Public Investment Spurred Regional Economies: Evidence from WWII
There is currently substantial interest in public policies that encourage firms to locate new manufacturing plants in regions with limited opportunities for the economic advancement of their residents. Yet whether such efforts improve economic opportunities for local workers, particularly in the longer term, remains an open question.
In The Long-Run Impacts of Public Industrial Investment on Local Development and Economic Mobility: Evidence from World War II (NBER Working Paper 32265), Andrew Garin and Jonathan L. Rothbaum study the government-led construction of manufacturing plants during World War II outside of prewar manufacturing centers. They investigate whether wartime plant construction led to long-run improvements in local labor markets that in turn benefited the individuals who were living there when the plants were built. They draw on an array of longitudinally linked administrative and survey data sources to identify individuals’ prewar birth locations and to study the impact of wartime construction on their earnings and other outcomes as adults, regardless of where they wound up.
Construction of new manufacturing facilities in rural US counties during WWII created a ladder to the middle class, particularly for sons in low-earning families.
The researchers compare counties where plants were built to similarly populated ones and present three central findings. First, wartime plant construction had large and persistent impacts on affected counties’ labor markets. In the 40 years after the war, affected counties saw typical family earnings increase by 5–10 percent, reflecting higher average wages and employment shares in manufacturing jobs, particularly semiskilled blue-collar occupations. Second, wartime plant construction substantially increased the long-run earnings of men born in affected counties in the 18 years before the start of the war, increasing their average annual wage earnings on their tax returns between 1969 and 1984 by 2.5 percent relative to those born in other counties. These effects were largest for those from families with lower prewar earnings; there were no effects on those with high-income parents. Third, the effects were larger for Black men, especially those from higher-earning families, than for White men.
Men born in counties where plants were built appear to have benefited primarily from the local expansion of higher-wage jobs to which they had access as adults, rather than as a result of human capital development during childhood. The finding that the earnings impacts were largest for children of parents with low prewar earnings suggests that local manufacturing jobs acted as a ladder to the middle class for economically disadvantaged residents.
The researchers note that while access to higher-wage jobs was a key mechanism benefiting local children after wartime plant construction, more recent plant sitings have not increased local average wages in the manner observed during World War II. In contrast to today, the postwar economy featured high global demand for US manufactured goods, limited international competition, and relatively strong unions, all of which facilitated persistent blue-collar wage gains.
— Lauri Scherer
The researchers acknowledge support from the Washington Center for Equitable Growth and the W. E. Upjohn Institute for Employment Research.
