Bryan Caplan and David Henderson  

As Goes Janesville

PRINT
Rigor, Math, and Numbers... On Human Evil (Economic Experi...

Saturday I had the chance to see a screening of the much awaited documentary film As Goes Janesville (http://371productions.com/what-we-make/documentaries/as-goes-janesville/ ) by Brad Lichtenstein. The documentary follows the life of a small town (Janesville, Wisconsin, 63,479 inhabitants) as a GM plant, the major employer in town, closes. The film has gained instant attention because Janesville is the hometown of Congressman Ryan, the Republican vice-presidential candidate. Yet, the real reason should be in what the title implies, "As Goes Janesville, ... so does America"

The reason why this is so symbolic is because the much touted resurgence in US manufacturing (half a million from the trough in 2010) is nothing but a miniscule positive blip in an otherwise pretty dramatic decline. During the 1980s and 1990s, when we experienced the two longest economic expansions, the US economy shed roughly 1.5 million manufacturing jobs. In the 2000s before the financial crisis and the onset of the Great Recession we lost 3.8 million manufacturing jobs. The Great Recession caused a loss of another 2.4 manufacturing million jobs.

Why should we care? - ask many economists. As long as other jobs in construction and services are created and the economy grows, we should not worry. This is true, but it is missing a big problem: for the large part the new jobs are not suitable for the people whom the decline in manufacturing is leaving behind. The movie makes this point in a very salient way. Cindy Deegan, one of the movie's heroes, is struggling to transform herself from an autoworker to a lab technician. She goes back to school and she struggles with studying and tests. At the end she succeeds, but barely and not before her unemployment insurance has run out. At the last second she dodged the bullet, but not everybody else is so lucky.

Movies often sacrifice the statistical evidence to a good story. "As Goes Janesville" does not. As the recent work of some of my colleagues (http://faculty.chicagobooth.edu/erik.hurst/research/charles_hurst_noto_manufacturing.pdf) shows the decline in manufacturing has very negative effects for high school graduates, who once represented the American middle class. Decline in manufacturing is strongly related to the decline in the rate of employment among non-college males (male between 21 and 55 with at most two years of college). This percentage has gone from 77% in the mid1980s to close to 70 % today. The decline in manufacturing is also highly correlated with the drop in real wages of this group, which has lost more than 25% in thirty years.

An enduring aspect of the movie is the attempt of Janesville inhabitants to cope with the crisis. The business community sets up a campaign to promote the benefits of the area and attract new employment. Yet, the main outcome of this campaign is quite disappointing. It translates in a $9 million incentive package to a startup that promises to bring 125 jobs to Janesville in the distant future. As one savvy citizen complaints at the local town meeting, at $70 K per job the deal does not seem a very good one for the inhabitants of Janesville and smells of cronyism. Is it possible that the only thing that pro market forces are able to do is to lobby for subsidies from the government?


Comments and Sharing





COMMENTS (7 to date)
RobP writes:

I grew up working in my father's machine shop in Western New York. My father encouraged me not to get into manufacturing since he did not believe it had a future. He has now lost almost everything since the company went bankrupt last year after the bank canceled his revolving line of credit and his customers' found new vendors who they believed would have less bankruptcy risk. Also, he had pay most of his retirement savings in taxes after selling all the equipment. He still owns the building, which hopefully he will be able to sell for something, probably 1/3 of what it was worth four years ago. It took over a year for the government to verify that the building had already passed the environmental tests, and the bills still be paid and no one could buy the building or use the building. I am frustrated because the government required the banks to increase their capital requirements while preventing them from canceling their non-performing loans, i.e. real estate loans.

Here is my perspective based on spending my early years working in a factory and having studied economics at Columbia University and having written my senior thesis for a Nobel Price winning economist.

1) More people are graduating from college, so the talented people who would have gone to work in factories no longer go to work in factories. The talented people work in finance or more likely software and internet development.

2) Banks do not want to loan to manufacturing firms because of the higher capital requirements and lower margins. One problem has been that banks have been trying to lower costs, and it takes a lot of man power to hire loan officers. It is much easier to high a single bond trader, energy trader, etc and rely on the credit rating agencies. From friends who live on the upper east side, it seems that it is also cheaper for banks to call VP's and ask about quarterly earnings than it is to hire people to read financial statements.

3) Environmental and employment regulation increase the margin cost compared to other industries. I know in New York there is a government bias toward finance since nobody gets hurt and it doesn't create pollution. I understand why we should protect the environment and workers health, and I believe the majority of owners feel the same way, but it is what it is compared to other industries.

