Over 30% of Americans live in economically distressed local labour markets. With the right policies, these distressed local labour markets can be boosted to higher employment rates at a reasonable cost per job. Such policies would not only help these local labour markets, but also boost the national economy. At an extreme, if all U.S. local labour markets were brought to full employment, U.S. GDP would increase by over 6 percent.
The employment divide
Distressed local labour markets in the United States are highly varied. Such distressed places include Appalachia, and many rural areas throughout the U.S.
Distressed places also include older industrial cities such as Detroit and Flint, Michigan, and Gary, Indiana. Even in U.S. states that are high-tech powerhouses, such as California and the state of Washington, many inland areas are distressed, such as Fresno and Bakersfield, California, and Spokane, Washington.
These struggling areas do not just represent a missed opportunity. They also generate social costs, such as increased substance abuse and crime, and more family instability.
Why jobs in struggling areas matter
Why will redistributing jobs to distressed local labor markets give us better bang for our buck? Evidence from the United States says that job creation in distressed local labour markets has much greater effects on local employment rates compared to jobs in booming areas.
In thriving local labour markets, new job opportunities typically attract in-migrants who are already employed, limiting the direct benefit to the previously non-employed population. In contrast, in distressed local labour markets, 20 to 50% of newly created jobs go to individuals who were previously unemployed or out of the labour force. Simply put, by bringing jobs closer to non-employed people, these policies boost participation in the workforce, expanding total national employment levels.
In addition, job creation in booming local labour markets tends to drive up local housing prices, nominal wages, and overall local prices, contributing to inflationary pressures. By contrast, redistributing jobs to distressed local labour markets will mitigate these pressures, allowing for higher national employment without leading to an inflationary spiral.
Local jobs can be created by customised business services, which also boost business productivity
The US – along with many other countries – has tried to revive distressed communities in many ways over the years. One cost-effective job creation strategy is “customised business services”, which target specific industries or firms with services tailored to their specific needs.
“Customised business services” include tailored infrastructure development, industry-specific job training, and targeted business advisory programmes. Business-specific infrastructure includes industrial parks, research parks, and business incubators, all of which supply specific types of businesses with real estate adapted to that type of business’s needs.
Customised job training programmes, which are used in over 40 U.S. states, have community colleges or training agencies provide individual firms with free training that is adapted to that individual firm’s specific skill needs.
Business advice programmes would include “manufacturing extension services”, active in all 50 U.S. states with support from the federal government and some state governments, which provide small and medium-sized manufacturers with free or subsidised consulting advice on how to adopt new technology or move into new markets.
As shown in the figure, based on prior research, these customised services can create local jobs at a cost per job created of USD 100,000 or less. These services improve access to real estate, skilled labour, and essential business information —resources that many businesses, and in particular smaller businesses, would have trouble obtaining on their own.
Note: Present value cost per direct job created, in 2024 U.S dollars, at 3% social discount rate. Based on review of research – see Bartik, Timothy J. 2022, How State Governments Can Target Job Opportunities to Distressed Places, Upjohn Institute Technical Report No. 22-044.
These costs are well worth the social benefits of a persistent increase in local employment rates, which may exceed USD 1 million per job created. In distressed communities, local job creation will have high social benefits by persistently raising local employment rates and real earnings per capita, as well as lowering local crime and strengthening families.
Providing businesses with better real estate, labour and information not only fosters job creation but also increases business productivity. Over time, as firms in distressed areas receive targeted assistance, their improved performance contributes to overall national productivity gains. These businesses will benefit from better locations and a more productive workforce and be better adapted to the latest technology and to growing markets.
Targeted support, bigger gains
In short, boosting job creation in distressed local labour markets should not be seen as a zero-sum game.
Policies that promote employment growth in these areas — particularly through customised businesses services – can boost both national employment and national productivity, while strengthening social outcomes in places that have a proud history. And that is a prize worth fighting for.
To learn more about how distressed communities can contribute to national competitiveness, see our new publication Strengthening Regional Policy for Resilient Places and explore related OECD work below:
Tim Bartik is a senior economist at the Upjohn Institute for Employment Research,where he has worked since 1989. He co-directs the Institute’s research initiative on place-based policies. Bartik has written widely on state and local economic development policies.Some recent publications include: “How Place-Based Policies Can Help American Workers Thrive” (Economic Innovation Group, 2024); Using Place-Based Jobs Policies to Help Distressed Communities” (Journal of EconomicPerspectives,2020); andhis2019book, Making Sense of Incentives: Taming Business Incentives to Promote Prosperity. Bartik received his Ph.D. in economics from the University of Wisconsin in 1982.