clock menu more-arrow no yes

Economists are underestimating the costs of letting small Rust Belt cities shrink

Homes in Lancaster, PA
Mark Makela / Getty

If you ask economists what to do for struggling towns in the Rust Belt, a lot of them have a simple answer, according economist Adam Ozimek: nothing. Economists focus on helping people, not places. And often the best move for someone in a declining town is to find a new job in a different city where jobs are more plentiful.

But Ozimek argues that they’re making a mistake. He says that small, economically struggling places have value that’s not always captured by simple economic models.

This isn’t just a theoretical question for Ozimek, an economist and blogger who lives in the small city of Lancaster, Pennsylvania. He lives close enough to Philadelphia that he can drive to the offices of his firm, Moody’s Analytics, in the Philadelphia suburbs in about an hour. But many days he works from home, enjoying the low cost of living and other benefits of life in a small city.

Rather than dismissing small cities and towns, Ozimek argues that economists and policymakers should be thinking harder about how to support them. That’s good for the people who will inevitably be left behind if these areas continue to lose population. And it may even be better for the US economy as a whole.

Timothy B. Lee

How do mainstream economists think about the economics of declining regions?

Adam Ozimek

When a lot of economists talk about what to do about struggling places, their answer is nothing. They say: “You don't do anything for struggling places, you do something for struggling people.” One of the most common recommendations is simply help people move away.

There are legitimate reasons for this. Economists focus on individual welfare, which leads them to focus on individuals. An important part of economic growth for the US is moving people to places where productivity is highest. It’s not crazy to start from that point of view. It's a powerful point.

Timothy B. Lee

But you don’t think this point of view is telling the whole story.

Adam Ozimek

Struggling places aren't going to empty. Even if it's efficient for people to move, you're going to end up with people who are left behind and don't want to move.

The most extreme and ridiculous version of this is Centralia, Pennsylvania, a small mining town that had a couple thousand residents in 1900. In 1962, a fire started under the ground in the coal mines, and it’s been burning ever since. So there was a fire underneath the entire town and the ground was hot and smoke and steam would come out of the ground.

After 54 years of this, there are still seven people who live there! Centralia was a place that needed to empty, but it took a long time and there are still seven people there.

So if you look at other places that have problems that are less severe than a literal fire under the ground, you're going to get a lot more than seven people staying. Their welfare still matters, and we need to talk about what we can do to help them, especially since when people leave, that leaves the people who are left in a worse situation.

I do think that in many circumstances, after you consider both sides of the story, you may still conclude that shrinking some places is the right policy on the margin. But we need to consider both sides of the story in order to figure out if that makes sense. And we need to do better at understanding when you can help struggling places.

One of the things that brought me to this topic is looking at the effects of immigration. You have all these arguments about why immigration is positive, and how there are important spillovers for population growth from immigration. I realized, well isn't there another side of this coin? If gaining population causes positive spillovers, then losing population should have negative spillovers.

One of the most important pieces of research is from Enrico Moretti. He shows that having lots of educated people around is good for low-skilled people. It creates demand for low-skilled labor. You have this multiplier from high-skilled people to low-skilled people.

Timothy B. Lee

Wouldn’t we be fighting a losing battle here? A lot of towns have been losing jobs and population for decades.

Adam Ozimek

The loss of manufacturing jobs has not been a death knell for every place. There have been places that lost a lot of manufacturing jobs and still are thriving. They managed to succeed and move past that. This is not just major metropolitan cities, it's small and medium-sized places too.

So the fact that some of places managed to survive these structural changes and thrive nonetheless suggests that we need to do a better job of asking why they do that and is there any way we can help them do that, and how can we figure out when and whether it makes sense to do that.

Timothy B. Lee

The argument that we should just focus on helping people move to high-productivity places assumes there's room for everyone in the high-productivity places. But big, high-income cities like San Francisco and New York have struggled to keep up with rising demand for housing.

Adam Ozimek

Right, if your high-productivity places are expanding, then it's more beneficial. But if they aren't, then when a high-skilled person moves from a struggling place to a big city, they might crowd out other people who leave. It turns into sorting where you have all the skilled people concentrated in your big cities, and you have all the low-skilled people out in the rural and small-town areas.

