Are the most productive regions necessarily the most successful? Local effects of productivity growth on employment and earnings

Abstract

AbstractEconomists typically celebrate productivity growth as the chief way to improve living standards. Productivity growth may reduce costs, improve quality, or lead to innovation and new products, but if demand is insufficiently elastic, productivity growth can lead to weakening of labor markets. We study county‐level effects of productivity growth and productivity levels on growth in employment, income, and earnings. The results suggest that productivity growth generally suppresses job growth but has boosting effects on earnings and, to a lesser degree, on per‐capita income, although there is considerable variation across geographies and specific outcomes.