Economists have traditionally focused on policies that directly target low-income people, rather than low-income areas. For example, programs such as welfare payments, food stamps, Medicaid, and Supplemental Security Income are individual-based. However, in recent years there has been a push to consider „place-based policies,'' which focus on taxes, government benefits, or different fiscal and regulatory rules, or rules within specific geographic boundaries. The feeling behind advocating for place-based policies is that individual-based policies are all working very well, but if certain places in metropolitan areas or certain areas of the country are decades behind, perhaps That is, it may be useful to complement it with other approaches.
Anthony Venables explores these issues in „.Examples of place-based policies” (Economic Policy Research Center Policy Insight 128, February 2024). Venables begins by explaining how an unfettered free market model predicts how economically distressed regions will be able to bounce back, and how the power of that model doesn't seem to be strong enough. do.
For example, the standard market-oriented story says that if a region falls significantly behind economically, for example in terms of business formation, employment opportunities, and growth, there will be several consequences. Thing. At least some people will move out of the area to find work elsewhere, which will mechanically reduce unemployment in the area. Additionally, the value of real estate in the area should decrease. As a result, businesses should start to see the area as a cheaper place to relocate, and people should start to see the area as a cheaper place to live. After some period (though not very clear), the local economy of the affected area should regain its balance.
Venables emphasizes that there are several problems with this vision.
1) Not everyone finds it easy to move to another part of the city or the countryside. In fact, the people who are easiest to emigrate are those who have good job opportunities elsewhere, or more generally, those who have personal and economic networks that they can leverage elsewhere. is. Others have a certain amount of drive and determination, which shows in their actions. Therefore, migration from a distressed economic region means that the region loses many of the people it wants to retain for future economic development.
2) When a region experiences economic hardship, some prices will be adjusted, but not all. For example, a minimum wage may apply throughout a particular region, the cost of various goods and services may be similar across a region, or interest rates may tend to rise or fall across a region. In fact, it is not clear how much costs will fall for businesses and households in economically distressed areas, except for real estate costs.
3) There is a possibility that the movements of companies and households in response to these price fluctuations will not be large. Companies benefit from the potential benefits of locating at lower costs in economically depressed regions versus economically vibrant regions where workers, suppliers, and ideas are likely to be plentiful. You need to weigh the benefits of locating in. For households, lower housing costs are good in isolation, but living surrounded by other people who are attracted to lower housing costs has trade-offs in terms of the quality of neighborhoods, parks, schools, etc. There is a possibility. Venables calls this „low-level spatial equilibrium.“ “Firms are reluctant to move (to economically distressed areas) because other businesses are not moving or because the workers don't have the right skills. They don't want to learn it, but they don't think it will create employment opportunities, and the vicious cycle continues.”
Of course, this is not to say that all economically depressed regions are doomed forever. Some regions are reinventing their local economies. But when it does work, it often takes quite a while. And in many cases, it doesn't seem to work at all.
While we can acknowledge and understand why certain places appear to be in a 'low level of spatial equilibrium', we have no confidence in the government's ability to develop solutions. Some tax cuts may not be able to reduce it. An „all of the above'' approach that seeks to address all of the concerns of businesses and households about relocating to economically depressed areas may work in some cases, but there is no guarantee. One could imagine a „crisis'' approach that seeks to shrink economically distressed regions, at least around their geographic boundaries. In this essay, Venables doesn't have much to offer other than a very sophisticated discussion of things like „clear purpose,“ encouraging „complementary,“ and considering „alternative scenarios.“
At a baseline level, we can imagine governments seeking to relocate a significant portion of their operations and employees to distressed regions. If such relocations create issues, such as a lack of transportation infrastructure to get to the workplace or concerns about the safety of walking, parking, or picking up deliveries in the neighborhood, it is important that the government It helps companies understand what needs to be improved. Households will also be more willing to relocate.
For additional discussion on location-based policies, I have previously posted on this subject.
In addition, the Summer 2020 issue of the Journal of Economic Perspectives (of which I am the editor-in-chief) published two papers titled “Symposium on Place-Based Policies.”
“Using Place-Based Employment Policies to Help Distressed Communities” by Timothy J. Bartik
Place-based employment policies aim to create jobs in specific local labor markets. Such policies, which include business incentives provided by state and local governments, cost about $50 billion annually. The most compelling rationale for these policies is that they can improve equity and efficiency by increasing long-term employment rates in distressed local labor markets. However, current incentives do not target disaster-affected areas. Additionally, incentives come at a high cost for each job created. Cost reductions can be achieved through public services for businesses such as manufacturing expansion, customized job training, and infrastructure. Reforms to place-based employment policies should focus on better targeting distressed regions and using more cost-effective policies. Such reforms could be accomplished by state and local governments acting in the interests of their residents, or they could be encouraged by federal intervention that limits incentives and provides aid to struggling areas. Sometimes.
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“Place-Based Policies and Spatial Inequality Across European Cities” Maximilian v. Ehrlich, co-authored by Henry G. Overman.
Spatial disparities in income levels and unemployment rates in the European Union are severe and persistent and are likely to widen. We describe disparities across metropolitan areas and discuss theory and empirical evidence that help us understand the causes of these disparities. Increasing urban productivity, the concentration of highly educated workers, and rising wage premiums are all contributing factors. Europe has a long-standing tradition of using capital subsidies, enterprise zones, transport investments, and other area-based policies to address these disparities. The evidence suggests that while these policies may have partially offset rising inequality, they are not enough to fully offset the economic forces at work.
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