This post is co-written with John Olis, History major at Ave Maria University.
There is a popular myth that manufacturing jobs of the past provided a leg-up to young people. The myth goes like this. Manufacturing jobs had low barriers to entry so anyone could join. Once there, the job paid well and provided opportunities for fostering skills and a path toward long-term economic success. There is more to the myth, but let’s stop there for the moment. Is the myth true?
One of my students, John Olis, did a case study on Connecticut in 1920-1930 using cross sectional IPUMS data of white working age individuals to evaluate the ‘Manufacturing Myth’. We are not talking causal inference here, but the weight of the evidence is non-zero. The story above has some predictions if not outright theoretical assertions.
- Manufacturing jobs paid better than non-manufacturing jobs for people with less human capital.
- Manufacturing jobs yielded faster income growth than non-manufacturing jobs.
- Implicitly, manufacturing jobs provided faster income growth for people with less human capital.
Using only one state and two decades of data obviously makes the analysis highly specific. Expanding the breadth or the timescale could confirm or falsify the results. But historical Connecticut is a particularly useful population because 1) it had a large manufacturing sector, 2) existed prior to the post WWII boom in manufacturing that resulted from the destruction of European capacity, and 3) had large identifiable populations with different levels of human capital.
Who had less human capital on average? There are two groups who are easy to identify: 1) immigrants and 2) illiterate people. Immigrants at the time often couldn’t speak English with native proficiency or lacked the social norms that eased commercial transactions in their new country (on average, not always). Illiterate people couldn’t read or write. Therefore, having a comparative advantage in manual labor, we’d expect these two groups to be well served by manufacturing employment vs the alternative.
Being cross-sectional, the individuals are not linked over time, so we can’t say what happened to particular people. But we can say how people differed by their time and characteristics. Interaction variables help to drill-down to the relevant comparisons. There are two specifications for explaining income*, one that interacts manufacturing employment with immigrant status and one that interacts the status of illiteracy. The baseline case is a 1920 non-operative native or literate person. Let’s start with the below snapshot of 1920. The term used in the data is ‘operative’ rather than ‘manufacturer’, referring to people who operate machines of one sort or another. So, it’s often the same as manufacturing, but can also be manufacturing-adjacent. The below charts illustrate the effect of lower human capital in pink and the additional subpopulation impacts of manufacturing in blue.
In the left-hand specification, native operatives made 2.2% less than the baseline population. That is, being an operative was slightly harmful to individual earnings. Being an immigrant lowered earnings a substantial 16.8%, but being an operative recovered most of the gap so that immigrant operatives made only 6.1pp less than the baseline population and only 3.9pp less than native operatives. In the right-hand specification, unsurprisingly, being illiterate was terrible for one’s earnings to the tune of 23.4pp. And while being an operative resulted in a 1.2% earnings boost among natives, being an operative entirely eliminated the harm that illiteracy imposed on earnings.
Both graphs show that manufacturing had tiny effects for a typical native or literate individual. But manufacturing mattered hugely for people who had less human capital. So, prediction 1) above is borne out by the data: Manufacturing is great for people with less-than-average human capital.
But what about earnings *growth*? See below.
Average non-operative income grew 3.1% cumulatively between 1920 and 1930. The graphs above illustrate the income growth relative to that baseline. Both graphs show that being a native or literate operative was worse for income growth than the baseline. In addition, having less human capital was also bad: both immigrants and illiterate people had slower income growth. But might manufacturing work be especially well-suited for people with lower human capital such that they achieve greater income growth than they would otherwise? Might manufacturing jobs put such people on a path toward higher incomes?
Not among immigrants. Immigrants who worked as operatives had slower income growth than non-operative immigrants. The only good news in the income growth chart is for illiterate individuals. Those individuals had faster income growth when they were operatives, but it was still 0.5pp slower than the baseline population. Learning to read and write would have improved their income more than having a manufacturing job.
What’s the point? Manufacturing jobs, even 100 years ago, were not jobs that resulted in high income and income growth. They improved earnings most for those who faced cultural or language barriers or couldn’t read. That’s not exactly the story being told by the public advocates for protectionist industrial policy. Furthermore, income growth was slower for all subpopulations in manufacturing – native and literate alike.
I don’t hate manufacturing and I certainly have no less respect for people who work in that sector. There is a great deal of diversity out there. People have many gifts, rich experiences, and a variety of skills that they’ve nurtured. We all find purpose in different ways. But we should not make a panacea out of manufacturing employment. The golden age that people often have in mind was a world in which other manufacturing countries had been decimated by the 2nd World War. The evidence here illustrates that earlier manufacturing jobs – much like more recent ones – weren’t great compared to the alternatives.
*The data uses occupational score rather than income. It’s not quite the same as income, but plenty of validation work has been done that is corroborates it. The specifications also include controls.
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