Transforming economies in the post-manufacturing era
In recent decades, the decline of manufacturing jobs has deeply affected once-thriving areas in many industrialized nations. Cities such as Detroit (US), Liverpool (UK), and Duisburg (Germany) exemplify this downturn, showing reduced populations and economic challenges. However, our research covering six countries - France, Germany, Italy, Japan, the UK, and the US - reveals that this decline doesn't always lead to economic hardship. We studied 1,993 cities, examining how employment changed from the peak of manufacturing to 2010.
Our findings show diverse responses to the decline in manufacturing. Not all cities fared poorly; in fact, 34% of these cities saw their employment levels rise above those before the decline. Germany stands out, with nearly half of its cities recovering faster than the national average.
A key element in this recovery is human capital. Cities with more college-educated residents saw quicker job growth post-manufacturing. The local share of college graduates became a crucial factor during the deindustrialization period, pointing to a shift toward human capital-intensive sectors. Cities like Pittsburgh where a strong skill base, anchored by universities, attracted employers in human capital-intensive sectors, offsetting manufacturing losses, exemplify this approach.
Our research provides valuable insights for policymakers addressing the economic rejuvenation of former manufacturing centers. As countries consider strategies akin to the UK's "leveling up" initiative and substantial investments by Germany, France, and the EU, grasping the intricacies of local economies is crucial.
Our findings highlight that investment in human capital, especially through local colleges, emerges as a powerful approach to stimulate economic revival in erstwhile manufacturing hubs. Present policies predominantly subsidize physical capital, but our research underscores the significance of educational investment as an "industrial policy," offering considerable benefits for these regions.
© Luisa Gagliardi, Enrico Moretti, and Michel Serafinelli
Luisa Gagliardi is Assistant Professor at Bocconi University
Enrico Moretti is Professor of Economics at the University of California, Berkeley and IZA Research Fellow
Michel Serafinelli is Assistant Professor at the University of Essex and IZA Research Fellow
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