The Difficulties of Stimulus Policy

60 Minutes had a moving piece on Sunday about Wilmington, Ohio where thousands of people are losing their jobs due to the closure of the town's largest employer, DHL.  Many people had worked at the air distribution center for decades and through no fault of their own were losing their jobs, their health insurance and in one of the hardest losses of all, their community.  Barack Obama and John McCain both talked about Wilmington in their campaigns and yet for all their talk it's clear that neither monetary nor fiscal stimulus can do much for Wilmington.

Consider the situation, DHL employed 10,000 people and Wilmington is a city of 12,000 (not everyone lived in the city proper).  When DHL leaves there will be no other employer to take up the slack and DHL is leaving.  It's losing $6 million dollars a day.and closing all of its internal US operations.  No amount of new road construction or school restoration will restore the jobs lost in Wilmington. Banks may lend and interest rates may fall but the airpark is unlikely to come back.  Even when the rest of the economy recovers. will Wilmington?  The sad truth is that the workers of Wilmington are unlikely to ever find new jobs in their old city.  

I say this not to argue against a stimulus package, either fiscal or monetary, but to illustrate the limits of what we can expect.  We can do something to ease the transition as workers relocate and retrain.  To the extent that a stimulus works, it will make it easier for workers in Wilmington to get new jobs but these jobs will not be in Wilmington.      

Comments

Retrain them for what?

Just wondering.

By coincidence I happened to tour that facility a few days back. The history of the facility is worth noting. Initially Airborne Express had bought the airfield (the only one of its kind, by the way) and were running a cracker of an operation there. Using really unique methods of air transportation, they were holding their own against UPS and FedEx and were the low-cost provider in the next-day package delivery arena. Until DHL bought them and leased the facility from ABX.

To the extent that a stimulus works, it will make it easier for workers in Wilmington to get new jobs but these jobs will not be in Wilmington.

I don't know the place, but looking at google maps, it appears that Wilmington is located within commuting distance of Cincinnati, Dayton, and Columbus--so the jobs may not come back in Wilmington itself, but it doesn't follow that all the workers will have to move or that the town will dry up and blow away.

Alex,

Why is this sort of dislocation any different than the difficulities that were thrust upon New England coastal towns when electricity knocked out whaling as an industry, or when water-carriers in NYC had to find a new job due to indoor plumbing? I am not trying to be insensitive to pain and suffering, but I am asking the economic system question.

I once was asked a question in Romania about a steel town that collapsed after post communism. Government in this instance did not allow machinery to sold off, did not allow workers to migrate to new jobs in the city, and paid the workers 3/4 of previous wage as compensation. So no capital mobility, no labor mobility, and subsidization of "unemployment" --- it doesn't take a rocket scientist to figure out something is wrong with this picture.

Also, why isn't W. H. Hutt's discussion of the "theory of idle resources" being considered in these debates? Just as machines that are no longer valued in one line of production need to either be reallocated or substituted, so is the case with labor.

What am I missing?

Pete

When DHL took the (massive) Viacom account off UPS a few years ago, one of Sumner's boys told several Viacom employees (who were complaining about bad service) to "deal with it, we like the savings." The quote is from a company manager I know who did some work for Viacom.
Having had a bad experience with DHL myself, I'm not shedding any croc tears.
Sniff.

Interesting note - Ohio had a ballot issue back in November to allow one casino in the State of Ohio,
to be located in Wilmington, with expected employment up to 6,000 people. It failed (as it should -
it was very poorly written), but it tended to fail in bigger margins in non-urban places like Wilmington,
which lean solidly republican. I think there were signs of practicality in the community, literally,
as every other house in Wilmington seemed to sport a "No on 5" - "Yes on 5" sign. I think the pending
DHL (and ABX and ASTAR) job losses definitely made some reconsider their opposition to gambling.

I had a horrible DHL experience myself so yeah, I'm not keen on using tax dollars to ease anything.

I liked this line:

Many people had worked at the air distribution center for decades and through no fault of their own were losing their jobs, their health insurance and in one of the hardest losses of all, their community.

It got me to thinking if someone could lose their community through fault of his own. Homer Simpson one time nuked his town, I think, in one of the Halloween episodes.

It's no fun losing your job and having to move (and I've done that), but I agree with Boettke. If people aren't fitting into the economy anymore in their current spot, they need to be reallocated. If you don't let layoffs do it, the only alternative is for the central planner to assign jobs.

I am basically in line with Pete B. on this. From the standpoint of a town or a city
(and thus its inhabitants), the alternative is to get another industry or firm into the
town. Every urban area, including samll ones, must have an economic base activity in order
to survive, that is, something that exports outside the town. It is always dangerous for a
town or city to be dependent on a single firm, or even industry, as its economic base, for
the obvious reason that Wilmington is now experiencing. But, whoever it was who dumped on
the mayor for "investing" everything in DHL is also off-base without being able to tell us
that there were ever recently any other firms offering to set up in Wilmington as an alternative
or in addition to DHL.

