Michel Serafinelli

Monday, June 5th, 2023 — 12:00-01:00pm

Room 116, MSE

The World’s Rust Belts: The Heterogeneous Effects of
Deindustrialization on 1,993 Cities in Six Countries

Michel Serafinelli

(University of Essex)

co-authored with Luisa Gagliardi (Bocconi University) & Enrico Moretti (University of California, Berkley)

We use a newly-assembled dataset to investigate the employment consequences of deindustrialization for 1,993 cities in France, Germany, Great Britain, Italy, Japan and the United States. In all six countries we find a strong negative relationship between a city’s share of manufacturing employment in the year of its country’s manufacturing peak and the subsequent change in the city’s total employment, reflecting the fact that cities where manufacturing was initially more important experienced larger negative labor demand shocks. But this average effect masks vast heterogeneity across cities. In a significant number of former manufacturing hubs, total employment fully recovered or even exceeded initial levels, despite the loss of manufacturing jobs. Overall, 34% of former manufacturing hubs in our sample experienced employment growth faster than their country’s mean, suggesting that a surprisingly large fraction of cities was able to adapt to the negative employment shock caused by deindustrialization. We then seek to understand the causes of such differences in labor market performance across cities. We find that deindustrialization had profoundly different effects on local employment depending on the initial level of schooling of the local labor force. In particular, using an instrumental variable based on the driving distance to historical colleges and universities, we find that cities that had a high share of college graduates in the labor force in the year of their country’s manufacturing peak experienced faster subsequent total employment growth than cities with a low share of college graduates in the labor force. Our estimates imply that total employment in a city at the 75th percentile of its country’s college share distribution grew 7 percentage points faster per decade than total employment in a city at the 25th percentile. Most of this difference is due to faster employment growth in human capital-intensive services, which more than offsets the loss of manufacturing jobs.