Responding to Deindustrialization

We’ve long sought to better understand how and why some communities are able to recover from economic shocks, while others seem to never rebuild and recover.  An excellent new National Bureau of Economic Research paper offers some insights on these questions.  The study examines the experiences of nearly 2,000 regions in six countries (US, Japan, Britain, France, Germany, and Italy) that have faced major deindustrialization over the long period from the 1970s to 2010. 

Before the manufacturing downturn, these manufacturing hubs tended to perform similar (or better) to locations with lower sharess of manufacturing jobs.  Not surprisingly, the downturn in manufacturing flipped these patterns, with the former hubs showing slower subsequent growth (around 2.7% lower over a decade).  However, many manufacturing hubs recovered quickly and performed relatively well after these economic shocks.  In fact, about 34% of former manufacturing hubs “recovered fully” within a few years.  German regions recovered better (with 47% recovering), while US locations fared the worst, with only 17% of locations achieving “full recovery.”

The authors suggest that local education levels explain economic recovery trajectories. When manufacturing hubs were thriving, relative education levels did not have big impacts on economic growth.  However, post manufacturing downturn, education levels mattered greatly.  Regions with higher levels of college graduates were more likely to recover and thrive, while lower educated regions struggled. These patterns likely reflect the fact that higher levels of college graduates make it easier to regions to support growth in more knowledge-intensive service sectors.  While these findings  shouldn’t surprise us, they are another indication that when it comes to economic resilience and recovery from economic shocks, talent matters!