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Working Paper

Manufacturing Employment Losses and the Economic Performance of the Industrial Heartland

The industrial Midwest, sometimes referred to disparagingly as the “Rust Belt,” has long been recognized as a distinct economic region and an important contributor to the US economy. Prior research has emphasized the role that losses in the manufacturing sector have played in the plight of several Midwestern states and cities, particularly in the late 1970s and early 1980s. We identify a hypothetical industrial heartland region consisting of MSAs that have high concentrations of 1969 earnings in manufacturing relative to the US average and that are located within the geography often associated with the Rust Belt. For comparison purposes we also identify a set of manufacturing-intensive MSAs outside the region and a set of MSAs with low manufacturing concentrations (service-intensive MSAs). We then identify cross-sectional correlations in the economic performance of MSAs during and following losses in manufacturing employment and evaluate whether the industrial heartland region has a distinct response to those losses. We identify two major shocks to manufacturing employment: 1979 to 1983 and 2001 to 2010. While the second episode was slower to develop, the employment losses in manufacturing that were sustained during it are nearly as large as in the first episode. The size of manufacturing loss is reliably correlated across MSAs during and following these two manufacturing shocks with measures of economic performance including nonmanufacturing employment, unemployment, population, and per capita income levels. In addition, we find that manufacturing employment losses typically are associated with larger declines in economic performance in the MSAs of the industrial heartland than in other manufacturing-intensive MSAs or in service-intensive MSAs. Despite substantially lower shares of employment and earnings of manufacturing within the industrial heartland in 2001, the effect of the second manufacturing employment shock is substantial (particularly for real per capita income) and similar in magnitude to the first manufacturing shock.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Schweitzer, Mark E. 2017. “Manufacturing Employment Losses and the Economic Performance of the Industrial Heartland.” Federal Reserve Bank of Cleveland, Working Paper No. 17-12.