Special government assistance to defense-dependent industry workers: The case of the aerospace industry

I. INTRODUCTION It is not uncommon for the federal government to provide special assistance to workers in certain industries that have experienced declines in demand, such as workers displaced by international trade (covered by the Economic Dislocation and Worker Adjustment Assistance Act). The rationale for such assistance varies, but in general it is assumed that these workers suffer disproportionate losses in wages and employment. However, rarely is this assumption rigorously tested. This paper tests this assumption in the case of workers in the aerospace industry, who received special assistance in response to the sharp declines in defense spending. The end of the Cold War has brought profound changes to the U.S. military and to sectors of the civilian economy that have been linked closely to defense procurement. The aerospace industry has been at the vortex of these contractions because, at least in California, it accounts for approximately two-thirds of all civilian employment that is dependent on defense procurement. Nationwide, the aerospace industry's job base has shrunk by 29% over the past eight years, and nowhere have those changes been more apparent than in California. In 1987, which was the peak of aerospace employment nationally, California was home to one in four U.S. aerospace jobs. Since then, the aerospace industry in California has become a shadow of its former self, declining by 40% (BLS, various years). The federal government responded to these employment losses by setting up special programs to assist aerospace workers. While different in scope and focus, all of these programs were based on a common assumption that aerospace workers had suffered unique hardships. But did their experience differ from that of workers in non-aerospace manufacturing? This study uses a unique data source to examine the labor market outcomes of all aerospace employees who were working in California in the first quarter of 1989, just before the declines in employment. These 517,148 aerospace workers were tracked through the third quarter of 1994, which is after most of the large downsizings took place but before most of the special assistance was received, and compared their labor market outcomes with the outcomes of a random sample of 20% of durable manufacturing workers (excluding aerospace) in California. By examining this group of 315,856 employees, we were able to determine whether the changes experienced by aerospace workers differed from changes experienced by workers in other industries. II. THE AEROSPACE INDUSTRY Aerospace industries include missiles and space, aircraft, communications, and instruments. All are heavily dependent on defense expenditures (Table 1). The estimates of industry defense dependence for revenue vary from just under 20% for instruments to as much as 84% for the missiles and space sector. For aircraft and parts, estimates are slightly over 40%. In comparison, defense demand is estimated at 6% of revenue for all manufacturing industries combined. In sum, employment within the aerospace industry as a whole is largely determined by defense expenditures. Certain regions are much more dependent on aerospace. California in particular was home to a disproportionately large number of aerospace workers. Almost 30% of the nation's aerospace employment was in California when aerospace employment was at its peak in 1987, even though only 17% of all non-aerospace manufacturing jobs were located there. As a result, just over 20% of California's manufacturing employment was in aerospace, and this represented 4% of total California employment (BLS, various years). The rapid employment decline in the early 1990s was thought to have been exacerbated by the fact that the aerospace workers were geographically concentrated, flooding labor markets in regions such as California, which was itself experiencing its deepest recession in decades. Increasing the potential for difficulty was the fact that not all regions experienced equal declines in aerospace employment over the past five to eight years. …