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Helping People by Helping Distressed Places
This column is the first in a series on place-based jobs policies.
Our nation has two types of distressed places: local labor markets and neighborhoods. Too many local labor markets—multi-county areas such as metro areas or rural commuting zones—have too low employment-to-population ratios (“employment rates”) and too few good jobs. Even within otherwise booming local labor markets, too many neighborhoods suffer from poor job availability.
The lack of jobs in distressed places can be significantly alleviated with place-oriented policies that boost job growth in these distressed places, or that help residents better access jobs. Such place-based policies would benefit our entire nation.
Why care about places, distressed or otherwise? Shouldn’t we focus on people, not places? Why not just help the unemployed or under-employed get better jobs, without focusing on the places where these people live? Or, if distressed places are an impediment to solving “people problems,” why not help people by moving them out of those distressed places? Why focus on helping people in the places they already live?
The argument for helping people in distressed places is not that these places must survive at all costs. But if we want to help people, sometimes the best way is to help people in the places where they live with policies adapted to those places’ characteristics. There are two reasons why solving people’s employment problems requires us to be place-oriented.
First, people have strong ties to places—which makes it costly for them to move. Caring about people means we should target aid to the places where they want to live.
Second, large spillover effects occur between people and businesses in places—what people or businesses do affects nearby people or businesses—and policies must take these effects into account. Since these spillover effects vary from place to place, policies to solve employment problems necessarily vary across places.
In deciding whether to encourage out-migration, or instead help people where they live, high moving costs remain a factor—after all, most Americans are not as mobile as the average college professor. Sixty percent of Americans adults live within 100 miles of their birthplace, and even around forty percent of college graduates spend most of their careers in their childhood metro area. Indeed, offering people $10,000 to encourage them to move increases moving rates by only 2 percentage points. Moving costs don’t arise from mistaken attachments. Leaving behind your family, your friends, and familiar institutions doesn’t just have major emotional costs; weakened ties to job networks or social supports have concrete economic costs as well.
Not only are people hard to move, but there are important spillover costs even if we do persuade some people to leave distressed locales. Empirical estimates suggest that encouraging some percent of a distressed place’s population to move out will cause employment in that place to go down by about the same percentage as the population. In other words, moving people out of a place that lacks jobs does not improve the job prospects of those left behind.
Why does out-migration from a place reduce its overall employment so much? Several reasons: losing people reduces demand for local goods and services, and thus reduces local jobs. In addition, the loss of population reduces local housing demand, which reduces local construction and local property values, both of which further reduce local demand and jobs. Finally, the people who leave tend to be younger and more educated and more entrepreneurial people, which reduces business start-ups and the attractions of a place for business locations and expansions.
People’s ties to places, and local spillover effects, also help explain important research showing that job increases in a local labor market produce very long-lasting benefits for local employment rates and earnings. If a local labor market’s jobs are boosted by a certain percentage, the employment rate for residents of that place is boosted by about one-fifth as much—even in the long run. To put it another way, for every 100 jobs brought to a place, 20 additional local residents are employed who otherwise would not have found work—even 15 or more years later.
Why such long-run effects of a one-time boost in employment? Workers are not perfectly mobile, and when we boost a place’s jobs in the short run some residents who were previously not employed are able to get jobs. These extra jobs provide extra work experience, and because of this additional experience residents acquire higher average skills. Local residents also will have fewer problems with substance abuse and crime. Local residents will ultimately be more competitive in the local labor market, increasing their long-run employment rates and per-capita earnings.
These increased employment rates and higher earnings, along with lower substance abuse and less crime, have important spillover benefits. Obviously places with lower substance abuse and less crime are more attractive places to live. Such places will have fewer family break-ups, and children do better. Local tax revenue goes up and the need for social services drops, which puts the local government in a stronger position to provide better public services and pursue local development plans.
Put simply, moving people out of distressed places does not help those left behind. And moving jobs where there is an excess supply of labor can help the people living in that place, not only in the short-run, but even in the long run—and not only through higher employment rates, but through lower social problems and a stronger local government sector.
The substantial long-run benefits of local job creation do not necessarily prove that creating jobs in distressed places will have benefits greater than costs. Job creation policies come with costs of their own, and we’ll examine these costs—and how they vary across policies and places—in the future. But these large benefits of job creation in distressed places at least mean that such policies are worth considering.
It's a common criticism that boosting jobs in distressed places amounts to a zero-sum game. This argument posits that a job boost in one place may reduce job growth elsewhere, with little overall national gain.
But targeting distressed places can in fact boost national employment. Such targeting increases the effective national labor supply by employing those who otherwise would be hard to employ. Increasing the employability of the non-employed is not a zero-sum game—it’s a way of growing the national economy.
To state this another way: at a time like this with significant inflation pressures, targeting jobs in distressed places where more of the non-employed live is likely to increase national employment at a lower cost in increased inflation compared to increasing jobs in already-booming places. Focusing on distressed places allows the Fed to set a higher national employment goal than otherwise might be compatible with reducing inflation.
What’s the best way to boost jobs in distressed places? We’ll discuss optimal strategies more in future entries, but right now it’s important to note that what’s best varies greatly across places—such as whether infrastructure or job training or land development makes sense, and what industry targets make sense, for a particular location. The strengths and weaknesses of Flint, Michigan are not the same as those of Fresno, California, which in turn are not the same as in upstate New York communities or a county in Appalachia. The features of places matter, so one size does not fit all when designing local job creation policies.
That observation does not imply that federal or state intervention is a bad idea, however, or that creating local jobs should be solely left to local governments. Distressed places lack sufficient tax bases to adequately finance investments needed to increase the number of local jobs. Left solely to their own resources, distressed locations typically lose out in competing for jobs. Federal or state intervention is usually needed to pay for the needed investments in distressed places.
Place-based policy is one way to help more Americans get more and better jobs—not the only way to boost Americans’ earnings, but they are one critical way given how important places are to people. What happens to places has major effects on people for ill or for good, and our policies need to take that into account.
Timothy J. Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research focuses on state and local economic development policies and local labor markets. At the Upjohn Institute, Dr. Bartik co-directs the Institute’s research initiative on place-based policies.