High Unemployment Rate in Detroit

High Unemployment Rate in Detroit

Explanations for High Unemployment Rates in Detroit Correlating with Less Automotive Production

The recent financial recession left a lot of American manufacturing in trouble. The bottom line is that production is hard to make a profit here, when labor costs so much less over seas. The automotive industry here in the United States, and especially in Detroit, is a prime example of how the recession curbed production essentially leaving the city of Detroit decrepit. As automotive production began moving overseas, the city of Detroit suffered the most, facing the highest unemployment rate in the country.

There are numerous theories that aim to explain the recent hardship Detroit has found itself in. The most pertinent of these revolves around economics and the issue of how rising oil prices have driven down demand for automotives. Rising gas prices in the midst of a recession that hit automotive makers extremely hard. Here, the research suggests that "increases in the price of oil can lower the demand for automobiles" (Klier & Patton, 2012). When gas is too much, there are fewer people buying new cars, especially the gas guzzling cars that were popular in Detroit's heyday of production. Meanwhile, foreign car companies like Kia and Hyundai feel less of a stress when oil rises, because there are much less oil taxes in other nations where their production thrives. Such theories have gone to assume that "when the price of gasoline rises quickly, Detroit usually tends to struggle in the marketplace" (Klier & Patton, 2012). This has only been expounded with the changing nature of the automotive industry in general.

The lower demand for automobiles had the entire American automotive industry in major trouble. Many smaller brands did not survive the recession. In response to being close to bankruptcy, big auto makers decided to cut costs at the behest of Detroit's automotive workforce by shipping thousands of automotive jobs overseas. Thus, the American job market suffered at the cost of the "Big Three strategy of decentralization" (Feeley, 2011). The big three could not afford to keep up production in the United States at levels previously seen and still make enough of a profit to lead them out of financial disaster. GM alone reduced its workforce to fewer than 45,000 workers (Feeley, 2011). Most of these jobs went overseas, where labor was cheap. As such, "the state of Detroit is not really surprising given the reorganization of the U.S. auto industry, which was the met and potatoes of the city's workforce in the first three quarters of the 20th century" (Feeley, 2011). Detroit suffers as the automotive industry tries to regain its footing. Outsourcing has been the biggest threat to American automotive jobs. "As the city's oldest plants closed, production moved outward," far overseas in places like China (Feeley, 2011). This helps explain why automotive profits have began to rise in the past few years, but this has not had a serious impact on the unemployment level of Detroit. Outsourcing provides a way for the big three to find a cost effective way at production that leaves the very workers that put them on the map out to dry.