one that can be sold outside of the metropolitan area in which it is produced. Tradable industries bring money into the local economy and thus can be associated with a “local multiplier” effect, that is, the possibility that adding a job in a tradable business leads to the creation of new jobs in nontradable ones.

It can be hard to determine which services are tradable, so economists estimate local multipliers by focusing on the manufacturing industry, which produces many tradable goods. They look at how many nonmanufacturing jobs are gained or lost in the metropolitan area in response to an externally driven increase or decrease in the number of manufacturing jobs.

According to Federal Reserve Bank of Cleveland economist Daniel Hartley, the elasticity of nonmanufacturing jobs to manufacturing jobs was -0.4 during the boom period from 2000-2006 and 0.2 during the bust and subsequent recovery from 2006-2011. While neither elasticity is statistically different than zero, Hartley says their signs are consistent with other research that finds that the housing boom masked the extent of employment losses due to the decline of manufacturing employment. He says increases in (nonmanufacturing) construction and retail jobs may have been driven by temporarily elevated demand for housing and consumption goods, which disappeared once the boom ended.

What does this portend for metropolitan areas that lost manufacturing jobs during the 2000s? One possibility, says Hartley, is that nonmanufacturing employment will adjust in a manner so that the relationship between nonmanufacturing and manufacturing employment changes observed during the 1980s and 1990s will be re-established. This would mean sharp drops in nonmanufacturing employment in many metropolitan areas.

However, Hartley says it is more likely that manufacturing employment has become a less useful proxy for the tradable sector as manufacturing has fallen as a share of employment in the United States. In this case, it could be that the relationship between tradable and nontradable employment from the 1980s and 1990s still holds and would be apparent in the 2000s if one were to use a better measure of the tradable sector. Hartley notes that research relating to such a measure is currently underway at the Cleveland Fed.

Read Recent Trends in Local Multipliers

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892