Forgotten America Can Still Be Saved
It’s no secret that some parts of the U.S. have been lagging behind others economically. In the past, that wasn't the case. From 1840 through 1963, as economists Robert Barro and Xavier Sala-i-Martin found, poor states tended to catch up with richer ones, vindicating the predictions of economists. From 1963 through 1988, the economists found, the pattern weakened, but there was still some convergence going on.
But according to a new study by Ohio State’s Mark Partridge and Alexandra Tsvetkova presented at the American Economic Association meeting earlier this month, convergence actually stopped and went into reverse sometime between the 1970s and the 1990s. The disparities in state income levels are now substantially wider than they were four decades ago, while the differences between counties have increased by a modest amount.
Economic divergence presents a big problem for policy makers, who have to decide how much to bolster struggling places versus how much to help people move to places with faster growth. That in turn creates a coordination problem, since policy often gets made at the state and local level.
Why are some regions now pulling away from others? This is a question that can’t be answered with certainty -- researchers can identify the factors that are correlated with better regional performance, but correlation doesn’t equal causation. Still, looking at the patterns of growth and decline can help, because it suggests ideas for what -- if anything -- governments can do to fight the trend of growing regional inequality.
Why is this happening? Partridge and Tsvetkova tackle the question, but they’re not the first to do so. In a landmark 2012 book, “The New Geography of Jobs,” economist Enrico Moretti argued that cities with high levels of human capital -- education and job skills -- were pulling ahead economically and socially by drawing in the knowledge-based industries on which the U.S. economy increasingly depends. Meanwhile, Moretti said, places that depended on old-line manufacturing or agriculture were lagging.
Partridge and Tsvetkova don’t share Moretti’s glum conclusion about manufacturing. They find that regions whose economies traditionally revolved more around making stuff are now likely to have lower poverty rates and faster income growth than places where services, mining or agriculture were stronger. Even labor-intensive manufacturing, devastated as it was during the past 20 years by competition from China, isn’t a locus of poverty today. But the Ohio State team does agree with Moretti that being home to fast-growing industries -- which generally means knowledge-intensive or innovative activity -- is strongly correlated with economic success.
The authors did find that education levels are important, as did Moretti. But they also found that social capital -- the strength of a community, as measured by how likely people are to participate in local community associations -- is a big predictor of economic health.
But Partridge and Tsvetkova uncovered one more key factor -- economic dynamism and flexibility. Areas with a mix of industries that feature faster transitions between jobs, occupations and sectors have tended to perform better than others, especially in the years since the Great Recession. Partridge and Tsvetkova hypothesize that places with more flexible economies, where workers and companies can more easily adapt to the fast-changing needs of the global economy -- as the authors put it, to “rewire” the local economy -- have a leg up on regions where adjustment is sluggish.
This suggests that state and local policy makers shouldn't just try to attract the industries of the future, but should try to create an economy that lets workers move between jobs more easily. In addition to having a diverse mix of industries, this implies that local job-switching assistance programs would be a good idea. Quality transit systems, infrastructure and dense development probably also make it easier to switch jobs, since it means that workers don’t have to move when their workplace changes. Universities are a big plus for flexibility, since cross-licensed research and spinoff companies can help a city’s economy hop on the next hot industrial trend. And legal shenanigans like noncompete agreements, which keep employees chained to their jobs, should be severely limited or banned.
Those are measures that struggling places can take to make up lost ground. But inevitably, not all places will succeed. At the federal and state levels, governments can take measures to help workers move from place to place -- providing mobility vouchers, for instance. Those vouchers could be used by workers laid off in recessions, by residents of declining towns, or by people trapped in poor neighborhoods to move to places with better economic opportunity.
Interregional mobility policies will inevitably drain some places of people, while benefiting others. There’s a natural tension between helping struggling places and helping people move out of struggling places. If local, state and national governments could coordinate their efforts, it might be possible to find a better balance between the two -- for instance, towns could apply for federal or state mobility vouchers if and when urban renewal efforts fail.
The hard reality of economic geography is simply a hurdle that the U.S. now has to deal with -- a challenge created by the shifting winds of technology and globalization. But with smart local development policies and more intercity mobility, that challenge can be met and overcome.
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James Greiff at firstname.lastname@example.org