4) China is definitely a competitor. Carrier air conditioning moved most of its manufacturing to China. From my father's experience, there is more scrape and you may not know what you are going to get, but it can be a lot cheaper because overhead is much cheaper.

5) There should be more flexibility in education. It seems there is a bias in what is taught because people who work at Universities determine what should be taught. I got a lot of flack on this message board because I did not feel that the time I spent studying languages was worth the effort. I was diagnosed with dyslexia at a young age, why should I learn French. (Oh, I can speak Russian, which I taught myself to get and keep the girl of course.) Project management would have helped a lot more. Why not programming, Java is a language? One needs to know how to program these machines. One needs to understand metals. There are history departments in colleges and we study history in High School. Why can't we study industrial engineering in High School? I think Germany does a good job of this.

6) Social problems affect manufacturing. What I heard on an econotalk podcast, the breakup of families and poor relationships have affected the lower classes of society worse than the higher classes of society. This had an effect on my father's factory. There were a lot of people with personal problems. At times, my Dad helped, and it did affect the business since the people were less reliable. He tried hiring people out of prison, but they had a hard time showing up to work and working 40 hours a week. The customer expects that the jobs will get done on time and on budget whether or not the employee wants to show up or call in sick. I suspect that his taxes, i.e. expenses, were higher in order to pay for the people who could not hold down the job when they weren't working.

7) The machines are more automated today so less people are needed. I remember the Bridgeports that one person would work on to create one part like a sculptor. Now, they used computerized machines build in Japan. They are always made in Japan because those machines don’t breakdown like the American made machines.

Steve Sailer writes:

Meanwhile, we were letting in millions of illegal aliens to compete with these millions of laid-off American citizens for the McJobs.

Bostonian writes:

What was the hourly compensation (including pension and health benefits) of the GM factory workers in Janesville? What is their average hourly compensation now at their new jobs -- for those who have jobs? I would not be surprised if it were 50% or more lower. If so, even a deep cut cut in compensation, say 1/3, would have left the GM workers better off than they are now. The UAW probably would not allow this.

Samuel writes:

As Goes Janesville is a very important depiction of what life is like for most of us: The 47% and the 99%. Since I live in Madison, WI, what is interesting to me is a contrast between the two cities. Madison, sarcastically called a liberal enclave that is clueless about reality has an unemployment rate about half that of Janesville. Indeed, one of the lowest unemployment rates in Wisconsin. I wonder, does a more liberal outlook create better opportunities?

stuhlmann writes:

Perhaps Madison owes its lower unemployment rate to the fact that it is the state capital and is home to lots of government jobs.

MG writes:

@Luigi

I think we should be more specific about the challenge in question as being the decline in the number of lower-skill manufacturing jobs (as opposed to manufacturing value added, higher-skill manufacturing employment, localized employement mismatches, etc.) In this and most cases analysis via documentariesis almost always overbroad.

As to the challenges we could all agree exist, the first one would have to be how to change our high school(post high school)education to provide the educational attainment that would afford a person with an average IQ to be productive as a higher-skilled employee. This is truly the low hanging fruit, since we could not be doing worse at it than what we currently do(a point that comes across in RobP's inisightful story). (And plenty of alternative models exist.)

The second challenge is to better understand the diversity of the all commercial activities which ought to provide take-out employment for non-college educated professionals. (And I say professionals, because no job nowadays can simply be considered a task. And this is more of an issue of attitide rather than an aptitude.) I think your colleague at Booth has focused on construction being the "take-out industry", and it is certainly the most visible, as it was the industry for which labor demand was most artificially juiced. (Also, because our bias is to think that a former manufacturer labor must transition to something that builds things.) However, there are many other functions in many other industries that serve (could serve) the same role: transportation, maintenance, repair, would love to see an analysis which maps out all those functions, almost all of which expand due to trade, to see how intractable the problem of repositiioning labor really is.

Anonymous writes:

At the end of the day, it's all about automation. The irony is manufacturing for the US market will "return" to the US, but it'll employ very few people.

One thing that's interesting is to sit for a couple hours and watch "How It's Made" on the science channel. For "cheap" items, you rarely see a human, and see lots of big machines handing items to each other. Anything where you see lots of humans, you'll see high unit prices (and possibly a field ripe for automation).

Comments for this entry have been closed
Return to top