State‐level austerity, education, and large urban labor markets: Evidence from fiscal policy experiments in Kansas and Wisconsin

Abstract

AbstractIn 2011, Kansas and Wisconsin experimented with fiscal austerity policies. Proponents of the tax and public expenditure cuts argued that they would spur economic growth, while opponents claimed that it would harm vulnerable populations. I use the timing of these policies and the synthetic control method to examine how state‐level austerity affected earnings per worker for high and low education segments of the workforce in major urban areas. The results suggest that the Kansas and Wisconsin fiscal experiments hurt low education workers in some urban areas. The estimates also show heterogeneity in the treatment effect. Notably, Madison, WI, was the only urban area that experienced substantial positive growth in both education segments.