Short-term relationship between manufacturing and non-manufacturing employment in nine urban areas

Abstract

This paper explores the short-term relationship between manufacturing and non-manufacturing employment in nine medium-sized urban areas in Michigan. More specifically, it examines the extent to which changes in employment in the non-manufacturing sector seem to be associated with changes in manufacturing employment; the existence of possible leads or lags in the relationship of the two employment sectors; and the quantitative importance of this relationship. It is assumed that, since the manufacturing sectors in the above areas export the largest part of their production, the fluctuations which occur in the demand for manufactures and in manufacturing employment are mainly due to external factors. The demand for non-manufacturing products and employment is then expected to fluctuate primarily as a result of the changes in the manufacturing sector. Correlation analysis is used to examine if there is any association in the variation of the two sectors and to detect any leads or lags. The results of this analysis suggest strong simultaneity in the variation of the two variables which may reflect the existence of unemployment and underemployment in certain industries and the influence of fluctuations that occur in the construction sector. A KOYCK-type distributed-lag regression function is used to investigate the quantitative importance of the relationship. The results of regression analysis suggest that a change in the number of manufacturing workers may cause a change in the number of non-manufacturing workers but the strength of the effect may vary according to the urban area. Some reasons for this are suggested in the paper.