Place-Based Policies for Shared Economic Growth

In Economy, Misleading Information, Voting On
- Updated

For the last several decades, the arc of our economy changed from convergence to divergence. On critical measures such as median household income, poverty, unemployment rates, and life expectancy, there exists a yawning gap between the best- and worst-performing communities.

Economists and policymakers are now able to measure these disparities at increasingly granular levels. At The Hamilton Project, we created a measure called the Vitality Index to assess economic and social well-being in every U.S. county. This index enables us to compare conditions in each county’s vitality in 1980 and 2016.

What we see alarms us. Inequality has grown across the country, and despite periods of strong economic growth when living standards improved across the earnings distribution—such as in the late 1990s—places with poor economic performance in 1980 are generally still struggling. Broad swaths of the rural South, Southwest, and Midwest continue to lag behind the rest of the economy. Natural disasters and the globalization of manufacturing have significantly depressed outcomes in formerly thriving cities such as Flint, Michigan, and New Orleans, Louisiana. By contrast, many coastal cities along with a number of other major metro areas have outperformed the rest of the country.

The evidence of geographic disparities continues to pile up. In the lowest-performing fifth of counties, 33 percent of prime-age adults are not employed—nearly double the rate of the best-performing places. Many of those who do have jobs earn wages depressed by a range of factors, including the disappearance of labor unions, the declining inflation-adjusted value of the minimum wage, and the absence of college degrees or even high school diplomas. The 23 percent poverty rate in the highest-poverty counties is nearly triple that of the lowest-poverty counties; life expectancy is a full six years higher in the top fifth than in the bottom fifth.

No serious examination of the geography of prosperity would be complete without a focus on how racial inequality exacerbates place-based problems and impedes the effectiveness of policies designed to ameliorate them. In their chapter, “The Historical Role of Race and Policy for Regional Inequality,” the economists Bradley Hardy, Trevon Logan, and John Parman document the range of ways in which public policy has limited economic opportunity for black Americans. From discriminatory housing policy to exclusionary and unequal education systems, these policies contribute both to the spatial concentration of the African-American population in the United States and to poorer economic outcomes in these areas. As such, they have left a clear imprint on today’s geographic disparities.

We agree with economists Benjamin Austin, Edward Glaeser, and Lawrence Summers, who recently argued that conditions today demand a reconsideration of place-based policies.* But it is also important to recognize that many place-based policies have failed, leading many economists to prefer programs that target individuals rather than places.

We therefore focus on ideas motivated by new evidence about those policies that do appear to work and lessons from those that have failed. Accordingly, in the chapters that follow we present proposals from a distinguished group of scholars who offer evidence-based solutions to the problems faced by struggling regions and their residents.

David Neumark proposes that the federal government subsidize employment in areas of extreme poverty, with the goal of revitalizing communities and boosting workers’ careers over the long run through the acquisition of skills that are valued by private-sector employers.

Tracy Gordon proposes that the federal government do more to aid states with limited fiscal resources. Gordon considers how to overhaul the federal government’s massive $700 billion intergovernmental grant apparatus to offset differences in the states’ long-run fiscal capacity and respond more quickly to regional economic downturns and national recessions.

E. Jason Baron, Shawn Kantor, and Alexander Whalley offer a proposal for a regionally targeted expansion of the 1988 Manufacturing Extension Partnership Program. Their proposal would enable existing research universities to promote local economic development by transferring knowledge to local employers in struggling places.

Stephen Smith applies the evidence and experience of development economics in his proposal for improving U.S. policy ranging from infrastructure to education, health, and nutrition. These are ideas that are likely to improve the functioning of educational and safety net investments, thereby helping people in struggling areas to escape from poverty traps.

For a century, the progress the United States made toward realizing broadly shared economic growth gave our economy much of its unparalleled strength. Today, with these evidence-based proposals, we see steps that can help restore the conditions of inclusive growth that made it possible for individuals from any part of the country to benefit from economic opportunity.

Place Based Economic Growth

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