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

  • Lee Ohanian

    (University of California Los Angeles)

  • David Lagakos

    (Arizona State University)

  • Simeon Alder

    (University of Notre Dame)

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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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. 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.
  2. Bridgman, Benjamin, 2015. "Competition, work rules and productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 136-149.
  3. 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," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 582-625, June.
  4. Berthold Herrendorf & Arilton Teixeira, 2011. "Barriers To Entry And Development," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 573-602, 05.
  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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