Why, this time, free trade has hit American workers so hard
US workers used to cope with economic shocks by moving to find better jobs. But a decline in mobility means that a unique part of America's economic engine is stuttering. Part 4 of a five-part series: Free Trade in America.
When his injection-molding plant began shedding workers in early 2011, Terry Hernden knew the drill. It was his third layoff since the 2008 recession.
But he never considered moving. Even though other states were adding jobs and manufacturers were hiring in western Michigan, autos in the Motor City had long been the career of choice for Mr. Hernden, as they were for his father, a machinist.
“I figured I would stay here and handle it. I can find something else.”
This presidential election season has cast a harsh light on the economic shocks of the 21st century – particularly trade – which have left behind large centers of concentrated unemployment and poverty. But largely untold is the fact that similar economic shocks have happened throughout American history, and many Americans have found an effective coping mechanism: They have moved.
From the Gold Rush to the Dust Bowl, pioneers, dreamers, self-made men, and immigrants have built America by hitching their wagons and heading toward brighter opportunities.
Since before the Great Recession, however, that coping mechanism has largely faltered.
No one is quite sure why. An aging nation might be less footloose, and the rise of dual-earner families means it’s harder to make two career changes, one study suggests. Soaring housing costs are making some cities unaffordable. Underwater mortgages make other cities hard to leave.
But one line of research points to something deeper: Americans have adopted a bunker mentality as wages have stagnated.
The declining worker movement cuts across industries, socio-economic classes, and generations, says Abigail Wozniak, a labor economist at Notre Dame University in Indiana and coauthor of a 2014 study of internal migration.
“Something is shifting in how workers make transitions in the labor market,” she says.
In short, her research suggests that fewer Americans find it’s helpful to move, because the chances of finding a significantly better salary are low, and the chances of being laid off again are high. Without the incentive of moving for work, mobility has slowed.
Recently, there are signs that wages are starting to creep upward again. As is mobility. But the long-term trend for mobility is down, and if the decline persists, it presents new challenges for a country that has always depended upon it economically.
It raises the question of whether the United States will need to act more like Europe, where mobility within national borders has long been less robust – and where countries have to spend more to retrain workers where they are.
“When you have a less-mobile workforce the need to retrain becomes far more urgent,” says Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.
A trade 'shock' with no absorber
For months, the causes behind these economic stresses have been a topic of vehement debate. Presidential aspirants Bernie Sanders and Donald Trump stoked concerns over trade.
Indeed, the period of decline in mobility has coincided with an acceleration in foreign trade and outsourcing of manufacturing and services under trade agreements that many Americans blame for their job insecurity. A surge of cheap imports from China created what economists call a “trade shock” that devastated labor-intensive industries like furnituremakers in North Carolina.
China accounted for about a quarter of the decline in United States manufacturing jobs between 1990 and 2007, according to a 2013 Massachusetts Institute of Technology (MIT) study by economist David Autor and two coauthors.
But their data also suggest automation is an even bigger culprit for the job loss. Combined, the forces of automation and trade competition since 2000 have decimated blue-collar jobs and the wages they pay. In 2003, the median hourly wage in a US automotive parts factory was $18.35; a decade later it was $15.83.
At other times, trade shocks have come when Americans were ready to move.
From 1979-82, US automakers saw a sharp decline in the face of rising competition from Japanese imports and nonunion factories in the South. But Texas was seeing an oil boom, and workers could migrate there for jobs and cheaper housing.
Also in the early 1980s, steel mills in western Pennsylvania were closing, firms were filing for bankruptcy, and suppliers were going bust. Manufacturing employment in the Pittsburgh area fell by around 120,000 between 1981 and 1984, according to an analysis by the University of Pittsburgh’s Center for Social and Urban Research. By the mid-1980s at least 50,000 were leaving every year in search of better opportunities.
Those moments encapsulated a generations-long American ethic. Mobility has helped fuel a dynamic American economy that has traditionally seemed to shrug off setbacks much quicker than in industrialized European nations, where roots ran deeper and workers were reluctant to move in peacetime.
In the 1950s, 1 in 5 Americans changed residence annually, whether for work, housing, or a change in family status.
A long road back home
For Jonathan Cischke, the willingness to move during the Great Recession recast his career.
