Should we help_dying_areas

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1/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline What should we do when communities struggle? Intervene or not? Mouhcine Guettabi, PhD Associate Professor of Economics Director of the Investing for Alaska’s Future Program Institute of Social and Economic Research University of Alaska Anchorage University of North Carolina Wilmington January 16th, 2020

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2/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Outline A Quick note on Regional Economics Why does it matter? Thinking on a sub-national level What is rural? A few deﬁnitions Rural economic decline What should be done? A simple decomposition Takeaways

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4/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline A simple definition of the field Regional and urban economics examines issues related to the intersection of economics with geography and public policy. Central to this field is the study of economic forces related to the development and growth of urban and rural areas.

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5/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline A very incomplete list of topics • Sub-national economic growth and development • Location choices of utility-maximizing households and profit-maximizing firms • Spatial differences in incomes, unemployment, and individual well-being • Advantages and disadvantages of spatially concentrating economic activity • Transportation of goods, people, and ideas across areas • Land use, land prices, housing markets, and state and local public finance and governance

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7/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline

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8/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Variaton in the unemployment rate across North Carolina counties

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9/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline What exactly is the issue? • There is considerable variation in economic opportunity and outcomes across and even within states. • One of the questions that concerns regional economists, politicians, and economic developers is whether to intervene when communities are struggling. • This question has become particularly important due to the signiﬁcant economic decline that has been occurring in many rural communities across the country.

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9/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline What exactly is the issue? • There is considerable variation in economic opportunity and outcomes across and even within states. • One of the questions that concerns regional economists, politicians, and economic developers is whether to intervene when communities are struggling. • This question has become particularly important due to the signiﬁcant economic decline that has been occurring in many rural communities across the country.

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10/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline What is rural? • Sometimes population density is the defining concern, in other cases it is geographic isolation. Small population size typically characterizes a rural place, but how small is rural? Population thresholds used to differentiate rural and urban communities range from 2,500 up to 50,000, depending on the definition. • Because the U.S. is a nation in which so many people live in areas that are not clearly rural or urban, seemingly small changes in the way rural areas are defined can have large impacts on who and what are considered rural.

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10/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline What is rural? • Sometimes population density is the defining concern, in other cases it is geographic isolation. Small population size typically characterizes a rural place, but how small is rural? Population thresholds used to differentiate rural and urban communities range from 2,500 up to 50,000, depending on the definition. • Because the U.S. is a nation in which so many people live in areas that are not clearly rural or urban, seemingly small changes in the way rural areas are defined can have large impacts on who and what are considered rural.

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12/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Metro and Non-metro counties

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13/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Metro and Non-Metro definitions from OMB 2013 In 2013, OMB defined metropolitan (metro) areas as broad labor-market areas that include: Central counties with one or more urbanized areas; urbanized areas are densely-settled urban entities with 50,000 or more people. Outlying counties that are economically tied to the core counties as measured by labor-force commuting. - Non-metropolitan counties are outside the boundaries of metro areas and are further subdivided into two types: - Micropolitan (micro) areas, which are nonmetro labor-market areas centered on urban clusters of 10,000-49,999 persons and defined with the same criteria used to define metro areas. All remaining counties, often labeled "noncore" counties because they are not part of "core-based" metro or micro areas.

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14/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Useful ERS definitions The USDA classifies counties from 1-9: • 1-3 are Metropolitan counties • 4-9 are Non-metropolitan counties. • North Carolina, for example, has 100 counties with 51 of them being considered Non-metropolitan counties. New Hanover is considered a metropolitan county -classification of 2- as it is a county in a metropolitan area of 250,000 to 1 million people.

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15/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Considerable news coverage

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16/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Very signiﬁcant differences in growth across places

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17/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Uneven recovery by the numbers Source: Chart: The Conversation, CC-BY-ND Source: Bureau of Economic Analysis, analyzed by David Swenson at Iowa State University

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19/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Now what? • Faced with these facts, what should states or localities do? • Do nothing • Help people move to thriving areas • Promote economic development and try to revive dying areas

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20/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Economic development • Economic development strategists can pursue a wide variety of avenues, from improving quality of life, human capital, and infrastructure to provision of business tax incentives. • Although these efforts are often surrounded by significant controversy and debate regarding their relative effectiveness, one central element that influences the net value of these efforts to voters is who benefits from the new jobs.

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20/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Economic development • Economic development strategists can pursue a wide variety of avenues, from improving quality of life, human capital, and infrastructure to provision of business tax incentives. • Although these efforts are often surrounded by significant controversy and debate regarding their relative effectiveness, one central element that influences the net value of these efforts to voters is who benefits from the new jobs.

