Resilient or Left Behind? How Cities Respond to Industrial Decline and Job Loss

The OECD study shows that industrial restructuring hits cities unevenly, with some adapting and recovering while nearly half remain trapped in long-term job losses after concentrated sectoral shocks. Recovery is more likely in places with strong service sectors, universities and younger populations, highlighting that resilience depends on local economic structure and institutions rather than national trends alone.

Industrial restructuring is often discussed in national statistics and abstract economic models, but its real impact is felt locally, where factories shut down, offices empty and livelihoods disappear. A new OECD report shows that the fate of cities and regions under industrial pressure varies dramatically. Produced by the OECD’s Centre for Entrepreneurship, SMEs, Regions and Cities under its Local Economic and Employment Development (LEED) Programme, with support from the UK Economic and Social Research Council and UK Research and Innovation, the study argues that economic transformation is fundamentally a place-based story, shaped by local labour markets rather than national averages.

Measuring pressure where it actually hits

To understand why some places recover and others do not, the researchers introduce a new tool: the Industrial Restructuring Pressure (IRP) index. Unlike conventional indicators that simply track job losses, the IRP index focuses on how concentrated those losses are. Losing jobs across many sectors is painful but manageable; losing them in one or two dominant industries can overwhelm a local labour market. The index, therefore, gives more weight to sectorally concentrated job losses, capturing moments when cities face genuine restructuring shocks rather than routine economic downturns. Using this measure, the study tracks restructuring pressure across 449 functional urban areas in Finland, France, Spain, Sweden, the United Kingdom and the United States between 1975 and 2023.

Manufacturing’s long shadow, and new service shocks

The findings reveal a strikingly uneven geography of disruption. Since the early 2000s, about one in four urban labour markets has experienced at least one episode of severe restructuring pressure. The United States and the United Kingdom stand out, partly reflecting their industrial histories and more flexible labour markets. Manufacturing dominates the story. Classic examples include steel and automotive collapse in Greater Detroit and Pittsburgh, ceramics in Stoke-on-Trent, electronics in Oulu and Örebro, and transport equipment manufacturing in Montbéliard. These shocks were often sudden and deep, wiping out tens of thousands of jobs in a few years. Yet the report also shows that restructuring is no longer limited to factories. In Spain, after the 2008 financial crisis, construction and financial services imploded in several cities, proving that service-based economies are also vulnerable when demand dries up abruptly.

Three paths after the shock

What happens after restructuring pressure hits is where cities truly diverge. Tracking employment for up to ten years after each shock, the study identifies three broad trajectories. Some places prove resilient, continuing to grow despite losing jobs in key sectors. Others bounce back, suffering an initial decline but recovering within a decade. Nearly half, however, become trapped, with employment failing to return to pre-shock levels even after ten years. Since the 2000s, just over half of affected cities either remained resilient or bounced back, while the rest experienced long-lasting employment losses. This shows that decline is not inevitable, but recovery is far from guaranteed.

Jobs, productivity and hidden trade-offs

Employment figures alone do not tell the full story. When productivity and employment-to-population ratios are added, the picture becomes more complex. Only about a quarter of places exposed to restructuring pressure since the 2000s truly thrived, managing to combine job growth, rising productivity and stronger labour market participation. Far more common was “jobless productivity growth”, where output per worker increased even as jobs disappeared. In these places, economic efficiency improved, but many workers were left behind. Other cities saw growth that benefited only part of the population or job creation concentrated in low-productivity activities. At the end were places caught in a downward spiral of falling jobs, participation and productivity.

Why some places cope better than others

The study points to several factors that shape recovery. More intense and manufacturing-driven shocks are harder to overcome than those rooted in services. Cities with a stronger service base tend to adjust more easily than those heavily dependent on manufacturing. One of the strongest positive influences is the presence of higher education institutions. Cities with more universities and colleges consistently show better post-shock employment outcomes, highlighting the role of skills, innovation, and knowledge networks. Demographics also matter: ageing populations are linked to slower recovery, limiting labour market flexibility and adaptation.

The report’s core message is clear. Industrial restructuring does not automatically condemn places to decline, but neither does recovery happen on its own. Different cities follow different paths, shaped by their economic structure, institutions and people. As countries confront new waves of change driven by decarbonisation, digitalisation and artificial intelligence, the OECD warns that future resilience will depend on understanding these local dynamics and designing policies that respond to the realities of place, not just national trends.