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

Citation Type: Miscellaneous

Publication Year: 2012

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Abstract: While the United States as a whole saw robust increases in economic activity over the postwar period, the economic performance of regions within the country was highly unequal. In this paper we document that the regions that fared relatively worst in terms of wage and employment growth were those that paid workers the largest wage premiums in 1950. We use this evidence to develop a theory of the decline of the Rust Belt, the highly-unionized manufacturing zone around the Great Lakes. Our theory is that limited competition in labor markets and output markets in the Rust Belt was responsible for much of the regions decline. We formalize the theory in a dynamic general equilibrium model in which productivity growth and regional employment shares are determined by the extent of competition. Evidence from prominent Rust Belt industries supports the models prediction that investment and productivity growth rates were relatively low in the Rust Belt.

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Authors: Lagakos, David; Alder, Simeon; Ohanian, Lee

Publisher: Universitat Autonoma de Barcelona

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

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