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21/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Let’s start with the basics • The United States has often been characterized by academic economists as having perfectly mobile labor (Blanchard and Katz, 1992), which according to neoclassical economic theory argues against targeting speciﬁc rural areas for economic development. • If households are fully (costlessly) mobile, they reside in the location delivering them the most satisfaction. They respond to local job losses by relocating to areas with better economic prospects. This equalizes satisfaction with location of residence across all areas. • So no attempt need be made by states to improve the welfare of their residents through within-state geographically targeted economic development (and by implication no need for rural development by the federal government).

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22/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline What do we know about mobility? • There is substantial evidence that rural households are not perfectly mobile. Households with lower levels of education and skills, who are typically least likely to be employed, have been observed to be less geographically mobile than the typical American household (Yankow, 2003). • Distance to potential migration destinations creates transport and psychic costs of relocation for rural households, impeding their mobility. • Likewise, cultural differences between rural residents in many remote areas and those in more urbanized areas may make rural residents reluctant to move.

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23/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Who beneﬁts? • state economic development efforts that successfully stimulate employment in remote rural areas could potentially improve the welfare of their residents who may have been left behind economically, particularly in the short run (Partridge and Rickman, 2003b). • Indeed, research on rural poverty reveals that remote rural areas possessing high rates of poverty particularly beneﬁt from job growth (Partridge and Rickman, 2005a). According to this research, area job growth increases employment rates, increases wage rates, and thereby reduces poverty rates.

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23/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Who beneﬁts? • state economic development efforts that successfully stimulate employment in remote rural areas could potentially improve the welfare of their residents who may have been left behind economically, particularly in the short run (Partridge and Rickman, 2003b). • Indeed, research on rural poverty reveals that remote rural areas possessing high rates of poverty particularly beneﬁt from job growth (Partridge and Rickman, 2005a). According to this research, area job growth increases employment rates, increases wage rates, and thereby reduces poverty rates.

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24/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Job creation • Supply responses to labor demand shocks can be in the form of commuting, unemployment, labor force participation, and migration responses. • Employment by ﬁrm (place of work) location E(F ) is decomposed into four labor supply components: (a) the ratio of employment by ﬁrm location to employment by place of residence: (EF )/(ER). (b) employment/labor force (ER)/(LF) (c) labor force/population (LF)/(Pop), (d) population

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26/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline A simple decomposition Often when promoters make a case for economic development, the intended beneficiaries are the location’s original (pre-development policy) residents. Indeed, the question of whether economic development policies pass a costâbenefit analysis would then hinge on who takes the new jobs. The job benefits accrued by original residents critically depend on the commuting and migration responses to local job creation E(F ) = (EF )/(ER ) Net commuting x (ER )/(LF) Emp. rate x (LF)/(Pop) Labor force x (Pop) Migration

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28/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Why can development in rural areas work? • The primary causal mechanisms for the greater anti-poverty effects of job growth are lower rates of migration and commuting in remote rural areas. • Potential in-migrants or in-commuters may be unwilling to take work in these counties or are simply unaware of the jobs in these regions because of their remoteness. Lower out-migration and out-commuting of residents occurs in response to job losses for the reasons mentioned above.

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28/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Why can development in rural areas work? • The primary causal mechanisms for the greater anti-poverty effects of job growth are lower rates of migration and commuting in remote rural areas. • Potential in-migrants or in-commuters may be unwilling to take work in these counties or are simply unaware of the jobs in these regions because of their remoteness. Lower out-migration and out-commuting of residents occurs in response to job losses for the reasons mentioned above.

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29/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Some big caveats and a few things to keep in mind • People in many rural areas have been left behind economically. Yet, rural areas most in need of economic development may be the most difﬁcult to develop: • First, consideration should be given to the reason for an area’s decline • Second, states should identify which ﬁrms are most able to be competitive in more remote rural areas. • Third, rural economic development policy should be combined and coordinated with people-based policies. • Fourth, states should develop regional centers of economic activity. Economic competitiveness requires some concentration of economic activity. • Fifth, and perhaps most importantly, a balance between need and cost must be struck. This requires a sound understanding of the strengths and weaknesses of rural areas.

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30/ 30 A Quicknote on Regional Economics What is rural? Rural economic decline Thank You Mouhcine Guettabi, PhD Associate Professor of Economics Director of the Investing for Alaska’s Future Program Institute of Social and Economic Research Phone Number : 907-786-5496 email : mguettabi@alaska.edu

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