Detroit’s Job Creation Problems

Detroit urgently needs job creation.  No American city faces more difficult economic problems than Detroit.  Even seemingly good economic news is misleading.  Detroit’s unemployment rate fell from 27.8% in the summer of 2009 to 16.3% in the most recent jobs report.  However, the apparent decline in unemployment is illusory.  Unemployment dropped because jobless residents either left the city or gave up looking for work; employment in Detroit actually declined by 1.8% between the first five months of 2009 and the first five months of 2013.

Some of Detroit’s economic problems are due to the mass exodus from the city.  Detroit’s population declined by 810,000 (about 54%) since 1970, or the equivalent of the population of Columbus, Ohio, the nation’s 15th largest city.  Enough residents have left so that the sprawling city of Los Angeles has a population density 63% higher than Detroit’s.  So many skilled workers have left Detroit that manufacturing businesses find it difficult to hire qualified workers even as the demand for their products has recovered in the past few years and the unemployment rate is 9 percentage points above the national average.

Detroit is No Longer the Motor City

In 1978 when the “Big Three” automakers had an 80% share of the domestic car market there were over a quarter of a million auto manufacturing jobs in Detroit.  Today, there are fewer than 38,000 auto manufacturing jobs in Detroit and suburban Wayne County, a decline of 85% since 1978.  Thirty five years ago Detroit was the home to one in four auto industry jobs in the U.S.  Today only 4.7% of U.S. auto industry jobs are located in Detroit and suburban Wayne County.  The decline in manufacturing jobs in Detroit is not limited to the auto industry.  Since 1978 there has been an 88% decline in employment in manufacturing industries other than motor vehicles.

A Longer Workweek in Manufacturing

At a time when many economists are concerned that most job creation consists of part-time jobs, the workweek in Detroit is getting longer.  The average length of the workweek in Detroit manufacturing establishments was 48.4 hours per week in 2012, about 6.7 hours longer (16.1%) than the U.S. average for manufacturing establishments.  The following chart shows that the average length of the workweek in Detroit’s manufacturing sector increased by 15.2% between 2003 and 2012, compared to a modest 3.2% increase for the U.S. overall.  (For ease of exposition the length of the workweek has been normalized to 100 in 2003.)

Detroit1

A substantially longer workweek means that during the economic recovery (from 2009 to 2012) about 44% of the increase in labor inputs in Detroit’s manufacturing sector were achieved by a longer workweek instead of job creation.  The following chart illustrates what might have happened had there not been increases in hours worked per employee.  Manufacturing employment in Detroit in 2012 would have been 15.2% higher had the length of the workweek remained constant (at 42 hours per week) from 2003 to 2012.  (Again for ease of exposition total labor inpouts in 2003 have been normalized to 100.)

Detroit2

Do Manufacturing Establishments in Detroit Face a Shortage of Skilled Labor?

There are a number of reasons why the length of the workweek in Detroit increased more substantially than in the remainder of the U.S.  If establishments in Detroit faced more economic uncertainty they may have chosen a longer workweek rather than incurring the costs of hiring additional workers.  If establishments in Detroit faced higher fixed costs of fringe benefits per worker, such as health insurance coverage, they may have also chosen to increase hours per employee instead of hiring more workers.  In addition collectively bargained agreements between manufacturing firms and unions may have specified that workers retained during previous reductions in force would see increased hours per week before new employees could be hired.

The sharp increase in the length of the workweek may also be evidence that manufacturing establishments in Detroit face a shortage of skilled workers.  If businesses find it difficult to attract qualified workers because of the exodus of skilled workers over the past decade, the best way to accommodate labor demand may well be to increase hours per employee instead of creating jobs.

Conclusion

The forecast for job creation in Detroit remains bleak despite the Federal government bailout of domestic auto manufacturers.  Detroit is no longer The Motor City as fewer than 5% of auto industry jobs are located there.  About 44% of the increase in labor inputs in manufacturing in Detroit has occurred due to a longer workweek instead of job creation.  Employers in Detroit are likely relying on a longer workweek rather than more job creation because of the exodus of skilled workers from the metro area as well as uncertainty about Detroit’s economic future.

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