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The Decline of the U.S. Rust Belt: A Macroeconomic Analysis

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  • Lee Ohanian

    (University of California Los Angeles)

  • David Lagakos

    (Arizona State University)

  • Simeon Alder

    (University of Notre Dame)

Abstract

Some regions of the United States fared much worse than others since the end of WWII. In this paper we document that those regions faring worst in terms of wage and employment growth from 1950-2000 tended to be those in which workers earned the largest wage premiums in 1950. We use this evidence to develop a theory of the decline of the ``Rust Belt'' region, which was highly unionized and paid workers substantially more than other workers of similar skill levels. We develop our theory in a two-region, open-economy version of the Neoclassical Growth model, which we parameterize to match key features of regional and aggregate data. We then use the model to ask how much differently the Rust Belt would have fared if its labor market had not been as distorted.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 793.

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Date of creation: 2012
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Handle: RePEc:red:sed012:793

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  1. Arilton Teixeira & Berthold Herrendorf, 2009. "Barriers to Entry and Development," Fucape Working Papers 22, Fucape Business School.
  2. James A. Schmitz, Jr., 2005. "What determines productivity? lessons from the dramatic recovery of the U.S. and Canadian iron-ore industries following their early 1980s crisis," Staff Report 286, Federal Reserve Bank of Minneapolis.
  3. Benjamin Bridgman, 2011. "Competition, Work Rules and Productivity," 2011 Meeting Papers 289, Society for Economic Dynamics.
  4. Carrington, William J & Zaman, Asad, 1994. "Interindustry Variation in the Costs of Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 243-75, April.
  5. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Emin Dinlersoz & Jeremy Greenwood, 2012. "The Rise and Fall of Unions in the U.S," Economie d'Avant Garde Research Reports 19, Economie d'Avant Garde.
  2. Holger Breinlich & Gianmarco I. P. Ottaviano & Jonathan R. W. Temple, 2013. "Regional Growth and Regional Decline," CEP Discussion Papers dp1232, Centre for Economic Performance, LSE.
  3. Oleg Itskhoki & Benjamin Moll, 2014. "Optimal Development Policies with Financial Frictions," NBER Working Papers 19994, National Bureau of Economic Research, Inc.
  4. repec:cen:wpaper:14-09 is not listed on IDEAS
  5. Emin Dinlersoz & Jeremy Greenwood & Henry Hyatt, 2014. "Who Do Unions Target? Unionization Over The Life-Cycle Of U.S. Businesses," Working Papers 14-09r, Center for Economic Studies, U.S. Census Bureau, revised Jun 2014.
  6. Kondo, Illenin O., 2013. "Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S," International Finance Discussion Papers 1095, Board of Governors of the Federal Reserve System (U.S.).

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