Wages and Exit Decisions for Workers in Declining Industries: the Case of Textile and Apparel

This paper examines the labor market for textile and apparel workers over the past 15 years, in the face of declining industry demand. We first provide a descriptive overview of real and relative earnings for textile and apparel workers as well as other manufacturing production workers. We find large employment losses and relatively constant wages for textile and apparel workers and that these losses have been the greatest in recent years. Exit from textile and apparel industries is examined by estimating a multinomial logit model on the decision to stay in the current job, leave for another job or leave employment altogether. By constructing a predicted wage for each worker, we are able to include a measure of the worker’s alternative wage as an explanatory variable. Our results show that textile and apparel workers are somewhat sensitive to outside earnings but less so than other manufacturing workers, and this difference could be explained by differences in measured skill level. The response to outside earnings decreases over the 1983-1998 period, consistent with an adjustment toward long-run equilibrium. It appears that increased import competition and changes in textile and apparel production techniques lead to a decrease in demand for textile and apparel workers, especially for those with lower skills. Textile and apparel industries have historically been important sources of manufacturing employment in the U.S. economy. As recently as 1973 these industries employed 2.3 million workers, or over 11 percent of all manufacturing employment. By 1993, however, employment declined to about 1.6 million workers and 8.3 percent of manufacturing, a decline of over 30 percent compared to 1973 levels. Remarkably, over 40 percent of the total manufacturing employment loss over this 20-year period came from the textile and apparel industries. This trend has continued throughout the 1990s so that by 1998 textile and apparel employment was around 1.4 million or about 7 percent of manufacturing employment. Shifts in the demand for textile and apparel workers are the common explanations for the decline in employment in these industries (Dunlop and Weil, 1996; Berg et al., 1996; Revenga, 1992; Freeman and Kleiner, 1998). Most of this previous literature examines the demand-side of this market. There has been little research, however, examining the supply-side response to this change. The purpose of this paper is to address supply-side changes in the labor market for textile and apparel workers by examining workers’ decision to exit the industry. It is likely that part of the employment loss from textile and apparel over the period is the voluntary movement of workers seeking better long run opportunities elsewhere in the form of job security and higher wages. The most mobile and those with the best alternatives would be expected to leave first, as the possibility of job displacement became apparent. We use longitudinal data constructed from the March Current Population Surveys from 1983-1998 to examine the decision of textile and apparel workers to exit the industry: either to an alternative industry or to leave employment. By constructing a predicted wage for each worker we estimate how the exit decision in this industry is influenced by the difference in the worker’s actual and predicted wage. This wage gap is interpreted as a measure of outside wage opportunities. Our results indicate that textile and apparel workers are only somewhat sensitive to outside earnings, but other manufacturing workers appear to respond more strongly to the wage gap. This difference is