Distressed Places: How to Encourage Jobs

Distressed Places: How to Encourage Jobs

Distressed Places: How to Encourage Jobs

The idea of “place-based” economic policies is to focus on those geographic places–sometimes urban areas, sometimes neighborhoods within an urban area–where jobs are especially scarce and incomes especially low.

Timothy J. Bartik offers some thoughts on how best to do this in “How State Governments Can Target Job Opportunities to Distressed Places” (Upjohn Institute Technical Report No. 22‐044, June 2022). There’s also a short readable overview in the most recent Employment Research Newsletter from the Upjohn Institute for Employment Research. I’ll quote from the newsletter here:

Distressed places, which have low employment to-population ratios (employment rates), are a big problem in America. Consider local labor markets: multicounty areas that contain most commuting flows, such as metro areas or rural commuting zones. About two-fifths of all Americans live in local labor markets whose employment rate for prime-age workers (ages 25–54) is more than 5 percentage points below full employment. For neighborhoods, about one-fifth of all Americans live in census tracts whose prime-age employment rate is more than 5 percentage points below their local labor market’s average. These low employment rates are linked to major social problems: substance abuse, crime, and family stress.

Helping distressed local labor markets requires different policies than helping distressed neighborhoods. In a distressed local labor market, job creation will raise employment rates, with plausibly half of the jobs going to local nonemployed residents. Local job creation is most cost-effectively accomplished by providing businesses with “customized services” such as infrastructure, customized job training, and business advice programs—including manufacturing extension services. Such customized services have less than one-third the cost-per-job-created of business tax incentives.

In contrast, in a distressed neighborhood, more neighborhood jobs will not help the neighborhood’s residents, as most neighborhood jobs are not held by residents. Residents of distressed neighborhoods can best be helped by services to increase job access, including better transportation, job training, and child care.

Bartik offers a fleshed-out proposal in the longer paper. I’d emphasize four points here:

First, it’s important to remember that the gains from getting people back to work are partly the present and future gains to the income of workers. But the broader social gains also include stronger families, a better network of informal job connections, a decline in state-level spending on Medicaid and welfare payments, reduced drug use and crime, and other benefits.

Second, while Bartik’s proposals are admittedly expensive, they are also affordable: “Total annual costs for all states would come to $30 billion annually—$21 billion for local labor markets and $9 billion for neighborhoods. This $30 billion cost is affordable, as it is less than 3 percent of overall state taxes. Many states could cover the required costs by replacing their business tax incentives.”

Third, notice that Bartik is suggesting the practicality of state-level initiatives here. States have been called the “laboratories of democracy,” where policy ideas can be tried out and evaluated. These proposals don’t require yet another argument over federal spending and taxes or the ability to get a 60-vote supermajority in the US Senate. They just require some states (maybe yours?) to give it a try.

Finally, the proposals do require states to focus on distressed areas, not on tax breaks for companies. Bartik describes his proposed policy as a set of block grants that would be spent across a state based on the employment rate. He points to funding for K-12 schools as a parallel: in many states, funds are from the state on a per-student basis and then spent by school districts under broad guidelines. In this case, funds would be allocated based on the employment rate and all areas would receive some payments–but those with especially low employment rates would receive more. He writes:

But state geographic targeting is politically difficult. At the state level, ostensibly targeted programs often allocate most aid to non distressed places, and initially targeted programs are then extended statewide. The political problem is partly that most state targeting formulas are arbitrary “price subsidies”: for example, this would include job-creation credits that are higher dollar amounts per job in distressed places. Because the variation in such subsidies has no obvious relationship with need, it is easy to rationalize extending generous subsidies to favored projects in non distressed places.

In contrast, the state block grants proposed here use targeting formulas directly tied to the number of persons in each area needing jobs. For each distressed neighborhood or local labor market, the formula calculates how many jobs the place is short of full employment by, and then it funds filling some percentage of that employment rate “gap.”

Such needs-based targeting formulas have been successful for other policy areas in making geographic targeting politically feasible. For example, tying state aid for K–12 schools to the number of students eligible for free or reduced-price lunch has been done by many states, resulting in significant targeting of funds to needier school districts.

The block grants also combine targeting with universalism. Most local labor markets would be eligible for some level of block grant, as would most local governments for neighborhood grants. The targeting is accomplished by making higher per-capita grants to places where more people need jobs. Because “everyone” gets something, the block grants have a stronger political constituency.

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Timothy Taylor

Global Economy Expert

Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.

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