That’s not necessarily a good outcome. For example, a manufacturing firm might need some high-skilled people and some low-skilled people working side by side. You might struggle to put together a firm like that in a big crowded city where you don't have the low-skilled people there.

Also, if you think that having a skilled population matters for having a skilled government, you're going to have large parts of the country that aren’t well-governed. When we vote for federal policy, this is going to have some effect there too. There's some not-so-subtle parallels to what we're seeing right now.

Timothy B. Lee

This isn’t just a theoretical issue for you, since you live in the small city of Lancaster, Pennsylvania. What is it like?

Adam Ozimek

We've got 59,000 people here in a metro area of 550,000. It's a nice town or small city surrounded by suburbs and a lot of rural area. It's got a little bit of everything. It used to have a lot of manufacturing, and it still does have some. But a lot of that has been lost. It's managed to be pretty successful, especially for a small northeastern metro area.

We have a lot of tourism. People come here to see the Amish and they also come here to see the city, which is a really nice historical city with one of the oldest continuously running farmer's markets in the country. And there's also a really great restaurant scene here because you have all these large farms right nearby. So there's a lot of great farm-to-table, there's a lot of great food entrepreneurs in the area.

We have people who come here from Philadelphia and Baltimore, and we also have some commuting access to Philadelphia for jobs, Lancaster is a little bit of a commuter city for Philadelphia. Also, the relatively low cost of land and access to the northeastern region has helped to generate a lot of logistics and distribution here. We also have a lot of schools here. Franklin and Marshal College and Millersville University are two important colleges in the area.

Timothy B. Lee

I wonder how much of that is specific to the fact that Lancaster is close to the Northeast Corridor. If you're a small city in Kentucky or Colorado, is it going to be possible to provide amenities and opportunities that attract highly-educated people?

Adam Ozimek

I think that some smaller places can become a draw themselves. If you look at a place like Asheville, North Carolina, it is not an extremely large city, but it's a nice place to live, and it's relatively successful, and it doesn't really depend on any nearby major metro areas. You have Charlotte relatively nearby, but Asheville is a destination and an economy all by itself.

Tourism is big there. They've got their own things that draw people in. They've got the Biltmore Estate, a giant Vanderbilt mansion, there. A lot of people that come there for outdoors stuff with the Blue Ridge mountains nearby. The restaurant scene is very renowned.

Timothy B. Lee

You said it might be a bad idea to encourage people to leave struggling areas. Should governments be pushing in the opposite direction? Are there things policymakers should be doing to encourage people to stay in small places, or things they should stop doing that push them in the other direction?

Adam Ozimek

I wouldn't say I have a fully-formed agenda yet. I think the ideas of Richard Florida for how to lure creative types to cities are an important development goal.

At the federal level, the earned income tax credit benefits low-cost-of-living places more than it benefits high-cost-of-living places.

I think that states should make sure they're not getting in the way of leisure and hospitality sectors and they're not doing anything to stop cities from developing amenities to retain and lure in high-skilled residents.

I think states need to take a hard look at some of the manufacturing subsidies that they give. I don't think these really necessarily help address the problems that these places face. When cities try to lure in one big mega-manufacturer, they put all the eggs back in one basket. And it might not do anything to retain high-income, high-wage workers.

And a lot of time they're zero-sum. Communities are competing against each other to lure in these manufacturers. They're cutting their taxes and eroding their tax bases. And so you'll end up with a whole state full of communities that have given large tax cuts to big manufacturers. They're still heavily exposed to manufacturing sector closings. They haven't done anything to improve their human capital. And they've eroded their tax base.

People like it because it's a simple policy. Politicians will say we cut their taxes like this and they came here. It's easy to brag about.

I understand why places do it, but I think at the state level, and even more so at the regional level, it can become a zero-sum or negative-sum game. I think states and local places would have more resources if they stopped competing with each other along that margin. It would be good if states tried to help communities to stop competing and states worked together to stop competing along that margin.