More Car Talk for the Campaign

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JONATHAN COHN MAY 18, 2011

More Car Talk for the Campaign

Unemployment in Michigan, Ohio, Indiana, and Illinois is falling more quickly than in the rest of the country. The Big Three are hiring again. Does one development have anything to do with the other? Does it mean President Obama can brag about the auto industry rescue package? In an item on Monday, I suggested the answers to both questions were yes, although the linkage between the jobs numbers and the Detroit bailout is complicated--and, in a sense, has more to do with the collapse the package prevented than the growth the package created.

I came to that conclusion after speaking to a number of economists. One of them was Gary Burtless, a scholar at Brookings and leading expert on the labor market. Here's what he wrote in an e-mail:

The low point of employment in the “motor vehicles and parts” manufacturing industry occurred in June 2009, when payroll employment dipped to 623,000 (down from roughly 1,250,000 in early 2001!). Auto makers and parts suppliers have added 76,000 to their payrolls since then (seasonally adjusted), bringing employment up to 699,000. No doubt the bigger auto and parts factory payrolls have added to employment in the tire industry and some other Midwest industries that supply inputs to auto makers; fatter manufacturing payrolls in the Midwest have helped employers in retailing and other services in communities where the factories are located.

Probably more to the point is the fact that the Midwest has not only benefited from the survival of America’s Big Three but also the rebound in our manufacturing exports more generally plus the robust health of agricultural prices and exports (and there are a lot of farms and businesses that support farmers in the Midwest). Plus, a lot of the states still in the tank (California, Nevada, Arizona, and Florida) had home and commercial property building booms that were missing in the Midwest. Slowly growing regions of the country before the financial crisis (the Midwest, the Northeast) did not require a lot of new homes or commercial buildings, so the collapse of their building industry had a proportionately small impact on their overall employment. Correspondingly, the drop in building activity generated massive employment losses in Southern California, Nevada, Arizona, & Florida. We’re a long way from seeing any recovery in construction, which leaves the construction-heavy parts of the country stuck in a very deep slump.

I was a big fan of the auto bailout myself. My fear, however, was that the total collapse of GM and Chrysler would contribute to the collapse of auto parts suppliers, which in turn would have pushed Ford over the edge into bankruptcy and possibly led to some temporary (but big) auto plant closures among the Japanese companies. Remember: Japanese auto-building in this country also depends on U.S. parts suppliers. Look at how badly Toyota’s U.S. production has been hurt by Japan’s earthquake, and yet I think Toyota’s U.S. plants get most of their parts from U.S.-based parts factories. Think how badly they’d have been hit if the U.S. parts suppliers went under back in 2009. By avoiding the collapse of the U.S.-based auto makers (and some suppliers) we also avoided an even more massive collapse in auto-related employment (e.g., among parts suppliers, in Japanese automakers, and in Big Three auto dealerships) than the collapse we actually experienced. The recent rebound helps, but it’s probably small compared with the job losses we avoided.

Note: Gratuitous posting of Eminem Chrysler ad (above) just because I still love it. 

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posted in: jonathan cohn, politics, detroit, gary burtles, gary burtless, illinois, indiana, michigan, ohio

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