Wednesday, 19 November 2008
An estimate of U.S. car jobs in jeopardy is dubious
Supporters of a bailout for the U.S. automakers have frequently cited a statistic that the industry supports one in 10 jobs in the country. While that is a large figure, it most likely overestimates the effect a collapse of one or more carmakers would have on the U.S. economy.
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An estimate of U.S. car jobs in jeopardy is dubious
By Catherine Rampell
19 November 2008
Supporters of a bailout for the U.S. automakers have frequently cited a statistic that the industry supports one in 10 jobs in the country. While that is a large figure, it most likely overestimates the effect a collapse of one or more carmakers would have on the U.S. economy.
The statistic seems to indicate that 10 percent of American jobs – a total of about 14 million jobs, as measured by the Bureau of Labor Statistics nonfarm payroll report — could evaporate if the three big Detroit automakers are allowed to fail. But that is not actually what the statistic refers to.
The figure appears to come from a 2003 study conducted by the Center for Automotive Research on the “economic contributions of the motor vehicle to the U.S. economy, to a multitude of U.S. industries in retail, manufacturing and service sectors, and to individual Americans.”
The center is a non-profit research organization with ties to labour and government. The study was commissioned by the Alliance of Automobile Manufacturers, an industry group.
The study concludes that “new vehicle production sales, and other jobs related to the use of automobiles are responsible for one out of every 10 jobs in the U.S economy.” The term “responsible for” is interpreted quite broadly and covers jobs in steel, glass and electronics as well as those in taxi-driving, travel and advertising companies, among others.
The study has two drawbacks in addressing the question of how many jobs are at risk if the Detroit automakers go bankrupt.
First, the study uses data from 1998 to 2001, and the industry has changed significantly since then. Employment in the motor vehicles and parts-manufacturing sector has fallen, for example.
Second, the auto-related jobs covered in the report include more than those dependent on the Detroit automakers; they are related to cars sold by any manufacturer in the American market.
In other words, the loss of a single U.S. car company would not necessarily dissolve all those jobs that the entire auto industry supports. The failure of General Motors, for example, would not eliminate the entire car-wash industry. If a foreign company could come in to fill the demand left by GM with minimal disruption, then, theoretically, car-wash employees would keep their jobs.
That is not to say that there would be no ripple effects. In fact, the center has done a more recent study on that question.
The study, which came out on Election Day, estimates “the economic impact – in terms of jobs, compensation and tax revenues – of a major contraction involving one or more of the Detroit Three automakers,” under two separate situations. In both cases, there would be significant short-term shocks to employment, leading to direct and indirect job losses of 2.5 million to 3 million in 2009.
Some argue that most of these jobs would be recovered, because foreign-owned auto companies would expand their plants in the United States. Others predict that foreign companies would instead expand their production overseas because of cheaper labour costs and because the suppliers that now serve both domestically – and foreign-owned American plants would be pulled under along with the Big Three.
The center’s study extrapolates only to 2011 but it finds that 40 percent to 59 percent of the jobs would be recovered by then.
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