He tried to stay in Michigan after he lost his engineering job in late 2008 at Chrysler. But after six months, nobody was returning his calls, and his $50,000 severance money was evaporating. “I was running out of options. I was running out of money. I didn’t see myself ever moving out of Michigan,” he says.
A month later, however, he was in California’s Bay Area, working for a contractor to Chevron. And by the end of 2009, he was packing his bags again for a cross-country move to be a manager for BMW in Greenville, S.C.
When he met his future wife, a Michigan native, she asked him on their first date: “Would you ever consider moving back to Michigan?”
In the summer of 2013, Mr. Cischke returned to the Detroit area to join a startup industrial materials firm; his wife found a job at an automaker.
But such classic stories of the mobile American worker have become more rare.
Even before its water crisis, Flint, Mich., the birthplace of General Motors, was a poster child for how mobility has broken down.
In 1969, Flint’s surrounding county (Genesee) ranked 20th nationally in terms of private-sector pay and its workers averaged $53,217 (in today’s dollars) – more than in Boston or San Francisco. But auto plant closures in the 1980s and 1990s destroyed its economy and its unionized workforce. By 2014, Genesee ranked 802nd with average pay of $41,331 compared with $84,908 in Boston’s Suffolk County.
In theory, this could have created an opportunity for companies to move in and hire workers cheaply. But this is not how the mechanism of economic recovery has generally worked, according to an influential 1992 paper by economists Lawrence Katz of Harvard and Olivier Blanchard, then at MIT. The authors found that “the dominant adjustment mechanism is labor mobility.”
During the Great Recession, however, the movement of job seekers didn’t correspond with the regions mired in the deepest recessions.
For example, job-related moves out of state rose in states like Florida that had lured migrants for construction jobs. The highest out-migration rates during 2007-2010 were in Idaho (2.1 percent), Nevada (1.6 percent), and Alaska (1.2 percent). Michigan’s rate was only 0.3 percent.
“The ‘worst’ places in America are not the ones that are losing population,” says Dao Mai Chi, an economist at the International Monetary Fund who has studied labor mobility. “If [mobility] comes down, it means it will be a longer recovery and more pain after each recession.”
Housing costs add another layer of difficulty: Soaring prices in booming cities deter those who might otherwise move there in search of work. Instead the movement of workers tends to be in the opposite direction toward regions with cheaper housing, even though opportunities for career growth may be scarcer.
Helping workers the European way?
These trends present a challenge to lawmakers. The US government spends far less than most European countries on helping workers back into the labor force and relies instead of short-term welfare benefits to cushion employment shocks.
A lack of mobility means blue-collar workers need to go back to school and acquire new skills.
For Mohamed Moussa, a third-generation autoworker, the opportunity for retraining was transformational. While working for Ford, he had managed to study part-time and get a bachelor’s degree in radiation therapy in 2005. So when he lost his job in 2008 he was ready to jump. Five years later, he had a medical degree and was working as a resident in a hospital’s emergency room department. Unlike many of his classmates, he was only $50,000 in debt.
“It’s been a long winding road. I try not to lose sight of that,” he says.
For other laid-off workers, the effects are more modest.
When Hernden was laid off in 2011 for the third time (his struggling company had been bought out by a Canadian supplier), he qualified for public assistance. Under a decades-old federal aid program for workers displaced by trade, he received extended unemployment benefit, occupational retraining, and relocation expenses.
Since he didn’t want to move, he enrolled at a community college to study information technology security. After two years, he had an associate degree that he parlayed into a full-time job at Quicken Loans, a Detroit-based mortgage lender that has become a major area employer and anchor of a revived downtown.
Today, Hernden works 12-hour shifts at Quicken Loans; he’s at his desk by 6 a.m. most days. But he earns more than he did in the auto industry and is upbeat about his prospects. “You definitely have to work hard. It’s not like it used to be when you could walk into Ford and get a good job,” he says.
Free Trade in America
Part 1: The harsh downside of free trade – and the glimmer of hope
Part 2: The surprising truth about American manufacturing
Part 3: What 'good' free trade looks like
Part 4: Why, this time, free trade has hit American workers so hard
Part 5: What can be done about free trade's 'victims'