As it is, every town or city must deal with the economic base it has, but keep on trying to get
a more diverse one as well. What is too bad for Wilmington and its residents is that this is a
lot harder during a recession, and, this being where I partially part with Pete B., this kind of
experience is a lot more likely to happen in a recession when output is going down in general
and more firms are going out of business than usual, with it harder to find a replacement. In
that regard Tyler is right that the fiscal stimulus as such will probably not help Wilmington
with its specific problems, but it will hopefully help at least halt the decline of the overall
economy, which will make it more likely that Wilmington will be able to attract a new firm or
firms that can serve as an economic base besides a state-built casino that lost in a referendum.

Great post.

It's worth noting that DHL is a subsidiary of Germany's Postal Service, DeutschePost, and enjoys a monopoly on German mail delivery.

No, actually, it doesn't. The monopoly ended a year ago.

Robert S. Porter: "The monopoly ended a year ago."

Thanks for the update, Robert. I was not aware that the legal protection of DeutschePost's monopoly had recently ended.

From what I've read, though, no serious competitor has entered the market for delivery of letters in Germany. DeutchePost still enjoys a market share well in excess of 90%. As I understand it, DeutchePost is aided because it is exempt from value-added taxation and potential competitors are not.

In any case, the mentality derived from over a century of monopoly privelege certainly handicapped DeutchePost and DHL in its competition with UPS and FedEx. That was my point.

But Allan that will reduce the price of my house!

No amount of new road construction or school restoration will restore the jobs lost in Wilmington.

Yes, but how does one deal with the waste of a overnight ghost town and airpark?

Somebody should do a study on cost of "protectionism" as opposed to massive relocation and retraining, because didn’t DHL simply go out of business due largely to the downturn of the economy, and perhaps some plain old bad management too. I mean, if Airborne owned the place once, I have to wonder if UPS or FedEx is interested if offered some incentives.

Wouldn't it be easier for someone who loses their job to find work some place else if they did not have to worry about being unable to sell their house? One of the couples in the 60 mins story mentioned that the husband had a job offer some where else, but did not think they can sell their house in Wilmington. I think home ownership is not all its cracked up to be.

commentator: "I mean, if Airborne owned the place once, I have to wonder if UPS or FedEx is interested if offered some incentives."

It's been years since I worked as a FedEx system form planner. I haven't kept up with all the changes. But I doubt either company has need for an east-west air transport hub so close to existing major air hubs: the FedEx Indianapolis national hub; and the UPS Worldport hub in Louisville.

FedEx has tended to open regional hubs adjacent to large metro areas: Oakland to serve the Bay area; Newark to serve New York; and Fort Worth Alliance to serve Texas. Locating near major population centers enables large volumes to be trucked between customers and the sort hub. Cincinatti-Dayton doesn't have the overnight package volume to make it a desirable hub location, IMO.

FedEx will be opening a hub near Greensboro, NC. That makes more sense than an Ohio hub, given the growth in North Carolina; the amount of north-south east coast package traffic; and the likelihood that the Newark hub has reached capacity.

Of course, if the price is right, and one of the companies needs a ground hub or an overflow air hub, perhaps they would acquire the DHL site. The FedEx planners I knew would want a very low price.

Most other sources seem to put the total people directly employed by ABX air (the DHL subsidiary) at closer to 6000. 10K seems to be the company's total employment (about 3 years ago) but not all of it was in Clinton county. Still an economic calamity, though.

DHL must have lost money on service between Dell repair in Texas and Central Ohio. I was getting one-day ship out and return-repaired service a no extra charge until they quit.

I don't know how big a business it is, but there's a LOT of air cargo activity out of Wilmington (KILN) still.

It's interesting how people lose jobs through no fault of their own, but rarely do we observe that the jobs they took were created through no effort of their own... Did 60 Minutes do a piece when ABX created the 10,000 jobs? No? Funny that. Not. Mention was made of the $6 million/day DHL is losing. No mention of who is hurt by that loss. It's a corporation. With a monopoly. In Germany. No human being is perceived of as "hurt" by the loss. When I think of bias in the media, this is the kind of non-sense I think of.

thank you for this information.sis jarMy local telecom is a monopoly, and it is out-of-control as far as wiretapping, eavesdropping, hacking, controling e-mail programs, phishing, spoof websites, etc.
No company should be immune from law suits and especially companies that control our communications.To give telecoms immunity will make "big brother"free nokia 6600 games"In this incidence and extent of formal coauthorship observed in economics against that observed in biology and discuss the causes and consequences of formal coauthorship in both disciplines. We then investigate the economic value (to authors) of informal comments offered by colleagues. This investigation leads us naturally into a discussion of the degree to which formal collaboration through coauthorship serves as a substitute for informal collaboration through collegial commentary. Data on manuscript submissions to the Journal of PolzticalEconomy permit us to shed additional empirical light on this subject. Finally, we demonstrate that while the incidence and extent of formal intellectual collaboration through coauthorship are greater in biology than in economics, the incidence and extent of informal intellectual collaboration are greater in economics than in biology. This leads us to search for evidence (which we find) of quids pro quo offered by authors to suppliers of free nokia n70 games

In the same vein, people blame Ken Lay and Jeff Skilling for destroying ENRON's market value when they were trying to sustain it in the face of stock holders selling it off but never mention that their demonized strategy is what made it's market valuation grow so rapidly in the first place. Free Skilling

Quality can be measured by the shoe's fit, rigidity, durability, construction quality and lightness.

Comments for this post are closed