Research shows US manufacturing decline has widened many workers’ choice of employers

While a small number of “superstar” firms have accounted for an ever-larger slice of sales and jobs in the US nationally since the early 1980s, new research shows that at local level the picture is far more complex.

Economists from LSE, MIT and Chicago Booth analysed how jobs are concentrated in an industry at the level of a US state or county. Local sales concentration has become increasingly dominated by a few firms, mirroring the national picture. But in terms of jobs, the opposite is true – on average, workers have a greater number of local employers to choose from than they did 40 years ago.

The study – which is published by the Centre for Economic Performance (CEP) and the Programme on Innovation and Diffusion (POID) at the LSE – shows that decreased local jobs concentration is driven by the structural transformation of the US economy from manufacturing (such as steel mills) towards services (such as hair salons).

Local employment concentration is about three times higher in manufacturing than services, so as the economy has shifted away from manufacturing, jobs concentration has fallen.

The implications of the research are nuanced, say the authors. Rising national sales concentration is likely to imply weakening product market competition, and the evidence of rising sales concentration in local market magnifies these concerns. But the rise is likely to be at least partly due to the spread of national chains, which are typically more productive and offer greater product variety than local rivals.

Similarly, when it comes to the reduced concentration of employment, a greater choice of employers should mean that workers are able to move jobs more easily. But the researchers find that while there may be more industries in a local area, there is greater concentration within each industry.

So, for example, a mid-career manufacturing worker possessing extensive industry skills and experience may not feel the benefit of “de-concentration”. Because this worker cannot readily switch to a new line of work without taking a large pay cut, the net effect of industrial transformation may be less vigorous competition for their services.

Professor John Van Reenen, director of POID and co-author of the study, said: “Nationally, the dominance of a few firms in an industry has increased over the last four decades. But in the US, there has been a de-concentration of jobs at the local level.

“Concerns about the effects of rising industrial concentration and market power are not limited to the US, similar trends are visible in the UK – for more on this see the POID working paper: Firms and Inequality. Understanding what is happening and why is critical for evaluating any policy responses.”

Professor Christina Patterson, of Chicago Booth and co-author of the study, said: “Lower local jobs concentration is driven by the shift of employment away from high-concentration manufacturing to low-concentration services.”

Professor David Autor, of MIT and co-author of the study, added: “Lower local employment concentration is not a bad thing. But it may not benefit older workers who cannot easily switch across industries.”