Research for Equity in Recovery: Place-Based Strategies

The second eventin the Research for Equity in Recovery series took place on July 16 and focused on how recovery efforts can prevent the COVID-19 pandemic from widening the divide between prosperous coastal cities and distressed metropolitan regions with little high-tech growth. This session featured Timothy J. Bartik, Senior Economist, Upjohn Institute; Simon Johnson, Professor, Massachusetts Institute of Technology; and Mark Muro, Senior Fellow and Policy Director, Brookings Institution. Penn IUR Co-Director Susan Wachter moderated.

Tim Bartik spoke on using place-based strategies for equitable recovery. He began by reviewing the research on the variability of employment rates by geography, noting that these differences in local labor markets tend to persist over time; he explained that local labor market distress has high social costs (since it results in workers losing skills; crime, substance abuse, and family problems increasing; children growing up to have lower earnings; and local government experiencing greater fiscal stress a resultant reduction in public services) that help explain why problems persist. He said that the pandemic recession is likely to worsen the situation and result in more regional disparities and more regional distress than before.

Of the two types of policy solutions commonly proposed—moving people in distressed areas to jobs in other areas (migration subsidies) and moving jobs to distressed areas (place-based strategies)—Bartik came down firmly on the side of moving jobs to people. He shared research demonstrating that place-based strategies can be more cost effective, have longer-lasting effects, benefit all the people in the distressed, and improve the nation’s unemployment rate overall. He argued that current place-based policies, which now rely heavily on state and local business location incentives, can be improved: place-based strategies, he said, should target businesses with higher multipliers (such as jobs in the tech industry), use workforce programs to link new jobs with local non-employed people, and using job-creation strategies (such as infrastructure, business advice, customized job training, and land development) that are more cost effective than current policies that rely on business tax incentives.

Simon Johnson discussed the causes and implications of the growing urban divide among US cities. He focused in particular on the hyper-concentration of tech jobs in some metros, noting that a handful of US cities, mainly on the coasts, were home to many more tech jobs, patents, and venture capital. However, these “tech superstar” cities have become congested and expensive and adding housing to these places is especially difficult, as zoning restrictions and local politics stand in the way. As a consequence, people cannot afford to move to the cities that have higher wages and productivity (as would have happened in the past). The option of moving to opportunity has effectively been taken off the table for many Americans.

One way to address the hyper-concentration of tech jobs and consequent urban divisions, he said, is to use a spatial lens in the deployment of federal R&D funds. The decline in such public R&D funding (from 2 percent of GDP in the mid-1960s to 0.07 percent of GDP now) has left venture capital to fill the void, and venture capital has its own location preferences (for coastal cities) and research preferences (not basic research). To reduce geographic and economic polarization, he recommended increasing federal R&D funding and targeting it on cities with a large, college-educated workforce and low housing prices.

Mark Muro continued the focus on the geography of tech in America, presenting research on how to spread innovation to more of the country’s cities. He shared research on the concentration of innovation in a handful of “superstar” cities at the expense of most of the nation’s cities, noting that this divergence among metros has economic, social, and political costs.

He offered a solution: counter regional divergence by creating more “growth centers” across the nation. His specific proposal, backed by his research at Brookings, is to turn “heartland metros” into dynamic tech hubs using federal intervention. He recommended assembling a major package of federal innovation supports (estimated at $100b) that would include R&D funding; tax and regulatory preferences; business financing; investment in federal properties, infrastructure, and “placemaking;” workforce linkages; and "inclusion" targets. Mapping the many US cities with the potential to become growth centers, he explained that limiting the number of centers to just 10-12 would be key effecting the “innovation surge” at the heart of the proposal, and emphasized the necessity of a rigorous and competitive selection process.

Susan Wachter moderated a discussion and question-and-answer session following the presentations. To download the presentation slides, click here.