47 E 65th St
New York, NY 10065
Simeon Alder is an Assistant Professor at the University of Notre Dame.
Seminar topic: “Competitive Pressure and the Decline of the Rust Belt”
Abstract: No region of the United States fared worse over the postwar period than the “Rust Belt,” the heavy manufacturing region bordering the Great Lakes. This paper hypothesizes that the Rust Belt declined in large part due to a lack of competitive pressure. We formalize this thesis in a two-region dynamic general equilibrium model, in which non-competitive labor markets in the Rust Belt lead to a hold-up problem which reduces investment and leads employment to move from the Rust Belt to the rest of the country. Quantitatively, the model accounts for much of the large secular decline in the Rust Belt’s employment share before the 1980s, and its relative stabilization since then, as competitive pressure increased. We also provide evidence from the cross-section of U.S. cities and industries that regions and sectors with less competitive labor markets had larger employment declines. An alternative hypothesis, based on a rise in imports, is inconsistent with the timing of the Rust Belt’s decline.