While history treats recessions as a temporary blip, new research finds that areas hit hardest by recession may never regain their footing. A new policy brief “The Enduring Local Harm from Recessions” finds that areas enduring severe recessions suffer effects long after the national economy recovers.
The findings are especially relevant during the COVID-19 economic crisis, which has dealt devastating job losses in record time.
Brad Hershbein of the Upjohn Institute and Bryan A. Stuart of George Washington University looked at the five recessions preceding the pandemic crisis, comparing metropolitan areas with severe job losses to those with smaller losses. Hard-hit areas never returned to their prerecession employment growth trajectories, they found. These metros experienced meager recoveries after two of the studied recessions and no recoveries at all from the other three recessions.
Job losses also affect metro areas’ populations, as fewer people move into hard-hit areas, although population does not decline as much as employment. Consequently, the share of people with jobs in a badly affected area also takes a persistent hit. Additionally, incomes are lower, with per capita earnings 1 to 5 percent below where they would be without a recession.
While the economic effects of the coronavirus response highlight the challenges in scaling up social safety net programs quickly enough, Hershbein and Stuart point out the need for programs that work over a longer term. Unemployment insurance, food stamps, and one-time grants soften the blow to metro areas, they write, but don’t lead to recovery.
For that, policymakers should consider long-term programs that build workers’ skills and help businesses retool. In addition, given that effects of recessions stretch longer than previously thought, criteria for funding local employment services and job training could consider a region’s economic conditions over a longer time period.