Impact of Big Three Automakers on U.S. Job Market Is Grossly Overstated, Says Boston College Researcher

Dec 11, 2008, 11:29 ET from Boston College

CHESTNUT HILL, Mass., Dec. 11 /PRNewswire-USNewswire/ -- The national employment impact of the big three auto manufacturers has been significantly overstated, according to a socioeconomist at Boston College.

Frequently-cited figures imply that about 1 in 10 jobs -- or 10 percent of the full-time civilian labor force -- will be lost if the big three go into bankruptcy. This indeed would be a sobering statistic: at the end of November 2008 the Bureau of Labor Statistics indicates there were 144.2 million employed persons in the civilian labor force: 26.2 million were part time workers, leaving 118.0 million full-time workers. A loss of 10 percent, therefore, would eliminate some 12 million full-time jobs.

This implication is inappropriate, says John J. Havens, senior research associate and senior associate director of the Center on Wealth and Philanthropy at Boston College, unless one counts every job that is associated, however remotely, with automobile manufacturing, even if that association is limited to just a few hours of work per year.

In fact, the maximum impact if the entire automobile industry in the US were to shut down completely and permanently would be 190,000 jobs in auto manufacturing and 540,000 other jobs throughout the economy. "And only about 60 percent of this number would be affected were the big three to shut down," he said.

"When jobs are calculated in terms of the number of hours tied to automobile manufacturing," said Havens, "and the hours are expressed in terms of 'full-time jobs,' less than 0.8 percent of the labor force will be affected -- substantially less, because competitors or new startups would pick up many jobs if the big three went out of business."

Citing figures from the Center for Automotive Research, Havens notes that only 190,000 jobs (not full-time equivalents, as used in the other calculations) are located in the entire U.S. automobile manufacturing industry. Suppliers entail another 777,000 jobs, he said, but what is frequently overlooked is that they supply other industries as well.

Auto dealerships constitute the greatest number of jobs within this industry, he said; some 1.235 million total, with about a million jobs in sales alone, most of which are part-time, each amounting to an average of less than 15 hours per week.

"For many sales people, these are weekend, part-time jobs to supplement full-time employment," added Havens. "Moreover, many dealerships have diversified their product line beyond the big three models, meaning they have other products to fall back on."

Data from the Bureau of Economic Analysis, he said, tells us that the employment multiplier for the automobile industry varies depending on the type of job. The multiplier indicates how many total jobs in the economy would be lost due to a job lost in any given industry.

"On average, the multiplier for any given job in the automobile industry rarely rises above 3. But for the sake of this argument, let us assume it is 4," he said. "Even if all 190,000 jobs in the automobile industry were lost, the overall economy would see a decrease of 760,000 jobs with approximately 540,000 of those outside the industry.

"This maximum estimate amounts to 0.5 percent of the labor force," he said, "not the 10 percent some are claiming. But even this smaller number involves hundreds of thousands of jobs and hundreds of thousands of households.

"The loss of U.S. jobs especially in this quantity is cause for concern," said Havens, who stresses that the analysis is not intended to minimize the gravity of the economic situation facing the nation or that of individuals facing unemployment.

"It is always important to take a hard look at numbers being reported," he said, "if only to serve as a benchmark for assessing the effectiveness of public policy."

John J. Havens received his training in mathematics, economics, and physics at Yale University and his graduate training in economics at the Massachusetts Institute of Technology. He began his research career as an engineer and mathematician at the Metals Research Laboratories of Olin Matheison Corporation, and has since conducted research in urban transportation for the Transportation Research Board of the National Academy of Sciences; in applied policy and data analysis for the American Institute for Research; and for the past 17 years in economic, public policy, and philanthropy analysis for the Boston College Center on Wealth and Philanthropy, (previously known as the Social Welfare Research Institute).

SOURCE Boston College