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News from EPI Job loss in manufacturing has a large ripple effect on other jobs

A new EPI paper highlights the benefits of manufacturing employment to the broader economy. EPI Director of Research Josh Bivens calculates employment multipliers by industry. These employment multipliers show how the loss of jobs or output in one industry ripples through the economy and affect other industries. He explains that each industry has backward linkages to economic sectors that provide the materials needed for the industry’s output and forward linkages to the economic sectors where the industry’s workers spend their income.

For example, Bivens calculates that for every 100 jobs lost in durable manufacturing, there are 744.1 indirect jobs lost. For comparison, the number of indirect jobs lost per 100 retail trade jobs is just 122.1. So, an auto factory closure, for example, would have an impact on many more jobs than a closure of a retail firm of the same size.

Bivens also looks at what the effects are on jobs when the demand for an industry’s output drops. He finds there are 16.5 indirect jobs lost per $1 million drop in demand for durable manufacturing, compared with 10.6 indirect jobs lost for the same demand drop in retail. This means that, while direct job loss is much lower in durable manufacturing for a given drop in final demand, total job loss (including both indirect and direct jobs) for a $1 million drop in demand is similar in durable manufacturing and retail (18.3 and 20.5, respectively).

”The decline in manufacturing jobs in recent decades has often been portrayed as uniquely damaging to communities that once relied on these jobs,” said Bivens. ”The employment multipliers calculated in this paper provide some empirical texture supporting this portrayal: losing manufacturing jobs really does lead to larger negative ripple effects.”

The paper is an update to a 2003 EPI paper on employment multipliers.