Policy and the Structure of Urban Economies

Abstract

This dissertation studies how transportation, regional job loss, and local fiscal policy shaped the spatial organization of economic activity in American cities. We first focus on Philadelphia, where the late nineteenth and early twentieth centuries brought new transportation technologies that transformed the geography of work and residence. Electrified transit allowed central business districts to specialize as employment centers, especially for professional services, while surrounding urban neighborhoods became increasingly specialized in residential and industrial uses. This growing specialization in land use helped define the economic structure of the Northern city by the early twentieth century. This inherited urban structure shaped the consequences of later shocks. As manufacturing employment moved from the U.S. North to the U.S. South after 1940, Northern regions more exposed to Southern industrial growth experienced persistent declines in manufacturing employment, limited offsetting gains in services, and reductions in overall employment rates. Northern deindustrialization reduced wage and salary income among low-wage workers, especially Black men, and was followed by broader social and economic consequences, including more intense urban unrest, greater reliance on government transfers, and lower intergenerational mobility. Because manufacturing had been concentrated in more central parts of metropolitan areas, these shocks contributed to the differential decline of inner-city neighborhoods and broader postwar suburbanization. The last chapter studies how municipal finance in declining industrial cities, under pressure from the forces described in the second chapter, further reinforced suburbanization. We examine Philadelphia's wage tax, which taxes residents regardless of workplace and suburban residents who work in the city. Using a spatial regression discontinuity design at city boundaries, we show that increases in the wage tax sharply reduced commuting from nearby suburbs into the city, while subsequent tax reductions increased it. We then embed this elasticity in a quantitative spatial model to estimate how the tax affects the location of employment once wages and rents adjust. The results imply that replacing the wage tax with a non-distortionary land value tax would bring substantial employment back into Philadelphia, with larger gains when allowing for productivity agglomeration forces. Together, the chapters show how the modern American city was shaped by the interaction of transportation technology, deindustrialization, and local public finance. Transportation innovations helped produce a more specialized urban geography; manufacturing shocks exposed the vulnerabilities of that specialization; and local tax policy both reflected and reinforced the fiscal consequences of urban decline and suburbanization.