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

41 Pages Posted: 4 Apr 2015

See all articles by Simeon Alder

Simeon Alder

University of Wisconsin - Madison - Department of Economics

David Lagakos

University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1, 2014

Abstract

No region of the United States fared worse over the postwar period than the "Rust Belt," the heavy manufacturing zone bordering the Great Lakes. We argue that a lack of competition in labor and output markets in the Rust Belt were responsible for much of the region's decline. We formalize this theory in a dynamic general-equilibrium model in which productivity growth and regional employment shares are determined by the extent of competition. When plausibly calibrated, the model explains roughly half the decline in the Rust Belt's manufacturing employment share. Industry evidence support the model's predictions that investment and productivity growth rates were relatively low in the Rust Belt.

Keywords: Rust Belt, competition, productivity, unionization, monopoly

JEL Classification: E24, E65, J3, J5, L16, R13

Suggested Citation

Alder, Simeon and Lagakos, David and Ohanian, Lee E., The Decline of the U.S. Rust Belt: A Macroeconomic Analysis (August 1, 2014). FRB Atlanta CQER Working Paper No. 14-5, Available at SSRN: https://ssrn.com/abstract=2586168 or http://dx.doi.org/10.2139/ssrn.2586168

Simeon Alder

University of Wisconsin - Madison - Department of Economics ( email )

William H. Sewell Social Science Building
1180 Observatory Drive
Madison, WI 53706-1393
United States

David Lagakos

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lee E. Ohanian (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
8283 Bunch Hall
Los Angeles, CA 90095-1477
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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