Tuesday, June 25, 2019

Place-based economic policies (pt. 1 of 3): Motivation

My goal is to write a series of in-depth posts about geographic inequalities in developed countries and the evidence on the effectiveness of place-based economic policies. There were a few main motivating factors for this discussion: (1) increased attention has been paid to inequality within developed countries since the Great Recession and this discussion would be remiss if it did not address geography; (2) there is no doubt that economic geography has important implications for politics, particularly in the U.S.,where, for example, the Electoral College rather than popular vote governs the election of the president; and (3) place-based economic policies, including significant tax incentives for investments made in low-income communities introduced in the 2017 Republican tax bill, are gaining bipartisan popularity and should be evaluated as to whether they are effective at improving local labor market outcomes, health, education, and human development.

This has, however, proven to be a more difficult and time consuming endeavor than originally expected mainly because a conversation on this topic can cover a lot of material and go in many different directions (and is therefore difficult to organize). But - wanting to write something on this topic today on what would be chef, traveler, documentarian, and father Anthony Bourdain's 63rd birthday - this post will have to be the first in a series.

"Place" continues to be important even in our increasingly globalized world. As much as the world has become more and more connected there is no doubt that place continues to define - particularly for specific socioeconomic and demographic groups - what we can do for fun, what we can eat, where we can work, how much we can earn, and what our living standards are like. It continues to shape our experiences and how we view the world and our places in it. Industry specialization, for example, often defines the labor market opportunities and outcomes that are available in different regions.

I recommend this paper by Autor, Dorn, and Hanson (2015) that illustrates the impact of Chinese import competition on the U.S. labor market outcomes using a local labor market approach. The authors assign a measure of exposure to import competition from China to each local labor market area and utilize an instrumental variable approach to isolate the exogenous variation in this measure across local labor market areas. The reason that there is any variation in exposure to import competition at all is that there are differences in regional industry specialization patterns. These differences have therefore given rise to geographic inequalities within the U.S. whereby regions with import-competing manufacturing were particularly impacted by the growth in trade. These regions are illustrated in the below map taken from the paper. For a presentation on this paper and Chinese import competition you can see Autor's IFS Annual Lecture from 2017.

This is only one example of the way location continues to matter. Another particularly striking image comes from Raj Chetty's work on intergenerational mobility in the U.S. For more on this work, Chetty also presented at the IFS with Annual Lecture from 2014. The figure below illustrates the odds of reaching the top fifth of the income distribution for kids starting from the bottom fifth of the income distribution for metropolitan areas across the country. The differences by region cannot be ignored.

As stated in the New Oxford Handbook on Economic Geography, "This contribution [from economic geographers that economic processes have produced spatial differentiation and inequality] was crucial in counteracting hyper-globalist views, prominent in the 1990s, emphasizing homogenizing forces of globalization, envisaging a global society, and predicting the end of geography in economy, politics, and culture." Today would have been Bourdain's 63rd birthday and it is being celebrated in his memory as Bourdain Day. His show Parts Unknown illustrated the importance of "place" in an increasingly connected world.

Bourdain had a unique, respectful way of showing us - his global audiences - the local. He acknowledged and reported on the economic, social, and political structures that shaped the places he visited. He exhibited an unaffected empathy for the people he met and the lives that they led and this allowed him to share their stories in a way that we - people sitting thousands of miles away - could relate to. He had an effortless way of communicating with people underneath the layers and putting himself on the same level. At the end of the day he showed his audience the way people live in different places and - like a good social scientist - he mused on the reasons why they lived the way they did and how that was changing. Importantly, he wasn't afraid to call out injustices and criticize the perpetrators. A few of my favorite episodes in Parts Unknown - in Pittsburgh and West Virginia - address structural transformation and regional economies.

The decline in U.S. manufacturing - one consequence of globalization and to a lesser extent automation on the labor market - is only one of the components of ongoing structural transformation in the U.S. and other developed countries. Another important and related component is the relative decline in wages among those without a high school or college degree. The geographical significance of these changes is stated aptly in the Handbook, "Over the last eighty years, regional per capita income as a percentage of the national average showed signs of converging until the late 1970s. As much as anything, starting in the late 1970s, repeated recessions, major industrial restructuring and both age- and employment-related migration brought an end to the trend of convergence. Incomes and wealth began to concentrate in selected locations while bleeding out of others, reasserting the importance of places of economic power."

Yet, evidence of low labor mobility in the U.S. makes it more difficult for the population to adjust to changes brought on by structural transformation. Low mobility is hypothesized to to be a function of labor market institutions but it may also be due to changing ties to location and community. The ideas of location and community and what they mean are frequently raised in Bourdain's episodes, particularly in the context of immigrant communities and the decisions that people make to move across cities, states, and countries and their subsequent identities as immigrants. One of my favorite episodes followed Bourdain and fellow celebrity chef Marcus Samuelsson on a trip to Ethiopia. The episode captured the coexistence between Samuelsson's life as a global citizen - born in Ethiopia during the Civil War, adopted by a Swedish family at a young age, and immigrated to the U.S. to apprentice in a New York City restaurant in his early 20s - and his desire to connect with the country of his heritage with which he had little experience as a child.

Ultimately, much of our lives are still defined by the places that we are born and - whether we have the ability to choose or not - live. This is perhaps an unintended consequence of travel shows but was illustrated in Parts Unknown with unique attention to the "how" and "why". There is much that policymakers can do - and are trying to do - to reduce geographic inequalities where they exist. In many cases these efforts reshape the landscape of a place. These changes were discussed, for example, when Bourdain talked with Pittsburgh locals about local development initiatives and the changing identity of the city as it grows into a tech hub. How do these initiatives impact firm growth and investment decisions? To what extent do they lead to changes in labor market, health, and educational outcomes for existing residents? How do they impact labor mobility both in and out of the area? These are a few of the broad questions for future posts.

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