German Manufacturing Model

I almost certain Chris Briem is the person who made me aware of the Pittsburgh paradox contrasting drops in overall population and the rises in total workforce. Whoever the source, you can get the gist here:

Then there is the oped in the PG on the role of women in the Pittsburgh story: How Women Changed Pittsburgh. Starting in the 1990’s I would tell people that the real change in the local labor force was the story of women finally being a part of the labor force in ways they should have been decades ago. It was just not the way anyone was thinking about what was going on and I would mostly get stares. Yet without understanding the impact of women entering the Pittsburgh workforce I am not sure anything else could make sense. It really is the number 1 story, if it makes sense to rank these things, on how the Pittsburgh economy has 'transformed' in the last couple decades.

When we discuss Rust Belt economics, demographics are often left out of the conversation. Thus the quizzical looks you often receive when you mention shrinking cities and higher numbers of employed in the same breath. Richard Longworth's post today about the German industrial economy reminded me of this story about the role of women in that country's workforce:

In the East, a Communist leadership losing male labor to the West set up free day care centers and all-day schools. Women drove cranes and studied physics. Western wives, by contrast, until 1977 officially needed husbands’ permission to work. By then, their Eastern peers had a year of paid maternity leave and shorter work hours if they nursed.

When the Berlin Wall fell in 1989, female employment in the East was near 90 percent, in the West 55 percent.

Today, 66 percent of German women work. But for those with children under 3, that figure plunges to 32 percent. Only 14 percent of women with one child resume full-time work and only 6 percent of those with two. One result: a birthrate of 1.38 children per woman.

There is still a great deal of pressure for mothers to stay at home, out of the workforce. It must have a huge impact on the unemployment picture. The other point of the article is that tradition is eroding thanks to a shrinking population. Germany needs more women to work. I think that suggests that the German labor market enjoys a certain flexibility that the Rust Belt does not have.

Perhaps the rest of the Rust Belt would be wise to look at what happened in Pittsburgh:

Because young women were locked out of the primary industrial economy for so long, their middle-class fathers, concerned for their long-term welfare, sent them to school while their brothers headed for jobs in the mills -- jobs that would largely vanish in the coming years. Even before 1928, many more girls in Pittsburgh completed high school than boys.

Young men earned better wages by skipping formal education and heading straight for the mills; for young women, education was considered essential to upward mobility. This pattern continued over time and, as a result, according to the Pittsburgh Economic Quarterly, women in the Pittsburgh area have had higher average levels of education than both men locally and women nationally.

This education typically resulted in jobs in teaching, nursing or clerical/financial services. While these were the few options open to women at the time, professions in these service industries now fall under what we consider three of the primary sectors responsible for our economic revitalization: education, health care and finance. ...

... "Women are singularly responsible for the region regaining its employment and labor-force levels above their peaks prior to the massive job losses of the 1980s ... in fact, total employment and total labor force would reach their all-time peaks in the Pittsburgh region in the late 1990s. This expansion in the local labor force, despite the large structural job loss of the 1980s, was only possible because of the dramatic increase in female labor force participation."

Quite simply, Pittsburgh valued its female talent more than other manufacturing regions did. That would seem to include Germany. Those toiling in the field of international economic development have long appreciated the importance of investing in the education of girls.

Perhaps the Rust Belt can learn something from Germany. Its export prowess is impressive. However, I can't shake the demographic similarities with another wealthy manufacturing power: Japan. The lack of workforce growth would encourage efficiency innovations, making those two countries more competitive in terms of labor costs. In fact, a similar trend is taking root in the United States:

But since this recent recession began in December 2007, real average hourly pay has risen nearly 5 percent. Some employers, especially state and local governments, have cut wages. But many more employers have continued to increase pay.

Something similar happened during the Great Depression, notes Bruce Judson of the Yale School of Management. Falling prices meant that workers who held onto their jobs received a surprisingly strong effective pay increase.

This time around, nominal wages — the numbers people see in their paychecks — have risen throughout the slump, as companies have passed along some of the impressive productivity to their (remaining) workers. Meanwhile, inflation has been almost non-existent, except for parts of last year, when real wages did briefly fall.

My guess is that Germany has more (in percentage terms) of the above type of workers who would still be employed if they happened to be located in the United States. Keeping mothers at home raising children will encourage a country to develop its workforce in such a way. Ignoring our own competitive advantages will not solve America's or the Rust Belt's economic problems. I'm more convinced than ever that crafting an industrial policy is a bad idea.